The NASD is investigating whether the employees were part of an improper arrangement in which clients got in on hot IPOs on the condition they agreed to later buy a mandatory amount of additional IPO shares or pay extra commissions, a person close to the matter confirmed. Each of the employees denies wrongdoing. The latest disclosures, reported in the Wall Street Journal and the New York Times, are part of months-long probes by authorities, including the Securities and Exchange Commission and the National Association of Securities Dealers. Regulators are worried that some firms may have caused the price of IPO shares to be artificially high once they started trading. Regulators also are questioning whether some firms or brokers failed to disclose how much compensation they were getting for their role as IPO underwriter.
Experts say it's a tough case to make.
Brokers have wide latitude to decide who gets IPO shares. And asking an investor whether he or she has an interest in buying additional shares is one of many factors that show the investor is a good, long-term holder for the shares. The firm in recent weeks put three tech-group employees, including two senior employees of its technology group, John Schmidt and Michael Grunwald, on administrative leave. Attorneys for the two men didn't return calls for comment. Credit Suisse issued a statement apparently intended to reduce the focus on Quattrone.