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A 3-year-old acquisition came back to haunt

J.P. Morgan Chase

(JPM) - Get JPMorgan Chase & Co. Report

Thursday, when securities regulators fined it $6 million for violations committed by Hambrecht & Quist, the boutique investment bank it bought in 2000.

The NASD, formerly the National Association of Securities Dealers, alleged that H&Q, which specialized in underwriting technology companies, took kickbacks from customers in exchange for shares in hot initial offerings.

In other words, H&Q customers seeking shares in IPOs were allegedly forced to pay inflated trading commissions. In one instance, the NASD found that H&Q's commission revenue increased from $590,000 on the day before an IPO to $2.2 million the day of the IPO.

Regulators allege that 90 customers were pressured by H&Q bankers to pay the higher commissions for shares in a dozen IPOs managed by the investment bank. H&Q customers were willing to pay the extra dollars because in the heyday of the bull market, hot tech IPO shares regularly doubled or tripled in value the day they were sold.

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"Managers of hot IPOs are not entitled to capitalize on the immediate increase in the market price of those shares by receiving inflated commissions and sharing in their customers' profits," said Mary Schapiro, NASD's vice chairwoman and president of regulatory operations.

The kickbacks happened before J.P. Morgan bought H&Q, the NASD said.

The charges, which J.P. Morgan neither admitted nor denied, are similar to ones leveled last year against Credit Suisse First Boston. That investigation ended with CSFB, a division of

Credit Suisse Group


, paying a $100 million fine.

The irony is that there isn't much left of H&Q following the prolonged bear market. The drought in IPOs and the demise of many tech companies has led J.P. Morgan to lay off most of H&Q's analysts, investment bankers and stock traders. Many of the old H&Q's offices on the West Coast have been merged with J.P. Morgan offices.