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Posted on 10/02/2002 10:27:11 PM PDT by anymouse
Wall Street powerhouse Goldman Sachs gave officers or directors of 21 favored investment banking clients access to lucrative initial public offerings it managed, said a congressional committee on Wednesday in a scathing report Goldman slammed as "rubbish."
The so-called "spinning" of IPOs by Goldman occurred from 1996 to 2000 and allowed numerous high-profile corporate executives to reap hefty profits from new, red-hot, mostly technology and telecommunication issues, said the report from the House of Representatives Financial Services Committee.
Among those who received the IPO share access from Goldman were former Enron Corp. Chairman Kenneth Lay and former Tyco International chief Dennis Kozlowski, said the committee chaired by Ohio Republican Rep. Michael Oxley.
The committee also said it found that Swiss-owned finance group Credit Suisse First Boston spun IPOs to former WorldCom Inc. head Bernard Ebbers.
The IPOs spun by Goldman and CSFB to the privileged few included those of Yahoo Inc., eBay Inc., Global Crossing, Lucent Technologies and many others, according to the committee's report.
"Some officers and directors were given access to and purchased hundreds of Goldman-led IPOs ... CSFB and Salomon Smith Barney also allocated IPO shares to banking clients," the committee said.
The findings came amid seemingly daily revelations of deep conflicts of interest within Wall Street's richest and most powerful financial houses, contributing to a persistent crisis of confidence in U.S. stock markets.
"There is no equity in the equities markets. I call on every Wall Street firm to show respect for America's individual investors by reforming these corrupt practices immediately," said Oxley in a statement.
Responding to the committee's report, Goldman Sachs spokesman Lucas van Praag said, "We think the committee's statement is highly misleading and in our view an egregious distortion of the facts. The suggestion that Goldman Sachs was involved in 'spinning' or any other inappropriate actions relating to IPO allocation is simply wrong."
GOLDMAN: INFORMATION ACCURATE, INFERENCE WRONG
"Our investment bankers did not play a role in determining how shares were allocated and our banking clients did not receive favored treatment. The information (in the report) is accurate, but the inference that the committee has chosen to draw is completely inaccurate. It's rubbish."
A CSFB spokeswoman said, "We continue to support government and regulatory authority as we work together on initiatives to restore investor confidence."
Top brass of Goldman Sachs, one of the financial world's proudest organizations, met here last week with market regulators, along with officers of Citigroup Inc. (NYSE:C - News), to try to settle numerous probes of IPO and research practices.
Citigroup's Salomon Smith Barney investment banking unit has revealed that it allocated large numbers of shares to top WorldCom Inc. executives, including Ebbers, who made $11.1 million over four years off the stock offerings.
Salomon is being investigated over whether it offered shares in IPOs to executives of client firms as a way to win investment banking business. Former Salomon star telecomsanalyst Jack Grubman is under investigation by securities regulators for possible conflicts of interest in his positive ratings on telecommunications companies that were nosediving.
Securities and Exchange Commission Chairman Harvey Pitt has signaled he is pushing for drastic change in these areas, even as hard-charging New York Attorney General Eliot Spitzer continues to investigate, having won a major, related settlement earlier this year from Merrill Lynch.
The Financial Services Committee said its probe found IPO shares were frequently awarded by investment banks to favored banking clients as a way of retaining or winning business, and that stock analyst research was used "to hype companies that were investment banking clients."
"POSSIBLY ILLEGAL" IPO UNDER-PRICING SEEN
The committee said it found "possibly illegal under-pricing of IPO shares, potentially improper due diligence in bringing companies to the public markets and questionable use of analytics by analysts to justify unrealistic price targets."
In the mid-to late 1990s through early 2000, technology and telecoms IPOs routinely skyrocketed on the open market, allowing investors who could buy the new shares at their offering prices to realize enormous gains in just a few days.
The committee said some preferred investors favored with special access to IPOs "quickly sold their shares, taking profits sometimes even on the first day of trading."
Rep. Richard Baker, the Louisiana Republican who chairs the committee's capital markets subcommittee, said, "These initial public offerings seemed to be anything but public. A small circle of preferred clients were given vast access by the investment banks to IPO shares and reaped large profits.
The committee said it also found questionable ratings by stock analysts at Goldman, CSFB and Salomon, especially after the tech-telecom stock bubble burst in early 2000, kicking off the bear market still prevailing today.
"Despite the plummeting share prices of the vast majority of the companies that were reviewed (by the committee), CSFB, Goldman Sachs and Salomon Smith Barney never advised investors to sell shares in any of them," the committee said.
I spent the last 25+ years working in the brokerage industry, and I don't think that allegation is rubbish. I consider it to be a known fact.
You never want to get anywhere near a new stock offering (assuming you're not "connected"), and you never want to pay any attention to what the firm's analysts say about a company.
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