The NYSE wants to clean up its act

The National Association of Securities Dealers (NASD) filed a complaint against Invemed, a small bank whose founder, Kenneth Langone, sits on the NYSE board.

It alleged that Invemed had charged clients commission for preferential access to hot share flotations, the focus of much investor excitement during the 1990s.

The complaint is embarrassing for the NYSE, whose chairman, Richard Grasso, sits on the board of one of Mr Langone's companies, Home Depot.

It comes at a time when the NYSE is desperately trying to clean up the reputation the companies it lists, after a string of scandals relating to dodgy accounting and poor corporate governance.

Easy money

The issue at the heart of this case - access to share flotations, or initial public offerings (IPOs) - is the cause of a great deal of mudslinging on Wall Street at present.

A number of high-profile US banks have been hit by complaints that they were unfair in the way shares were allocated in the best IPOs, especially internet shares that soared within the first few days of trading.

This is Mr Grasso's third board scandal

In its Invemed complaint, the NASD cited a client who bought 2,000 shares in VA Linux and 2,000 shares in FogDog.

If the customer had immediately sold the IPO shares, he or she could have made more than $550,000 profit.

That day, the NASD alleged, the customer paid the firm $140,000 in agency commissions.

In some cases, the NASD said, customers disguised payments to Invemed by directing business their way, for example selling and immediately buying back shares via Invemed brokers.

Third time unlucky

This is the third embarrassing scandal to hit the NYSE board in recent months.

In October, homemaking celebrity Martha Stewart resigned from the NYSE board because of investigations into alleged insider trading.

And last month, Mr Grasso was forced to abandon a plan to install Citigroup boss Sandy Weill as a board member, after New York's attorney general opposed him on corporate governance grounds.

The NASD has now launched six complaints about member firms' IPO practices.

Invemed now has the right of reply, but could face punishments ranging from censure to expulsion from the securities industry, if found guilty.