Global Policy Forum

By Patrick McGeehan

Securities industry regulators said yesterday that they would fine and suspend two senior executives of Credit Suisse First Boston who directed the firm's collection of millions of dollars in inflated commissions from buyers of shares in sought-after new stock offerings.

NASD, the main self-regulatory organization of Wall Street firms, announced fines and 60-day suspensions for Anthony Ehinger, First Boston's global chief of stock sales, and George W. Coleman, another managing director in the stock sales operation. Each agreed to pay a $200,000 fine without admitting or denying guilt.

The punishments are the first imposed against Wall Street executives for abuses of the process of allocating shares of initial public offerings in the late 1990's. In January, First Boston, the New York-based investment banking arm of the Credit Suisse Group, agreed to pay $100 million in penalties to settle regulatory investigations into how the firm sold new stocks during the boom.

NASD said four former employees of First Boston's brokerage operation in San Francisco were also suspended from the industry, for one year each, and fined $30,000 each. They were John Schmidt, who ran the operation there, and three men who worked for him: Michael Grunwald, Scott Bushley and Scott Brown.

NASD said Mr. Ehinger and Mr. Coleman created a system to track the performance of new stocks bought by mutual funds, hedge funds and other institutional clients. They and people they supervised then pressed those clients to kick back some of their gains in the form of higher commissions on other trades executed by First Boston.

In some cases, the commissions exceeded $1 a share, compared with the 6 cents a share the firm normally charged for big orders from institutions, according to NASD. Mr. Ehinger and Mr. Coleman knew that excessively high commissions "were being paid by customers who were trying to curry favor" with First Boston to obtain more shares of initial offerings managed by the firm, according to an NASD document those accused signed.

Barry Goldsmith, NASD's executive vice president for enforcement, said the men were punished for failing to perform their supervisory duties by preventing the sales representatives they supervised from extracting the excessive commissions. The punishment would probably have been more severe if the men had not sought — and to a degree, received — approval from the firm's legal and compliance departments, he said.

After communicating with members of those departments, Mr. Coleman instituted a policy of charging maximum commissions of 75 cents a share or 2 percent of the transaction, whichever was greater, NASD said. But neither Mr. Coleman nor Mr. Ehinger divulged the details of their system of seeking to share in the customers' trading profits, Mr. Goldsmith said.

"In a case of supervisory breaches, this kind of a fine and suspension is a significant sanction on their record," Mr. Goldsmith said. "Whether the firm should keep them in the positions that they're in is something you'd have to ask the firm."

A spokeswoman for Credit Suisse First Boston said the men remained in their jobs and would soon serve their suspensions. They are expected to return to the same positions.

Neither man was available to comment, but their lawyers released a statement saying the matter involved "enormously complicated and novel legal questions." It added that "Messrs. Ehinger and Coleman have decided that it is in the best interests of all concerned to resolve the case without admitting or denying" the charge.

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