NASD Fines and Suspends Two CSFB Execs for Failing to Prevent IPO Profit Sharing Paybacks
Washington, D.C. — NASD today announced that it fined and suspended two Credit Suisse First Boston (CSFB) executives for failing to supervise and prevent the firm from receiving excessive commissions in exchange for allocations of "hot" Initial Public Offerings (IPOs). J. Anthony Ehinger, Global Head of Equity Sales, and George W. Coleman, the firm's Institutional Listed Sales Trading Head, were fined $200,000 each and both suspended for 60 days - 30 days in all capacities plus another 30 days as supervisors.
Today's case is related to the January 2002 enforcement actions in which NASD and the SEC fined CSFB $100 million for extracting tens of millions of dollars from customers in inflated commissions that amounted to a "profit sharing" arrangement for allocations of "hot" IPOs, http://www.nasdr.com/news/pr2002/release_02_005.html. NASD determined that CSFB's IPO profit sharing practice was widespread, affecting more than 300 accounts serviced by the firm's Institutional Sales Trading Desk, its Private Client Services (PCS) Group and its PCS Technology Group. Ehinger supervised all three units and Coleman, who reported to Ehinger, supervised the Institutional Listed Sales Trading Desk.
Separately, NASD also suspended four former CSFB employees for one year and fined them $30,000 each for failing to provide NASD with timely testimony in this matter. They are Scott M. Brown, Richard Scott Bushley, Michael S. Grunwald and John E. Schmidt. All of these individuals were employed in the firm's PCS Technology Group in San Francisco.
In today's action against Ehinger and Coleman, NASD found that the departments under their supervision executed thousands of transactions with excessive commissions, influenced CSFB's IPO allocations to customers who paid excessive commissions, and developed reports tracking both the amount of commissions paid by customers and as well as their IPO profits. Ehinger and Coleman created a tracking document they called the New Issue Performance Report (NIPR) to track the commissions paid by certain accounts, and the profit that each such account would have made if it sold its IPO shares on certain dates. Using this report, Ehinger and Coleman and some of their subordinates encouraged customers to increase their commission payments if they believed the customers' IPO profits were too high in relation to the commissions paid to the firm. Ehinger and Coleman both discussed with their subordinates their goal to have certain accounts pay commissions amounting to as much as one-third of their profits. They also discussed ratios of profits to commissions with CSFB's Syndicate Desk in connection with efforts to increase commission revenue and to influence IPO allocation decisions.
Although Ehinger and Coleman communicated with CSFB's Legal and Compliance Department about whether, in general, high commissions could be accepted by CSFB, Legal and Compliance was not informed of the magnitude and scope of excessive commission rates being paid to the firm, or the existence of the NIPR. While Ehinger's and Coleman's contacts with the department are a mitigating factor, those contacts were insufficient to discharge their supervisory responsibilities.
In settling these matters, all respondents neither admitted nor denied the allegations.
NASD acknowledges the assistance and cooperation of the SEC's Northeast Regional Office in this matter.
Investors can obtain more information about NASD as well as the disciplinary record of any NASD-registered broker or brokerage firm by calling (800) 289-9999, or by sending an e-mail through www.nasdr.com.
NASD is the leading private-sector provider of financial regulatory services, dedicated to bringing integrity to the markets and confidence to investors through effective and efficient regulation and complementary compliance and technology-based services. NASD touches virtually every aspect of the securities business -- from registering and educating all industry participants, to examining securities firms, enforcing both NASD rules and the federal securities laws, and administering the largest dispute resolution forum for investors and member firms. For more information please visit www.nasd.com.