Justice Department Opens Inquiry Into How Banks Set Fees for IPOs

An Interactive Journal News Roundup

Washington -- April 30, 1999 -- The Justice Department said Friday it is investigating a possible conspiracy among securities firms to fix underwriting fees for initial public offerings of stock.

Investment giant Goldman, Sachs & Co., which is scheduled to sell stock to the public for the first time Monday, said Friday in regulatory filing it received a subpoena related to the probe. It did not say in the filing whether it considered itself a target of the investigation.

A Justice Department spokeswoman confirmed the investigation, but declined further comment.

The Justice Department's request comes on the heels of a lawsuit filed in November against Goldman and other securities firms. The lawsuit claims that the firms engaged in a conspiracy to fix the discount that underwriting syndicates receive from issuers of shares in certain offerings.

The suit was filed in federal court in Manhattan by Harold Gillett, an individual investor who bought 500 shares of a Horizon Offshore Inc. initial public offering in April. He listed more than two dozen securities firms as defendants, and included all of the major Wall Street firms, among them Morgan Stanley Dean Witter & Co. and Merrill Lynch & Co.

Morgan Stanley declined to comment on the Justice Department's investigation. But sources close to the firm said it had also received a subpoena requesting information. The sources said that all of the firms named as defendants in the Gillett suit received subpoenas Thursday.

Mr. Gillett alleges the firms conspired to fix their fees at 7% of the total IPO proceeds, about double what investment banks charge to underwrite IPOs in foreign markets. The suit claims the fees are "artificially inflated" and pad the firms' profits at the expense of the companies issuing stock and the investors buying IPO shares.

Mr. Gillett's suit was followed by several others making similar allegations against a similar list of defendants. According to court filings, Goldman and other firms filed a motion to dismiss one of the suits Thursday.

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