Riverdeep, the Irish educational software company, was taken public in the United States by Credit Suisse First Boston in March 2000. In November, December and February, an analyst at Credit Suisse recommended investors to buy the stock, which rose from around $23 (€26.84) to a recent high of $27.25.
But of the 60 shareholders selling restricted stock since November, 12 were employees or former employees of Credit Suisse. They included Frank Quattrone, head of the firm's technology investment banking group, who filed to sell 20,000 shares worth $500,000. The analyst, Ms Jennifer Hayward, continues to recommend that investors buy Riverdeep, which trades at $26.47.
The case of Riverdeep is cited in a major investigation by the New York Times into questionable practices among some brokerage firms that feature prominently in the issuing and promotion of shares to the public. Mounting criticism of analysts who recommend stocks that they or their colleagues hold themselves has forced the Securities Industry Association to work on a new code of conduct for equity analysts in brokerage firms.
Stories of analysts dumping stocks while still recommending them as a buy, especially during the recent Nasdaq meltdown, have also prompted a Congressional committee to conduct hearings next month on conflicts of interest. There was growing concern that individual investors were being treated unfairly, said Representative Richard Baker, chairman of the House subcommittee on capital markets.
A typical case cited by the New York Times concerned analyst Richard Juarez of the firm Robertson Stephens. In September 2000 he advised investors to buy iBasis, a provider of Internet telephony services, even though shares had fallen from nearly $50 to $21.
Within a month the stock had fallen by 50 per cent again, and on November 27th, when priced at $5.25, Mr Juarez filed to sell his own 4,005 iBasis shares. However, a week later he was still recommending a buy. Shares in iBasis have since slumped further to $3.96. Robertson Stephens said the analyst's actions were in keeping with its policies.
