Securities and Exchange Commission
filed charges today against Credit Suisse First Boston, the New York broker-dealer and investment bank, for abusive practices relating to the allocation of stock in "hot" initial public offerings.
The commission said CSFB, part of
Credit Suisse Group
, has agreed to pay $100 million to resolve the charges and a related action by National Association of Securities Dealers Regulation. CSFB agreed to avoid further infractions and to institute new procedures designed to prevent similar misconduct in the future.
"CSFB improperly took advantage of its position as underwriter by allocating shares of hot IPOs to customers who agreed to share their IPO profits by paying excessive commissions," Stephen M. Cutler, the director of the SEC's Division of Enforcement, said in a statement.
In a complaint filed in the U.S. District Court for the District of Columbia, the SEC charged CSFB with violating certain conduct rules of the NASD, which prohibit profit-sharing in customer accounts and unjust or inequitable conduct. The commission also charged that CSFB violated the SEC's books-and-records requirements for broker-dealers.
The complaint alleged that CSFB, as the lead underwriter of IPOs for companies such as
(now known as
, had control over the allocation of most of the shares in these IPOs. In exchange for some of the stock in the offerings, "CSFB wrongfully extracted from certain customers a large share of the huge profits those customers made in quickly selling (or flipping) the IPO stock bestowed on them by CSFB," the SEC said.
Specifically, the commission said, CSFB allocated shares of IPOs to more than 100 customers who, in return, funneled between 33% and 65% of their IPO profits to CSFB. The customers typically sold the stock on the day of the offering, often collecting big profits. The customers then transferred a share of their gains to CSFB by way of excessively high brokerage commissions.
CSFB agreed to settle the matter without admitting or denying the allegations in the complaint. The settlement terms need to be approved by the court.