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News and Press Releases |
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HEADLINE:
Wall St. Firms May Have Broken IPO Rules-Documents
By: Chris Sanders - Reuters
Forbes.com. December 4, 2003
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EXCERPT: Months after vowing to change the way they conduct business, some of Wall Street's biggest banks are still unable to follow all the rules when they sell shares of companies going public, government documents show. The companies, in recent regulatory filings, said research analysts e-mailed initial public offering data and underwriters allowed staffers to send out summarized prospectuses to certain investors. Securities laws require IPO information to be provided on an equal basis to potential investors. "It is highly unlikely that such disclosures would have appeared in prospectuses 24 months ago," said Jacob Frenkel, a partner with Smith, Gambrell & Russell LLP in Washington. Market watchers called the missteps unfortunate at a time of heightened regulatory scrutiny, especially when initial public offerings have just begun to pick up steam. Wall Street also is still trying to regain investor trust after reaching a $1.4 billion global settlement with federal and state regulators over stock research practices. "It is not recommended in general, but especially not now," said Michael Malloy, a law professor at the University of the Pacific in Sacramento, California, referring to the missteps. Oil and gas exploration company Whiting Petroleum Corp. in a November filing with the Securities and Exchange Commission about its IPO, said "one of the underwriters distributed unauthorized written materials relating to our company to at least one potential institutional investor." The information, such as estimated development costs, was not included in the initial IPO prospectus, Whiting said. Sources familiar with the IPO said the underwriter was Lehman Brothers Holdings. Lehman declined to provide any comment for this story. Whiting said the underwriter's action may have violated the Securities Act of 1933, which requires that prospectuses be sent out in their entirety, without bias toward any portion of the documents. Whiting said in the filing that "one of the underwriters" on the deal promised to pay for any potential damages arising from the infraction. A similar misstep occurred in the October sale of new shares for trucking company Overnite Corp. Overnite said in an SEC filing that an analyst at underwriter J.P. Morgan Chase & Co. e-mailed earnings projections for the company that were not included in the initial prospectus. An employee at BB&T Capital Markets, a unit of BB&T Corp. also sent out unauthorized written materials to potential investors on the deal, the filing said. BB&T's official role in the IPO was not spelled out in the prospectus. And just last week, Bear Stearns delayed a new stock offering for Open Solutions Inc. after an underwriting team member e-mailed to a potential investor a Bear analyst's purported predictions of the company's revenue and profit. Bear and J.P. Morgan declined to comment. A BB&T spokesman said, "This has been disclosed in the prospectus, and the prospectus speaks for itself." Shares of Whiting, Overnight and Open Solutions all rose on their first day of trading.
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