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crying foul: broken rules or business as usual?
Who, if anyone, is to blame for the worst excesses of the Internet bubble? From the allocation of IPO shares to the way Wall Street analysts touted Internet stocks, did "irrational exuberance" give way to fraud? Even if no laws were broken, was the way in which Wall Street and Silicon Valley did business ethical?

IPOs: Hot Issues, Scandalous Profits?

It has long been known that Wall Street allocates IPO shares to its best customers. But did the "hot" IPO market of the late 1990s give rise to unethical and even illegal practices by major brokerage firms? Here are excerpts from FRONTLINE's interviews with Wall Street Journal reporters Susan Pulliam and Randall Smith, former SEC Chairman Arthur Levitt, Fortune magazine's Joseph Nocera, veteran investment banker Bill Hambrecht, and attorney Mel Weiss.

The IPO Investigations: Who's the Victim?

In this Web-exclusive analysis for FRONTLINE, Wall Street legal expert John Coffee, a professor of law at Columbia University, offers an overview of what's at issue in the federal investigations into IPO practices. Why does the system work the way it does? Who, if anyone, gets hurt? And what are the prospects for reform?


Tracing the development of the IPO investigations from August 2000 to January 2002.

Boosting the Bubble? Analysts, IPOs, and the Media

Celebrity Internet analysts such as Morgan Stanley's Mary Meeker and Merrill Lynch's Henry Blodget have come to symbolize the intellectual hollowness of the Internet bubble's headiest days. They've also become the target of many investor lawsuits claiming that they concealed conflicts of interest as they touted dotcom stocks on television and in print. But did analysts do anything wrong? And how did securities analysis get to be this way? Here are excerpts from interviews with former SEC Chairman Arthur Levitt, former Bear Stearns analyst Scott Ehrens, Fortune magazine's Joseph Nocera, and former CSFB analyst Lise Buyer.

Susan Pulliam and Randall Smith

Smith and Pulliam, staff reporters at The Wall Street Journal, broke the story of the federal investigations into IPOs in December 2000 and have covered the ongoing developments ever since. Here, in interviews with FRONTLINE in August 2001 and January 2002, they discuss the current status of the investigations, the background, Credit Suisse First Boston's $100 million settlement with the SEC, key players such as CSFB's Frank Quattrone, and how the investigations have affected Wall Street.

Arthur Levitt

Chairman of the Securities and Exchange Commission from 1993 to 2001, Levitt built a reputation as an outspoken critic of the conflicts of interest pervading securities analysis and of how Wall Street used the financial media and the advertising industry as conduits for stock-market hype. In this interview with FRONTLINE producer Martin Smith, conducted in May 2001, Levitt discusses how he approached the issue of analysts, the media, and advertising, and argues that Wall Street's integrity is crucial to maintaining public confidence in the financial markets.

Joseph Nocera

Executive editor at Fortune magazine and the author of A Piece of the Action: How the Middle Class Joined the Money Class (1994), Nocera discusses what he calls the "moral degradation" on Wall Street in the late 1990s, and says that "nobody" -- including Fortune and The Wall Street Journal -- "thought the party was going to end."

Mel Weiss

A senior partner at Milberg Weiss Bershad Hynes & Lerach LLP, he is a leading practitioner in the fields of securities, insurance, environmental, antitrust, and consumer litigation, often representing plaintiffs in class actions. His firm has filed 110 lawsuits against scores of companies and seven investment banks alleging IPO fraud and price manipulation. Weiss tells FRONTLINE that he believes the investment banks conspired to manipulate the market by creating an illusion of post-IPO liquidity and momentum through kickbacks and other illegal actions.

Bill Hambrecht

A veteran investment banker, he's the founder, chairman, and chief executive of W.R. Hambrecht & Co. The firm's innovative OpenIPO uses the Internet to allocate IPO shares to the public through a "Dutch auction" process. He argues that the Dutch auction model is the best way to make the IPO allocation process "transparent" and "nonpreferential." In 1968, Hambrecht co-founded Hambrecht & Quist, an investment banking firm specializing in emerging high-growth technology companies. He was the only investment banker who would talk to FRONTLINE during the making of "Dot Con."

speeches by arthur levitt
Plain Talk About On-Line Investing

In a May 1999 speech at the National Press Club, Arthur Levitt, then chairman of the SEC, spoke about investors' responsibilities when investing over the Internet, online brokerages' responsibilities to their customers, and how the SEC was responding to protect investors and help maintain the integrity of the markets.

Quality Information: The Lifeblood of Our Markets

In this October 1999 speech at the Economic Club of New York, Levitt spoke of the need for "total commitment to quality financial reporting," which he defined as "a commitment to integrity and transparency in the way we do business; in the way we execute and report trades; in the way companies report their financial performance; in the way analysts communicate with companies and investors; and in the way auditors fulfill their mandate for independent and objective oversight."

Remarks at The Finance Conference 2000: "The New Economy"

In a speech at Boston College in March 2000, Levitt urged investors to maintain perspective in the midst of rapid technological change and heady market optimism. "The retail investor," he said, "iis driving the marketplace. But that's only half of the equation. What is driving today's investors? What are we to make of some of the investing trends and developments today -- the surge of day traders, growing margin accounts, the rush to buy IPOs? ... In many respects, a culture of gamesmanship has taken root in the financial community making it difficult to tell salesmanship from honest advice."

investigation & litigation
SEC Charges CSFB with Abusive IPO Allocation Practices

This press release from the Securities and Exchange Commission, on Jan. 22, 2002, announced that Credit Suisse First Boston (CSFB) will pay $100 million to resolve the SEC's charges of IPO abuses, and stated that "CSFB also agreed to be enjoined from future violations and to institute wide-ranging new procedures designed to prevent a recurrence of the sort of misconduct that gave rise to this action." You can also read the text of the SEC's enforcement action, its complaint against CSFB, and its final judgment in the matter.

The IPO Controversy

"While regulators have focused primarily on alleged improprieties within the investment banking practices at Credit Suisse First Boston, it is far more likely that the pattern of IPO-related abuses was systemic in nature." The tech news site offers a collection of articles that look at "the primary motivations (and possible transgressions) of the major participants in the IPO controversy -- underwriters, equity research analysts, brokers, institutional investors, technology companies, retail investors and regulators."

Securities Class Action Clearinghouse

This public database provided by Stanford Law School "provides detailed information relating to the prosecution, defense, and settlement of federal class action securities fraud litigation." In addition, it offers research reports and analyses of how federal class action securities fraud litigation has evolved since the passage of the Private Securities Litigation Reform Act of 1995.

The Trouble With Frank

"Frank Quattrone was the top investment banker in Silicon Valley. Now his firm is exhibit A in a probe of shady IPO deals." (Fortune, Aug. 13, 2001).

Days of Reckoning

"iin the wake of the tech wipeout, the bankers who profited most are facing the fury of investors, politicians and regulators." (The Industry Standard, Aug. 20, 2001)

SEC: Analyzing Analysts Recommendations

This SEC publication discusses the potential conflicts of interest faced by analysts and provides tips for researching investments. The SEC warns, "As a general matter, investors should not rely solely on an analyst's recommendation when deciding whether to buy, hold, or sell a stock. Instead, they should also do their own research -- such as reading the prospectus for new companies or for public companies, the quarterly and annual reports filed with the SEC -- to confirm whether a particular investment is appropriate for them in light of their individual financial circumstances."

Analyzing the Analysts

On June 14, 2001, the House Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises held hearings titled "Analyzing the Analysts: Are Investors Getting Unbiased Research from Wall Street?" The House website contains the testimony of experts including analysts, regulators, and journalists. Click here for part two of the hearings, held on July 31, 2001.

Where Mary Meeker Went Wrong

"She may be the greatest dealmaker around. Problem is, she's supposed to be an analyst." (Fortune, April 30, 2001)

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