The NASD said Monday Piper Jaffray Cos. agreed to pay $2.4 million to settle charges that it engaged in improper sales of hot initial public offerings to win investment banking business.
The regulator accused Piper of “spinning” hot IPO shares between 1999 and 2001. It said this involved the improper allocation of shares to 22 executives — mainly chief executive officers and chief financial officers able to steer business to Piper.
These “strategic executives,” as Piper labeled them, were each awarded shares in five to 20 IPOs and made about $2.4 million in profits, while Piper won more than $16 million in fees from the executives’ companies, the NASD said.
“It’s very important that the IPO process be perceived by the public as fair and equitable,” Barry Goldsmith, the NASD executive vice president of enforcement, said in an interview. ”In this case, you had allocations to 22 executives who did no other business with Piper other than getting IPOs.”
Spinning adds to a perception that the IPO market “is rigged in favor of company insiders,” NASD Vice Chairman Mary Schapiro said in a statement. Other firms’ IPO practices have also faced state and federal regulatory scrutiny.
Piper neither admitted nor denied the charges. It said the fine would not affect its financial results and was covered by an indemnification agreement with U.S. Bancorp, the No. 6 U.S. bank, which spun Piper off in December. Both companies are based in Minneapolis.
Piper agreed in April 2003 to pay $32.5 million as part of the $1.4 billion global regulatory settlement over allegations that 10 banks inflated stock research to win banking business.
Regulators cited Citigroup Inc. and Credit Suisse Group Inc. unit Credit Suisse First Boston in that settlement for spinning.
In May, the NASD fined Bear Stearns Cos., Deutsche Bank and Morgan Stanley a combined $15.6 million for collecting excessive commissions from some clients after allocating IPO shares to those same clients.
Piper shares rose $1.71, or 4.1 percent, to $43.25 on Monday, posting most of the gain in the last 90 minutes of trading. Piper spokeswoman Dana Wade declined to comment.
‘No stock for you’
In the settlement order, the NASD cited a memo to investment bankers from a manager on Piper’s Corporate Client Services desk, suggesting that executives be ranked on whether they deserved IPO shares.
The rankings were: “1. Very important; 2. Somewhat important; 3. Get him about 4 deals a year; 0. No stock for you.”
In one case, Piper generated $1.5 million in fees from the IPO and a secondary offering by music technology provider Liquid Audio Inc. while offering IPO shares in other companies to Liquid Audio’s chief financial officer, the NASD said.
The CFO at the time, Gary Iwatani, resigned in October 2000, securities filings show.
In another instance, the NASD said Piper took in more than $1.1 million from wireless technology provider GoAmerica Inc.’s IPO while offering shares of other IPOs to GoAmerica’s CEO, CFO and an executive vice president.
The CEO, Aaron Dobrinsky, remains chairman, securities filings show. The CFO, Francis Elenio, is now CFO of RoomLinX Inc., where Dobrinsky is also CEO.
Dobrinsky and RoomLinX did not immediately return calls for comment. Iwatani could not be reached. GoAmerica and Liquid Audio shares trade for less than $1 each. Goldsmith declined to name other executives who received IPO shares from Piper.
