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RIA Censured and Fined for IPO Allocation Issues

Giving Hot Issues to Favored Clients Results in Fines and Sanctions

By John M. Baker, Esq.


Continuing its focus on allocations of “hot” IPOs, the SEC on September 7 the settlement of an administrative proceeding against an investment adviser and its president for allocating shares from initial public offerings to client accounts through an ad hoc process that disproportionately favored certain clients to the detriment of other clients. In re F.W. Thompson Co., Release No. IA- 1895 (Sept. 7, 2000).

The Ontario-based adviser was a registered investment adviser, and its practices affected both U.S. and Canadian clients. The adviser and its president were censured, and the adviser agreed to pay a civil penalty of $100,000.

The Thompson case differs from the Monetta and Dreyfus cases earlier this year, where the favorable allocations were alleged to benefit affiliated mutual fund directors (in the Monetta case) or a mutual fund whose performance could then be heavily advertised (in the Dreyfus case). Instead, there is no allegation that any of the favored clients had any kind of affiliation with the adviser, and the case is based simply on the adviser’s failure to adequately disclose an IPO allocation that favored a certain group of clients.

The adviser had no written procedures governing IPO allocations and provided no disclosure to its clients with respect to its allocation practice.

According to the announcement in the SEC News Digest, this matter was discovered during an on-site compliance examination conducted jointly by the SEC and the Ontario Securities Commission. The staff regularly conducts examinations of registered advisers located outside of the U.S. in coordination with securities regulators in those jurisdictions.

The release is available online at http://www.sec.gov/enforce/adminact/ia-1895.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 fundlaw-subscribe@egroups.com


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.  


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