Regulators Examine Analyst Ties in IPOs; Concern Resurfaces over Meetings With Companies Pursuing Offerings
August 13, 2013 Leave a comment
August 12, 2013, 10:27 a.m. ET
Regulators Examine Analyst Ties in IPOs
Concern Resurfaces over Meetings With Companies Pursuing Offerings
A securities regulator is looking into meetings between stock analysts and companies pursuing initial public offerings, according to a person familiar with the inquiry, discussions that have long generated concerns about conflicts or inappropriate financial pressure on analysts whose research can be followed by investors. The enforcement division of the Financial Industry Regulatory Authority sent information requests to a handful of securities firms, according to this person, who said the inquiry is ongoing.The focus is on pre-IPO meetings, the person said. At these meetings, analysts who work for banks meet with company executives who are interviewing the banks to potentially underwrite their public offerings.
The inquiry was reported Sunday by the New York Times.
At issue with analysts and IPOs is the independence of analysts’ stock research. A decade ago, 10 of the largest Wall Street investment banks struck an agreement with then-New York Attorney General Eliot Spitzer and other regulators requiring them to better separate their research and banking businesses.
Mr. Spitzer had alleged that some analysts hyped up dot-com companies going public although the analysts didn’t believe they were good investments. The banks didn’t admit or deny wrongdoing.
Under current securities rules, analysts and bankers must have separate discussions with potential banking clients. There are also provisions that limit linking analyst compensation to the performance of the banking business.
Companies often like to align with a bank whose analyst they believe will publish favorably on their shares after a public offering.
The Jumpstart Our Business Startups Act, or JOBS Act, made into law last year, carved out a limited exemption on analyst rules for so-called emerging growth companies, which have less than $1 billion in annual revenue and meet other criteria. The law allows analysts to attend pitch meetings attended by bankers for these companies.
The JOBS Act didn’t alter other restrictions, such as what analysts can say in those meetings, or on what bankers can discuss with analysts.
The information requests come as the IPO market in the U.S. is on track to be the busiest since 2007, with the market boosted by record levels on major U.S. stock indexes. So far this year, there have been 129 U.S.-listed company IPOs, versus 97 by this point last year, according to Dealogic.
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