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 Report

for alleged IPO "laddering." The agency also indicated

J.P. Morgan Chase's

(JPM) - Get Report

securities unit could face similar civil charges.

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.