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Credit Suisse First Boston is negotiating a multimillion-dollar settlement with government regulators regarding its allocations of initial public offerings, and legal sources indicate that the deal may not bode well for the investment bank’s chances in nearly 1,000 civil lawsuits. Sources confirmed a report in the Dec. 11 Wall Street Journal that the securities firm is in talks with the Securities and Exchange Commission and the National Association of Securities Dealers Regulation Inc. to pay up to $100 million in fines. The sources added that the bank is still ironing out the details of the agreement with the SEC. CSFB spokeswoman Victoria Harmon, NASD spokeswoman Nancy Condon and John Nestor, a spokesman for the SEC, all declined to comment. But a settlement between CSFB and the SEC and NASD was widely expected after the U.S. Attorney’s Office dropped its investigation of CSFB in November. And even though CSFB is likely to neither admit nor deny any wrongdoing, the settlement still poses a legal dilemma. “There are still a large number of private claims, and CSFB is not out of the woods,” said Harvey Goldschmid, a former general counsel for the SEC and a Columbia University law professor. John Coffee Jr., a visiting professor of securities law at Harvard University, agreed. CSFB officials “still have to face private litigation, and it won’t be dismissed because the SEC settlement adds credibility to it all.” And another former SEC enforcement official added: “Generally an action by an enforcement agency adds some impetus to private lawsuits,” the lawyer said. In fact, Melvyn Weiss, co-chair of the executive committee for plaintiffs’ lawyers in the IPO allocation lawsuits in federal court, called the settlement a boon to his cases. Weiss, name partner of San Francisco’s Milberg Weiss Bershad Hynes & Lerach, said, “We’re very happy if the government gets out of the way. We never rely on the government and its efforts to win our cases because they never share anything with us.” Other investment banks, by association, may also see a shadow from CSFB’s settlement. The former SEC enforcement official suggested the $100 million “sets a ceiling, not necessarily a floor,” on the amount of potential settlements sought by other investment banks under SEC investigation, like J.P. Morgan Chase & Co. In regard to the civil lawsuits, the settlement most likely throws another brick in the path of underwriter/defendants. The people who stand to benefit the least from CSFB’s settlement are the three brokers the bank fired in June — Scott Bushley, Michael Grunwald and John Schmidt. According to sources familiar with the SEC, the settlement is almost sure not to cover the three brokers, who were suspended in April, then fired in June, in the firestorm surrounding the IPO allocations. The three brokers, through their lawyers, have held that they committed no wrongdoing and abided by CSFB policy when it came to working with IPO allocations. The brokers could suffer from a perception problem due to CSFB’s settlement, according to legal sources. “Certainly the fact that CSFB is paying this very large civil penalty and the brokers were let go implies that the individuals may well be vulnerable,” Goldschmid said. As a result, the SEC and the NASD may still choose to penalize the brokers. In the past, such decisions have included license revocations or civil penalties, Goldschmid said. Sources said the brokers will watch the reaction to the settlement before taking any steps. Through a lawyer, at least one of the brokers suggested he would seek a remedy were CSFB found to have committed no wrongdoing. In addition, securities regulators may tighten rules surrounding IPO allocations. Still, Weiss isn’t impressed. “The money [from the settlement] is not going to the victims,” he said. “It’s going to the government treasury. Let them go and make new regulations and pretend this all wasn’t taboo in the beginning.” Several legal sources noted the paucity of federal securities laws regarding the IPO allocations, which may explain why the charges surprised Wall Street. “The SEC can give more guidance on when it’s permissible, if at all, to have a payback scheme in terms of the allocation of IPOs … [and] whether it’s lawful to require those getting IPO shares to purchase additional shares in subsequent days and weeks,” Goldschmid said. Copyright (c)2001 TDD, LLC. All rights reserved.

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