Finra examining analyst participation in IPO pitches

Aug 12, 2013 @ 12:34 pm

Wall Street’s self-regulator is looking into whether research analysts are participating in pitches to win business underwriting initial public offerings, according to a person familiar with the matter.

The Financial Industry Regulatory Authority has requested information from several firms, said the person, who asked not to be identified because the probe may not result in a formal investigation. The person didn’t say which firms were queried.

Since the dot-com bust a decade ago, investment bankers have been restricted from arranging communications between analysts, who provide recommendations to investors, and the companies they seek business from. The JOBS Act, passed last year, loosens those regulations when banks are dealing with companies with less than $1 billion in annual revenue.

The rules were imposed in 2003 by regulators and by a settlement between then-New York Attorney General Eliot Spitzer and 10 firms including Goldman Sachs Group Inc. and JPMorgan Chase & Co. Spitzer forced the banks to change their practices after his office obtained internal e-mails from Merrill Lynch & Co. analysts who privately called dot-com stocks they had recommended “dogs” and “crap.”

The New York Times reported the Finra inquiry yesterday. The newspaper said that companies now often interview analysts when picking banks to underwrite their IPOs, citing people it didn’t identify. The analysts are supposed to limit the talks to trends and avoid discussing the company that’s going public, according to the report.

Bloomberg News


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