SEC Reportedly Targets Goldman, J.P. Morgan in Laddering Probe
The
Securities and Exchange Commission
has reportedly recommended filing charges of civil securities fraud and market manipulation against
Goldman Sachs
(GS) - Get Goldman Sachs Group, Inc. Report
for alleged IPO "laddering." The agency also indicated
J.P. Morgan Chase's
(JPM) - Get JPMorgan Chase & Co. Report
securities unit could face similar civil charges.
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The agency's notification to the two firms, reported in Wednesday's
Wall Street Journal
, marks a step up in its investigation into laddering -- when investors get early shares of hot initial public offerings from underwriters after they indicate they plan to buy more stock later at higher prices.
Laddering has been cited as a possible explanation for the unprecedented run-up in opening-day prices of IPOs in the late 1990s. Those triple-digit one-day gains often burned individual investors as the inflated stocks fell back.
In a statement, a Goldman spokesman said, "We categorically deny any allegations of wrongdoing ... and believe there is no basis for the SEC to take such a position." A J.P. Morgan spokeswoman also denied any wrongdoing.
According to the
Journal
, the agency's enforcement staff sent the warning of the possible charges to Goldman in mid-October. The J.P. Morgan notice came more recently and did not involve Hambrecht & Quist Group, which Chase Manhattan acquired before the Chase-Morgan merger.
The laddering developments -- on top of recent revelations of allegedly spinning hot IPOs to executives as a quid pro quo for new underwriting business -- come as Wall Street firms and regulators move toward a global settlement of the various investigations into alleged fraud and abuse by the firms.
