CROOK NEWS: NASD Opens Door to Profit For Brokers on IPOs
As Offerings Surge, Agency Eases Prohibition Meant To Limit Conflicts of Interest
By GREGORY ZUCKERMAN
Staff Reporter of THE WALL STREET JOURNAL
March 22, 2004; Page A1
A little-noticed securities-rule change that appears to run counter to the recent clean-up campaign on Wall Street could make it easier for investment bankers and dealers to profit from popular initial public offerings that their own firms bring to the market. The National Association of Securities Dealers tightened up an existing rule under which a securities firm may not sell IPO shares to outside accounts in which any "restricted" people -- such as employees of the firm or a close relatives -- have a beneficial interest. But in the process, the NASD, with the approval of the Securities and Exchange Commission, added an exception: The prohibition would be waived as long as these restricted people don't add up to more than 10% of an investment account's ownership. The upshot: An investment banker at a brokerage firm or bank who helps make decisions about who should get in-demand IPO shares now can legally send shares to a hedge fund or other investment account in which the banker himself owns as much as 10%. The banker can thereby participate in gains from the shares to the extent of his ownership of the account.
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