Thomas Weisel Partners to Pay $1.75 Million to Settle NASD Charges of IPO, E-Mail Retention Violations
Washington, D.C.—NASD announced today that it has ordered Thomas Weisel Partners of San Francisco, CA to pay $1.75 million for engaging in improper initial public offering (IPO) allocation practices and for failing to retain e-mails. That total represents $1.3 million in ill-gotten profits and an additional $450,000 fine.
NASD found that during 1999 and 2000, Weisel received unusually high commissions from certain institutional customers within one day of Wiesel's allocating shares of hot IPOs to those customers. The firm accepted these commissions, which were sometimes more than $1 per share, in connection with institutional-sized agency trades in highly liquid securities. These commissions were far in excess of a typical rate of six cents per share for such transactions, and the services Weisel provided did not justify the excessive commission amounts that were paid. Despite the receipt of such excessively high commissions, Weisel made no inquiries into the transactions.
"There was no legitimate reason to pay hundreds of thousands of dollars more than other firms would have charged to carry out routine trades," said NASD Vice Chairman Mary L. Schapiro. "By accepting high payments under these circumstances, Thomas Weisel Partners failed to observe the high standards of commercial honor and just and equitable principles of trade demanded by NASD rules."
NASD found that Weisel was an active manager of underwritings during the Internet boom and participated in a number of hot IPOs during the period at issue. Many of those IPOs exhibited price increases of more than 100 percent over the public offering prices at the opening of trading on the first day. Customers who were successful in obtaining IPO shares from Weisel in such offerings stood to make significant profits by selling those shares in the immediate aftermarket.
NASD found that in nine transactions on one day - March 3, 2000 - three customers paid Weisel over $1.2 million in unusually high commissions to execute institutional-sized trades in liquid securities, at commission rates of $1 per share and above. At $.06 per share, commissions for the transactions would have totaled just $122,400. On the same day, the customers received large allocations of two hot IPOs.
NASD found that one of those customers paid Weisel $670,800 in commissions on two trades - at commission rates of $1.08 per share and $1.20 per share. These payments resulted in commissions $635,400 greater than if the customer had paid a commission of $.06 per share. On the same day, the customer received allocations of 58,000 shares of an IPO that increased over 286 percent from the public offering price on that day, and 1,000 shares of an IPO that increased more than 139 percent from its public offering price. Had the customer sold the IPO shares at the close of trading on the day of the IPO, the customer would have realized profits of over $4 million.
NASD also found that, from January 1999 through the third quarter of 2001, Weisel violated recordkeeping rules by failing to ensure that e-mails were kept for the required minimum three-year period. Under Weisel's system, the firm's employees could permanently delete e-mails from the firm's e-mail system and the firm lacked an adequate mechanism to save internal e-mail for associated persons. As a result, Weisel was unable to produce all of its e-mails to NASD.
In settling with NASD, Weisel neither admitted nor denied the charges, but they consented to the entry of NASD's findings.
Investors can obtain more information and the disciplinary record of any NASD-registered broker or brokerage firm through NASD's BrokerCheck. NASD makes BrokerCheck available at no charge to the public. In 2004, members of the public used this service to conduct nearly 3.8 million searches for existing brokers or firms and requested more than 190,000 reports in cases where disclosable information existed on a broker or firm. Investors can link directly to the program by going online to http://www.nasdbrokercheck.com. Investors can also access this service by calling (800) 289-9999.
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