Firms Receive Data Requests - SEC Steps Up IPO Probe!

The Wall Street Journal reports that securities regulators are stepping up efforts to investigate how Wall Street dealers allocate hot initial public stock offerings.

In subpoenas sent to three major securities firms this week, including Goldman Sachs Group, Morgan Stanley Dean Witter and Bear Stearns, the SEC is seeking extensive records of any large stock-trading commissions received by the firms during the past two years, as well as lists of investors to whom the firms doled out IPOs. Merrill Lynch, the Salomon Smith Barney unit of Citigroup, and Lehman Brothers Holdings have not received any requests from the SEC at this time.

All records subpoenaed by the SEC are due Monday of all trades over 10,000 shares or more that carried commissions exceeding 10 cents a share during 1999 and 2000, as well as lists of which investors got shares in IPOs led by those securities firms in the same period.

As reported last week in the WSJ, the SEC and the U.S. attorney's office in Manhattan have launched a joint investigation into whether some investors paid hefty stock-trading commissions in exchange for shares of hot IPOs that surged in price on their first day of trading, and whether those payments constituted illegal kickbacks.

The federal authorities are examining whether the payment of large commissions helped some investors obtain more shares of some hot IPOs. In many cases, according to Wall Street traders, hedge funds (which invest on behalf of wealthy individuals) and other investors paid commissions as high as 50 cents to $1 a share in exchange for the IPO shares.

Among the items sought by the SEC are "all documents related to underwriter compensation for all IPOs" in 1999 and 2000, according to one subpoena. It also seeks "all documents relating to the valuation and pricing for all IPOs," and sales materials for the offerings, as well as lists of recipients of IPO share.

The probe began after the SEC received an anonymous letter in the summer outlining possible IPO-allocation abuses at Credit Suisse First Boston, a person familiar with the matter says. Around the same time, the SEC began conducting a routine exam of that firm.

The extraordinary first-day price gains of IPOs in 1999 and 2000 created the opportunity for staggering profits for those investors lucky enough to obtain them. However, they also represented money "left on the table" by the companies that sold the stock in the IPOs, since they could have received more IPO proceeds if their issues had been priced at a higher level.

A recent calculation by Jay Ritter, a professor of finance at the University of Florida, estimated that the amount "left on the table" reflecting this "underpricing" surged to $35.2 billion in 1999 and $29.9 billion so far this year.

Story provided by the Wall Street Journal.

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