Finra probing IPO pitches

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

The Financial Industry Regulatory Authority Inc. has requested information from several firms, said the source, who asked not to be identified, as the probe may not result in a formal investigation.

The source 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 from which they seek business. The Jumpstart Our Business Startups Act, which was passed last year, loosens those regulations when banks are dealing with companies with less than $1 billion in annual revenue.

2003 SETTLEMENT

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

The story was first reported by The New York Times, which 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 is going public, according to the report.

Related Topics: Financial Industry Regulatory Authority