NEW YORK - Piper Jaffray Cos. was fined $2.4 million yesterday by the NASD for improper sales of initial public offerings to executives from companies including Liquid Audio Inc. and GoAmerica Inc.
The agency accused the securities firm of "spinning" hot IPOs between 1999 and 2002, offering shares to 22 executives to try to win investment-banking business. The executives, mostly chief executives and chief financial officers in publicly traded companies, made a total of $2.4 million in profits, NASD said in a statement.
"Spinning contributes to the public's perception that the IPO market is rigged in favor of company insiders who receive highly profitable IPO shares as a payoff for lucrative investment banking business," NASD Vice Chairman Mary L. Schapiro said in the statement. "NASD is committed to an IPO allocation process that is transparent and fair."
Minneapolis-based Piper Jaffray agreed in April 2003 to pay $32.5 million as part of a $1.4 billion settlement by 10 Wall Street firms over allegations by state and federal regulators that they issued biased research to win banking business. U.S. Bancorp, which owned Piper Jaffray at the time, spun off the securities unit in December, five years after buying it.
Piper Jaffray settled the matter without admitting or denying wrongdoing, and said the settlement will have "no impact on our financial results."
"We cooperated with the NASD throughout its investigation and believe this settlement is in the best interest of our shareholders and clients," the bank said. Its shares rose $1.71 to $43.25 yesterday on the New York Stock Exchange.
Piper Jaffray earned more than $16 million from the issuers, according to NASD, formerly known as the National Association of Securities Dealers.
The firm sold shares to the chief financial officer of Liquid Audio, which sells software that lets consumers download music from the Internet, on "numerous occasions" before the company's IPO in July 1999 and its secondary offering five months later, NASD said, without naming the executive.
The CFO made more than $92,000 in profit from his IPO sales, and Piper earned more than $1.47 million as co-manager of Liquid Audio's IPO and secondary offering, NASD said. Liquid Audio's CFO from August 1997 to October 2000 was Gary J. Iwatani, according to regulatory filings.
Piper Jaffray also handed out IPO shares to the chief executive, the CFO and an executive vice president of Hackensack, N.J.-based GoAmerica after the company selected Piper Jaffray to co-manage its April 2000 IPO. The executives, unidentified by NASD, made more than $330,000 in profit. GoAmerica's IPO generated over $1.1 million in banking fees for Piper Jaffray, NASD said.
GoAmerica's founder, chairman and CEO at the time of its IPO was Aaron Dobrinsky, who is still chairman. Its CFO between December 1999 and August 2003 was Francis Elenio, who is now CFO at RoomLinX Inc.
Other banks that faced charges of "spinning" include Credit Suisse First Boston, where star technology banker Frank Quattrone propelled CSFB to No. 1 in technology underwriting in 2000 from No. 17 in 1997. Quattrone was suspended as investigators examined how the firm allocated IPO shares during the height of the Internet boom in 1999 and 2000.
In May, Quattrone was found guilty of obstructing justice after employees destroyed records. Yesterday, he was denied a new trial by U.S. District Judge Richard Owen, according to the court docket.