Assigning IPO Shares to an Affiliate Causes Problems.
The SEC instituted and settled administrative proceedings against The Dreyfus Corporation and a former portfolio manager for improperly allocating IPOs to a favored fund.
The portfolio manager was responsible for five funds (plus a sixth fund that generally could not invest in IPOs), but a disproportionate allocation of the IPOs (especially hot IPOs) went to Dreyfus Aggressive Growth Fund, notwithstanding prospectus disclosure that available investments would be allocated equitably. Dreyfus then advertised the fund’s strong performance, without disclosing the role of IPOs in its success.
The SEC’s focus on IPO allocations is reminiscent of the recent Initial Decision in In re Monetta Financial Services, Initial Decision No. 162 (Mar. 27, 2000), now on appeal, where hot IPOs allegedly were improperly allocated to directors. The SEC also found that Dreyfus’s procedures failed to prevent the manager from personally holding securities while engaging in transactions in the same securities on behalf of funds he managed. Because the manager complied with Dreyfus’s procedures, only Dreyfus was held responsible for this violation.
The SEC order assesses a civil penalty of $950,000 against Dreyfus and $50,000 against the manager, subjects each to a cease and desist order, suspends the manager for a period of nine months, and requires Dreyfus to take various corrective steps.
The order, In re Dreyfus Corp., Release No. IA-1870 (May 10, 2000), is available online at http://www.sec.gov/enforce/adminact/ia-1870.htm
Copyright 2000, John M. Baker, Esq., Stradley, Ronon, Stevens & Young, LLP, 1220 19th Street, N.W., Suite 700, Washington, DC 20036 – (202) 822-9611- Fax (202) 822-0140 This article was originally posted to the FundLaw List, http://www.egroups.com/group/fundlaw. To subscribe to FundLaw, send a blank e-mail to firstname.lastname@example.org
Nothing herein is intended as legal or financial advice. The law is different in different jurisdictions, and the facts of a particular matter can change the application of the law. Please consult an attorney or your financial advisor before acting upon the information contained in this article.
Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.
He is a partner in the national securities law firm Sallah Astarita & Cox, LLC, and the founder of The Securities Law Home Page - SECLaw.com, which was one of the first legal topic sites on the Internet. It went online in 1995 and is updated daily with news, commentary and securities law related links.