J.P. Morgan Chase
will pay $25 million to settle
Securities and Exchange Commission
allegations that it strong-armed clients into creating artificial demand in initial public offering shares back in the bubble years.
The allegations cover a period from 1999 through 2000 and involve SEC and
rules that require equitable treatment of clients in equity trades. The company's J.P. Morgan Securities unit was alleged to have required investors who wanted shares in hot IPOs either to commit to secondary-market purchases in the days after the deal priced, or to buy shares in less-desirable new issues.
The settlement, which resembles penalties ladled out to
Credit Suisse First Boston
( FBF) in the last year or so, is another triumph of email detective work. The SEC press release announcing the fine included the following examples of damning electronic communication:
In an IPO for Large Scale Biology Corp. , a sales representative said in an email that she "was very aggressive in pushing the customer for aftermarket action -- stressing how important it was going to be for the process."
In the IPO of Dyax , a sales representative told the syndicate desk in an email, "If the customer gets 50,000 shares, he will buy 50,000 more (up to $16). If need be, I will tell him to increase his aftermarket price sensitivity to a higher number."
In the August 1999 IPO of Interactive Pictures, the head of Global Equity Capital Markets sent an email to regional sales managers and the head of a syndicate, saying a customer "owe s it to us to be in buying the stock today"; that "we should push another customer today and if they don't show up, keep them out of these tiers going forward;" and "let's make another customer show up today."
In an email about the Genentech ( DNA) IPO, a sales representative said that an institutional customer "followed up in the aftermarket exactly as promised (every share through us)."
When demand was flagging for Biopure's ( BPUR) deal in July 1999, the head of a syndicate said shares in a better IPO would be available for clients who helped out. "IPIX allocations (very strong deal) will be heavily weighted toward those investors that participated in the Biopure offering ... Given that we have fully allocated all accounts in the Biopure deal ... it is extremely important that your investors take these allocations. I want to reiterate that we will provide you with the means to reward these clients."
J.P. Morgan consented, without admitting or denying guilt, to a final judgment that would permanently enjoin it from violatingRule 101 of the Commission's Regulation M and NASD Conduct Rule 2110.