The settlement of a widely watched IPO case could be a springboard for an eventual overhaul in the way Wall Street firms allocate shares of new stocks to investors.

In a settlement expected to be unveiled today, Credit Suisse First Boston will agree to beef up its practices regarding allocations of initial public offerings of stock and pay $100 million following a 1 1/2-year investigation, according to people familiar with the matter.

The changes, contained in a final judgment to be filed by the Securities and Exchange Commission in a Washington, D.C., federal court as part of the settlement, require CSFB to adopt and put into place revised policies and procedures for allocating hot IPOs, according to the people familiar with the settlement.

They include creation of a new committee of CSFB capital-markets and stock executives to review IPO allocations. CSFB also will be required to "prequalify" some accounts, such as hedge funds, to receive IPOs only after having an account at CSFB for at least 60 days. (Hedge funds are little-regulated private investment partnerships for large investors.) The firm must also review commissions paid by investors around the time of an IPO.

The actions apply at this point only to CSFB, a unit of Swiss bank Credit Suisse Group. But the cleanup effort could eventually become part of new IPO guidelines to be drawn up by the SEC. Harvey Pitt, the SEC's new chairman, has said the agency may propose new guidelines after the enforcement phase of the case ends.

The CSFB procedures stemming from the settlement "could become a template" for new SEC rules or voluntary adoption of similar procedures by other firms, says Henry Hu, who teaches securities regulation at the University of Texas Law School in Austin.

The SEC and the regulatory unit of the National Association of Securities Dealers have been investigating how Wall Street firms allocated hot new issues during the dot-com stock boom in 1999 and early 2000, when new IPOs routinely doubled or tripled in price on their first day of trading. The proposed settlement marks the biggest regulatory crackdown on the excesses of the IPO stock boom. The case rocked CSFB during the first half of 2001, when the firm fired three brokers in the firm's San Francisco office, and had eight other employees warned of possible disciplinary action by the NASD.

Yesterday, spokesmen for CSFB, the SEC and the NASD declined to comment.

CSFB became a focus of one part of the probe into how Wall Street firms charged unusually high commissions, at times exceeding $1 a share, and whether this resembled kickbacks in exchange for the lucrative offerings. The settlement's general structure and $100 million payment were reported last month in The Wall Street Journal.

Another leg of the probe, into whether Wall Street firms required investors who got IPOs to buy more stock in the aftermarket, is pending. That part of the investigation focuses on firms including Goldman Sachs Group Inc., Morgan Stanley, the securities unit of J.P. Morgan Chase & Co., and the Robertson Stephens unit of FleetBoston Financial Corp. These firms have declined to comment.

In the settlement, CSFB will pay $30 million in fines, to be split evenly between the SEC and the NASD's regulatory unit, NASDR Inc., as well as $70 million in disgorgement of allegedly ill-gotten gains. CSFB, which won't admit or deny wrongdoing, also will be charged with improperly sharing customers' profits, and failure to keep accurate records.

Although the payment of $100 million is one of the largest penalties assessed against a Wall Street firm, CSFB will emerge without being charged with securities fraud or making material misstatements in IPO offering documents. Thus, the arrangement could help the firm deal with hundreds of private class-action lawsuits pending in a New York federal court alleging IPO abuses by Wall Street firms.

The settlement "has clearly been structured to provide no aid to the private plaintiffs in the class-action cases," asserts John Coffee, a professor at Columbia University Law School who specializes in securities regulation and corporate governance.

However, some lawyers in the class-action cases disagree. They say the settlement provides important evidence of wrongdoing. "The proposed $100 million fine is just the tip of the iceberg," said Stanley Bernstein of the firm of Bernstein Liebhard & Lifshitz LLP, which represents class-action plaintiffs. "It's the equivalent of a fine for running through a red light, and we're suing for the accident caused when you ran the red light."

The settlement doesn't cover past or current CSFB employees, who could still potentially face charges.

In the investigation, regulators turned up instances where in the months before an IPO, investors opened accounts and quickly funneled commissions into the accounts in order to receive IPO shares. At times, the commissions were paid at rates of $1 to $3 a share-far above the usual going rate of five cents a share for institutional investors.

The investigation, which began in mid-2000, was set back by the terrorist attacks of Sept. 11, which triggered the collapse of the building at 7 World Trade Center, housing the New York regional office of the SEC. That required the replacement or duplication of vital documents, even as enforcement staffers worked from their homes temporarily.

In July, CSFB's chief, Allen Wheat, was succeeded by John Mack, who made settlement of the case a priority. CSFB hired law firm Davis Polk & Wardwell to lead the defense of a related criminal investigation by the U.S. Attorney in Manhattan, which dropped the case in November. Wilmer, Cutler & Pickering led the firm's civil defense.

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                CSFB's New IPO Playbook 

  In the $100 million settlement of the IPO case, CSFB will adopt and 
implement revised policies and procedures for allocating initial 
public offerings of stock. Among the steps CSFB will promise to take: 

  -- A new committee of CSFB capital-markets and stock executives will 
review IPO allocations. 

  -- Hedge funds that receive allocations of IPOs must have accounts 
with CSFB open for at least 60 days. 

  -- Heightened supervision to include a review of commissions paid by 
investors around the time of the IPO.

Credit: Staff Reporters of The Wall Street Journal