[A-List] UK legitimation crisis: City of London

["Michael Keaney" <michael.keaney@xxxxxx>]

FSA looks into accusations of share-spinning

John Cassy
Thursday October 24, 2002
The Guardian

The City of London's leading financial watchdog yesterday launched an
investigation into allegations that investment banks had given company
executives shares in popular flotations in return for extra business.

The financial services authority said it had written to around 20 leading
banking and stockbroking firms asking whether "spinning" of new share issues
had been prevalent in London during the boom in flotations of recent years.

It has also asked for ways to prevent the practice and advice on ways to
make it illegal.

The investigation follows a similar one on Wall Street which has already
been hit by accusations of biased equity research. There is growing
scepticism about the supposed in dependence of analysts. Regulators fear
that some big banks could have effectively bribed some executives by
offering them preferential access to shares in other companies in return for
lucrative business such as stock underwriting and flotation work.

"Recent disclosures in the US have thrown a spotlight on market practices
surrounding IPOs (initial public offerings of shares)," said the FSA's
chairman, Howard Davies. "We want to be sure that firms operating in our
markets meet the high standards implied by our regulatory principles."

The FSA has given firms until November 22 to provide information on the
processes they have to prevent "spinning" and whether new rules should be
introduce to prevent future abuses.

Spinning was thrown into the spotlight last month when the New York state
attorney-general, Eliot Spitzer, sued five former and present telecom
executives for profiteering from IPO shares received from investment bank
Salomon Smith Barney.

High profile executives including Bernie Ebbers, former boss of collapsed
telecoms firm WorldCom, and Philip Anschutz, the tycoon behind plans to
revamp the Millennium Dome in London into an entertainment complex, were
among those named.

The US Congress is also looking into the matter and has accused Credit
Suisse First Boston and Goldman Sachs of spinning shares to executives.

The FSA said it had already reviewed some of the flotations at the height of
the internet boom but did not find evidence of wrongdoing.

Spinning, which was not included in that investigation, could pose "a direct
challenge" to confidence in financial markets, the authority said.

The FSA has already said that it believes some research by analysts was
"more positive than market performance would justify" and more seriously
some analysts were "more positive than the average" on companies with which
their own employers had a financial relationship.

Earlier this year Mr Spitzer agreed a $100m settlement with major Wall
Street bank Merrill Lynch over the issuing of biased stock picks which he
said were aimed at winning other business.