Morgan Stanley and Goldman Sachs agreed yesterday to pay $40 million each to settle regulators' allegations that they improperly doled out...
WASHINGTON — Morgan Stanley and Goldman Sachs agreed yesterday to pay $40 million each to settle regulators’ allegations that they improperly doled out shares of hot new stocks to certain customers to get them to buy more at inflated prices once trading began.
The brokerages neither admitted to nor denied the allegations made in two civil lawsuits by the Securities and Exchange Commission (SEC). The Wall Street firms also agreed to refrain from further violations. The settlements are subject to approval by federal courts in New York and Washington, D.C.
The violations of securities laws and brokerage-industry rules allegedly occurred in 1999 and 2000, during the height of the tech-stock boom and the frenzy of initial public offerings of stock, known as IPOs.
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The fines are the latest in a series of enforcement cases brought over the past few years by the SEC and the disciplinary arm of the National Association of Securities Dealers, the industry’s self-policing group.
In its suit against Morgan Stanley, the SEC alleged the firm induced some customers who had received IPO stock from the firm to purchase additional shares during the new issue’s first few public trading days. In some cases, the suit alleges, Morgan Stanley sales representatives suggested specific prices the customer should pay for the stock after it went public.
Goldman Sachs engaged in similar conduct, the SEC charged, leading customers to believe they would get favorable allocations of IPO stock if they agreed to purchase more stock at much higher prices after the public offering.
The rules against such conduct are designed to prevent the artificial pumping up of stock prices through purchases that are induced.
SEC enforcement director Stephen Cutler said the cases “underscore the commission’s resolve to ensure the integrity of IPO markets by prohibiting conduct that could artificially stimulate demand or higher prices in the aftermarket — whether or not there is manipulative effect.”
The lawsuits did not name any individuals at either company.
“We’ve been working with the SEC staff to finalize terms of the settlement and we’re happy this has now been resolved,” Morgan Stanley spokeswoman Melissa Stonberg said.
A spokesman for Goldman Sachs did not return a call seeking comment.
Morgan Stanley paid a $50 million fine in 2003 to settle charges that it pushed investors toward certain “preferred” mutual funds in order to gain millions more in commissions. The company also paid $54 million last year to settle allegations of sex discrimination.