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US SEC probes use of leverage in new issues--official


Date: Thursday, May 24, 2007
Author: Reuters

NEW YORK, May 23 (Reuters) - The U.S. Securities and Exchange Commission is investigating whether broker-dealers are complying with rules that bar lending to purchase new stock issues, a senior SEC official told an industry audience in New York on Wednesday.

James Brigagliano, associate director in the SEC's division of market regulation, said the SEC has launched probes into an undisclosed number of Wall Street firms on whether they are complying with provisions of Rule 11 (d)(1) of the Securities Exchange Act of 1934.

Brigagliano disclosed the probe involving the SEC's Office of Compliance during a panel discussion on prime broker issues at the Securities Industry and Financial Markets Association meeting on hedge funds in New York today.

He was speaking in response to a question from another panelist, Robert O'Connor, a Morgan Stanley managing director and counsel.

"The OC staff is trying to assess compliance with the rules," said Brigagliano.

Asked if there were major "drivers" to the inquiry, or evidence suggesting widespread violations, he said: "Not that I am aware of."

SEC rules bar the extension of credit to investors to buy into new issues, such as initial public offerings or follow-on stock issues. The rule is aimed at abating the creation of a debt-fueled artificial market for new issues.

It is unclear how many brokers have been contacted by SEC investigators and Brigagliano declined further comment.

SEC spokesman John Heine declined to confirm the investigation, but said the agency is "always examining for compliance with securities laws."