Goldman, Sachs & Co. and Morgan Stanley & Co. Inc will each pay US$40 million to settle SEC allegations that they improperly induced customers to bid up stock in exchange for IPO allocations.

In federal district court, the Securities and Exchange Commission filed separate settled civil injunctive actions against Morgan Stanley and Goldman Sachs relating to the firms’ allocations of stock to institutional customers in initial public offerings (IPOs) underwritten by the firms during 1999 and 2000.

In its complaints, the SEC alleged that Morgan Stanley and Goldman Sachs violated securities laws by attempting to induce certain customers who received allocations of IPOs to place purchase orders for additional shares in the aftermarket.

The firms neither admitted or denied the allegations.

Under the terms of the settlements, a judgment will be entered against each firm enjoining it from violating securities laws and ordering each firm to pay a US$40 million civil penalty.

The settlement terms are subject to court approval.

Stephen Cutler, director of the SEC’s Division of Enforcement said, “These cases underscore the commission’s resolve to ensure the integrity of IPO markets by prohibiting conduct that could artificially stimulate demand or higher prices in the aftermarket — whether or not there is manipulative effect.”

http://www.sec.gov/news/press/2005-10.htm