By H. Bernstein - Contributing Columnist
Sending Email An IPO allocation scandal leads to $15 million in fines for Bear
Stearns, Deutche Bank and Morgan Stanley.Visit our AXcess News
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Storing Email May 21, 2004 (AXcess News/StockPatrol) New York - Improper
initial public offering (IPO) practices have landed some of Wall
Street's leading firms in hot water - again. Bear, Stearns &
Co. Inc., Deutsche Bank Securities, Inc. and Morgan Stanley &
Co. Inc. have been censured by the NASD and will pay fines of more
than $15 million because they engaged in improper IPO allocation
practices. The penalties broke down like this: Bear Stearns - $4.95
million; Deutsche Bank - $5.29 million; and Morgan Stanley - $5.39
million.
There are some things that you can do to make your online experience a little bit easier. There are some ways to keep spam from ruining your day. Spam filters are one of those things. Spam filters are an extremely successful way of managing or stopping unwanted emails, but occasionally they can work too well. While they can act very vigorously to keep your inbox from receiving spam, they can also prevent you from getting many of your wanted emails as well.
Email Software IPOs are considered "hot" and are in demand when investors and
investment bankers anticipate
that share prices will soar immediately after the offering. In
the late 1990s, shares in many "hot" IPOs opened well above the
offering price - referred to as a premium - and quickly
skyrocketed several hundred percent.The three firms sanctioned
this week violated industry standards and NASD rules by charging
unusually high commissions to certain "preferred" customers on
agency trades within one day of allocating shares in "hot" IPOs
to those same customers. The NASD found that in late 1999 and
early 2000, Bear Stearns, Deutche Bank and Morgan Stanley each
acted as the lead or co-lead manager for hot IPOs that opened
for trading at premiums of 50 percent or more over their public
offering price. Customers who were fortunate enough to receive
allocations of those IPOs stood to make significant immediate
profits by selling those shares in the
aftermarket.AdvertisementAs it turns out, some customers paid a
heavy price for that privilege. Each of the three firms accepted
very high commission payments for executing
mail that is both unsolicited by the recipient and sent in substantively identical form to many recipients. Thus, mail. Some definitions of spam specifically include the aspects of email that is unsolicited and sent in bulk. Spam filter is a program that is used to detect unsolicited and unwanted email and prevent those messages from getting to a user's inbox. Like other types of filtering programs, a spam filter looks for certain criteria on which it bases judgments.
Antispam Software Institutional-sized agency trades in liquid listed securities.
According to the NASD, those commissions were far in excess of the
typical rate of six cents per share. Within one day of accepting
those exorbitant payments, each firm allocated hot IPO shares to
those same customers.
opportunity to give you a reply. At the end of your messages you might want to ask the recipient to send you a return email just saying "got it". We all agree that spam is a very serious problem. These days, many email providers and ISPs have appointed themselves to be the "information police" and are employing various schemes to try to recognize and block messages that constitute spam. Unfortunately, these mail filtering or blocking techniques are
Fight Spam Here's an example of how it worked. In November 1999, Bear
Stearns allocated 125,000 hot IPO shares to one of its customers.
The share price increased over 84% on the first day of trading,
providing the customer over $1 million in profits. On that same
day, the customer sold 50,000 shares of a highly liquid listed
security through Bear Stearns and paid the firm $2 per share for a
total commission of $100,000 although the typical charge of six
cents per share would have amounted to only $3,000.Similarly, in
March 2000, Deutsche Bank allocated to a customer 25,000 shares of
Fairmarket, Inc., a hot IPO that increased over 185%, from $17.00
to $48.50, on its first day of trading. Within one day of receiving
these shares, this customer paid Deutsche Bank $1 per share to
execute five listed agency trades and 40 cents per share for the
execution of five additional listed agency trades. The customer
paid the firm $800,000 for these trades - $737,000 more than a
typical commission rate of six cents per share.
Stoping Spam Morgan Stanley engaged in a similar practice when it allocated
1,000 shares of a hot IPO to a customer at the offering price of
$35 per share. At the close of the first day of trading, the share
price had increased to $212,625, providing for profits of $177,625.
On that same day, the customer paid Morgan Stanley $3 per share to
execute an agency trade of 20,000 shares of a listed security. This
payment was $58,800 more than would have been paid at a typical
rate of six cents per share.Once again, the firms were betrayed by
their own email records. The NASD found that internal emails
reflected unusually high commissions on or near the days the firms
allocated the IPO shares to these customers. For example, a broker
at Bear Stearns noted that the customer is "paying $1 per today on
[150,000 shares]. Happy with [hot IPO] allocation of 25,000." A
Deutsche Bank email stated, "Dave @[BR] thanks you for the Foundry
allocation. He is giving us a $1.00 commission on a hundred
thousand shares this morning." A Morgan Stanley email noted,
"[Customer] was very appreciative of his [hot IPO] allocation. By
way of other business, he bought 90,000 shares of [liquid listed
security] in the aftermarket today and paid the firm .30 per share.
Many thanks for your help."
Block Spam In these instances, the NASD concluded, the extremely high
commissions were not justified. "There was no legitimate reason to
pay these firms millions of dollars more than other firms would
charge to carry out routine trades," according to NASD Vice
Chairman and President of Regulatory Policy and Oversight, Mary L.
Schapiro. "By accepting high payments under those circumstances,
these firms failed to observe the high standards of commercial
honor and just and equitable principles of trade demanded by NASD
rules," Ms. Schapiro stated.The NASD says that it is continuing to
focus on abuses in the IPO allocation process.
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