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Goldman, JPM face 'laddering' action;
SEC cracking down on IPO practice

By Steve Gelsi
CBS.MarketWatch.com
Wednesday, Nov. 6, 2002

NEW YORK -- The Securities and Exchange Commission
notified Goldman Sachs Group and JP Morgan Chase
that it recommended filing civil securities-fraud and
market-manipulation charges against the firms for
directing shares of initial public offerings to clients
who intended to buy more shares, according to a
published report on today.

The practice, known as "laddering" IPOs, has been
under scrutiny for fueling the dot-com bubble and
causing IPO share prices to rise quickly and then fall
sharply, leaving individual investors who could not
get the deals at their offering prices with huge losses.

The Wall Street Journal reported today that the SEC
staff sent a formal warning of the possible charges in
a so-called Wells notice to Goldman Sachs about two
weeks ago.

The warning to JP Morgan Chase came more recently,
and applied to IPOs before Chase purchased
Hambrecht & Quist in 2000, said the newspaper, which
was citing sources with knowledge of the actions.

Goldman said in a statement to the paper that it denies
"any allegations of wrongdoing ... and believe there is
no basis for the SEC to take such a position."

JP Morgan also denied wrongdoing.

The latest move by the SEC comes as chairman
Harvey Pitt resigned under pressure late Tuesday.

Another IPO practice under scrutiny is so-called
"spinning," when IPO shares are given to executives
with companies that may or may not be doing business
with an investment bank.