Blank-Check IPOs Probed

In the mid-1990s, GKN managed about a dozen blank-check IPOs, which the firm calls "specified purpose acquisition companies," or SPACs. GKN even applied in 1992 to trademark the name, and EarlyBird has resurrected the SPAC name in its latest blank-check offerings. But GKN's monopoly in blank checks came to a crashing halt in 1997, when the NASD ordered the firm and 29 brokers and supervisors to pay more than $2 million in fines and restitution to settle allegations they had overcharged investors buying shares in eight newly minted stocks. The regulators alleged that GKN had excessive markups on the shares because it essentially controlled their post-IPO trading.

Some of the stocks GKN allegedly gouged investors on were the same blank-check companies it had taken public.

In an interview with TheStreet.com last summer, Nussbaum dismissed the regulatory problems at GKN as ancient history and says it should have no bearing on EarlyBird. He said the regulatory violations at GKN involved post-IPO trading, and EarlyBird doesn't make a market in the stocks of companies it takes public.

But a person familiar with the latest investigation says one thing regulators are looking into is the relationship between EarlyBird and some of the firms that serve market-makers for its blank-check IPOs.

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