SEC Warns Morgan Stanley It May Face Charges

April 14, 2003

Morgan Stanley has been formally notified by the Securities and Exchange Commission that it may face civil charges of awarding hot initial public offerings to investing clients who signaled plans to buy additional shares at higher prices, Monday's Wall Street Journal reported.

Although the SEC previously had informed Morgan Stanley that it planned to issue a so-called Wells notice warning that it might bring securities-fraud and market-manipulation charges against the firm, Morgan Stanley disclosed Friday in a regulatory filing that it now has received the warning.

The SEC is examining whether tying the IPO allocations to subsequent after- market orders, a practice known as "laddering," artificially stimulated additional demand for newly issued shares during the stock-market bubble. If so, that could have contributed to the huge first-day price gains that eventually worsened losses suffered by small investors when the stocks later declined, traders say.

Wall Street Journal Staff Reporters Randall Smith and Susanne Craig contributed to this article.

http://biz.yahoo.com/djus/030414/0254000601_1.html