Riverdeep suspect in share allocation

By Stephen McKinley

The Irish educational software company Riverdeep suffered embarrassment recently when the investment house that sponsored its initial public offering was forced to pay $100 million to the Securities and Exchange Commission.

Credit Suisse First Boston paid the money to settle a legal action that the SEC had filed, saying that CSFB had engaged in share allocation abuses.

Riverdeep shares, floated in March 2000, soared from $20 to $70 in one day, one of the most stellar Internet era stock performances on record.

Last year, the New York Times reported that CSFB had offered Riverdeep stock to its staff at a price of $6.75 when the public was paying $20 a share.

The SEC’s director of enforcement, Stephen Cutler, said that, “in the midst of the hot IPO market between April 1999 and June 2000, CSFB extracted a significant sum of money from a relatively small segment of the marketplace. CSFB saw that some people were willing to do just about anything to get IPO stock, and CSFB improperly took advantage of the circumstances to take for itself a share of its own customers’ profits.”

He added, “CSFB improperly took advantage of its position as underwriter by allocating shares of hot IPOs to customers who agreed to share their IPO profits by paying excessive commissions.”

But neither Cutler nor his colleague Wayne M. Carlin, director of the SEC’s Northeast Regional Office, would confirm if Riverdeep was one of the IPOs in question.

Carlin said, “The commission has taken the unusual step of seeking a federal court injunction to enforce NASD rules in view of the nature and scale of the misconduct alleged in the complaint. In contravention of the applicable rules, CSFB wrongfully obtained for itself tens of millions of dollars of its customers’ IPO profits.”

Riverdeep’s CEO, Barry O’Callaghan, was unavailable for comment. But the news comes as further embarrassment for the company.

O’Callaghan had worked as CSFB’s director of equity capital markets division in London for two years before joining Riverdeep in 1999.

Dublin-based Davy Stockbrokers, Riverdeep’s broker, also acquired large amounts of Riverdeep stock before the IPO. CSFB settled with the SEC without admitting or denying any liability in the SEC complaint.