NASD Rule 2110 and the VA Linux IPO

Author: Loughran, Tim

Source: Journal of Business Ethics, Volume 62, Number 2, December 2005 , pp. 141-146(6)

Publisher: Springer

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Abstract:

On December 9, 1999, VA Linux issued shares to the public and left over $900 million on the table for investors. In the prospectus, the investment banker Credit Suisse First Boston (CSFB) stated it would receive a 7% gross spread as its compensation for underwriting the shares. Yet the SEC alleges some investors paid enormous commissions to CSFB in the form of a kick-back immediately after obtaining the IPO shares. Hence, CSFB had an economic interest in the IPO and there was not a full distribution of shares. This apparent violation of NASD Rule 2110 raises questions as to the credibility of the financial markets.

Keywords: IPOs; money on the table; NASD Rule 2110; VA Linux

Document Type: Research article

DOI: http://dx.doi.org/10.1007/s10551-005-0179-3

Affiliations: 1: Mendoza College of Business, University of Notre Dame, Notre Dame, IN, 46556-5646, U.S.A., Email: Loughran.9@nd.edu

Publication date: 2005-12-01