WASHINGTON – Wall Street banks Goldman Sachs Group (GS) and Morgan Stanley (MDW) will pay $40 million each to settle charges that they tried to manipulate the price of hot IPO stocks, a top U.S. Securities and Exchange Commission (search) official said Tuesday.
The two firms settled the SEC allegations without admitting or denying wrongdoing, SEC Northeast Regional Office Director Mark Schonfeld told Reuters. He said the $40 million each firm will pay are civil penalties.
The SEC was expected to formally announce the settlements soon, possibly as early as Tuesday, targeting a practice known as IPO "laddering," said sources close to the case.
The practice involves inducing holders of hot IPO shares to buy more of the shares on the open market after the shares are issued to help drive up their price.
"This case is about protecting the integrity of the market — about making sure that the demand for stocks in the aftermarket reflects true demand," Schonfeld said.
Spokesmen for Goldman and Morgan declined to comment.
In October 2003, investment bank J.P. Morgan Chase & Co. agreed to pay $25 million to settle an SEC laddering investigation. J.P. Morgan neither admitted nor denied wrongdoing, as is customary in SEC settlement agreements.
Under a $1.4-billion settlement with regulators in April 2003, 10 Wall Street firms agreed to ban IPO "spinning" — or giving blocks of promising IPO shares to executives in hopes of winning or keeping their banking business.