Insiders Made A Bundle On Secondary Stock Issues

from the more-dot-com-greed dept

The San Jose Mercury News has another expose on how insiders used the screwed up public markets to cash in during the boom years. For years (even during the boom time) we argued that so many IPOs were terribly managed, and clearly under priced – leaving millions (if not billions) of dollars on the table that each company should have received. For some reason, though, people’s psychological belief that a first day price jump was a “good” thing, drove bankers to continually underprice the market. This article, though, suggests yet another reason for doing so. While the IPO got all the press, it was really the follow-on deals (which are more commonly called secondary offerings – though, some claim this is not the proper use of the term) that brought in the cash. The IPO would only offer a very small number of shares to the public, with great public scrutiny. However, in the follow-on deal, often only a few months later, the company would bring in the real cash, at a price much closer to the insanely overvalued market, while also letting insiders quietly cash out, prior to the official end of their lockup. The Merc even put together a chart showing a number of these deals – and demonstrating how much of those deals were simply insiders cashing out before the bubble burst.

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