Feeds

VA Linux IPO – something fishy?

SEC probe

  • alert
  • submit to reddit

Boost IT visibility and business value

The Securities and Exchange Commission (SEC) is investigating how certain investment firms managed to obtain a disproportionately large share of VA Linux's IPO.

According to the Wall Street Journal's interactive edition, regulators are looking into the VA Linux offering as part of a wider probe into whether some investors paid unusually large trading commissions in exchange for preferential allocations of stock during IPOs. Other offerings that may be brought into the inquiry include Foundry Networks

VA Linux shares went public at $30 and closed after their first day of trading, 9 December 1999, at $239.25 - an almost eight-fold increase in value. This was the biggest-ever first day jump for an IPO.

The investigation will look at whether hedge funds paid over the odds on commissions for other trades with firms that controlled the allocation of IPO shares, in order to boost the number of shares they receive. These outsized commissions may have been as much as $1 per share - or twenty times the going rate.

Securities dealers have wide discretion to allocate IPO stock and large commissions may have been legal in the context of an overall business relationship but the possibility that these payments are "kickbacks" is being taken seriously.

The Wall Street Journal quotes unnamed sources who said two smaller investment firms GLG Partners and Chelsey Capital received 35,000 shares and 15,000 shares in VA Linux - which gained in value by 7.3 million and $3.1 million respectively on the first day of trading. The allocations approached those given to those of far bigger and better known Wall Street firms, raising concerns about possible impropriety.

The VA Linux offering is believed to be an early focus of a wider probe, being jointly conducted by the U.S. attorney for the Southern District of New York and the SEC's enforcement division, neither of whom is talking publicly about the investigation. However the lead underwriter of the VA Linux deal, Credit Suisse First Boston unit has confirmed that an inquiry is underway.

The WSJ quotes people close to the inquiry who say regulators are attempting to determine patterns of big allocations followed by large trades in other stocks

It isn't certain whether GLG or Chelsey paid large commissions or are a particular focus of the SEC probe. A senior executive from London-based GLG said he was aware of the investigation but said that the firm "was neither the focus not target" of the inquiry.

Regulators are understood to have already sought information from hedge funds and most major Wall Street securities firms as part of the enquiry.

According to the WSJ subpoenas issued to the Wall Street firms sought lists of investors which got 1,000 shares or more during hot IPOs, as well as records of trades of 10,000 shares or more that incurred commissions of more than twice the prevailing rate of five cents per share. ®

Related Stories

IPO makes VA Linux instant $10bn company
Could Linux IPOs be a better bet than Web ones?
VA Linux revenues up 547 per cent
VA Linux Systems disputes IDC server market findings
VA's Augustin talks Itanic, Sledgehammer

The Power of One Brief: Top reasons to choose HP BladeSystem

More from The Register

next story
Stick a 4K in them: Super high-res TVs are DONE
4,000 pixels is niche now... Don't say we didn't warn you
BBC goes offline in MASSIVE COCKUP: Stephen Fry partly muzzled
Auntie tight-lipped as major outage rolls on
Philip K Dick 'Nazi alternate reality' story to be made into TV series
Amazon Studios, Ridley Scott firm to produce The Man in the High Castle
iPad? More like iFAD: We reveal why Apple fell into IBM's arms
But never fear fanbois, you're still lapping up iPhones, Macs
Amazon Reveals One Weird Trick: A Loss On Almost $20bn In Sales
Investors really hate it: Share price plunge as growth SLOWS in key AWS division
Bose says today is F*** With Dre Day: Beats sued in patent battle
Music gear giant seeks some of that sweet, sweet Apple pie
There's NOTHING on TV in Europe – American video DOMINATES
Even France's mega subsidies don't stop US content onslaught
You! Pirate! Stop pirating, or we shall admonish you politely. Repeatedly, if necessary
And we shall go about telling people you smell. No, not really
Too many IT conferences to cover? MICROSOFT to the RESCUE!
Yet more word of cuts emerges from Redmond
prev story

Whitepapers

Implementing global e-invoicing with guaranteed legal certainty
Explaining the role local tax compliance plays in successful supply chain management and e-business and how leading global brands are addressing this.
Consolidation: The Foundation for IT Business Transformation
In this whitepaper learn how effective consolidation of IT and business resources can enable multiple, meaningful business benefits.
Application security programs and practises
Follow a few strategies and your organization can gain the full benefits of open source and the cloud without compromising the security of your applications.
How modern custom applications can spur business growth
Learn how to create, deploy and manage custom applications without consuming or expanding the need for scarce, expensive IT resources.
Securing Web Applications Made Simple and Scalable
Learn how automated security testing can provide a simple and scalable way to protect your web applications.