A Dangerous IPO Ride
Piggybackers target mutual thrift and insurance customers who have rights to buy shares in the initial public offering of their thrift or insurer. But it's a sticky trap you want to avoid.
Some piggyback rides can be dangerous. Not the kind you give your kids, but the kind you take when you borrow money to invest in a new stock offering and then share the profits with the lender. The practice is legal with some stock buys, but it's banned when it involves mutual thrifts and insurance companies that convert to public-stock ownership.
Piggybackers target mutual customers who have rights to buy shares in the initial public offerings of their thrifts or insurers. Because mutual customers are considered owners, they get a shot at a small slice of the offering and a big opportunity for gains (see "Bank on Thrifts That Go Public," Dec.). Customers may borrow to buy shares, but they can't divvy up the profits with a third-party lender, says Richard Schaberg, a lawyer at Thacher Proffitt Wood in Washington, D.C.
Piggybackers lend money to customers in exchange for some of the expected profits. In some cases, scammers also have the IPO shares registered to an account they control. Piggybacking is prohibited because it cheats other investors out of their shares. Federal authorities last year nabbed five people accused of trying to buy stock in the IPO of NewAlliance Bancshares illegally. They could face fines and other civil penalties and even criminal charges.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
That's one ride you want to avoid.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
-
Should You Buy Pet Insurance?
You can fend off big veterinary bills with a policy that covers your furry companion.
By Donna Fuscaldo Published
-
IRS Could Lose Another $20 Billion in Funding
IRS A mistake in legislative language could soon risk the tax agency's Inflation Reduction Act funding.
By Gabriella Cruz-Martínez Published
-
Fed Cuts Rates Again: What the Experts Are Saying
Federal Reserve The central bank continued to ease, but a new administration in Washington clouds the outlook for future policy moves.
By Dan Burrows Published
-
Fed Goes Big With First Rate Cut: What the Experts Are Saying
Federal Reserve A slowing labor market prompted the Fed to start with a jumbo-sized reduction to borrowing costs.
By Dan Burrows Published
-
Stock Market Today: Stocks Retreat Ahead of Nvidia Earnings
Markets lost ground on light volume Wednesday as traders keyed on AI bellwether Nvidia earnings after the close.
By Dan Burrows Published
-
Stock Market Today: Stocks Edge Higher With Nvidia Earnings in Focus
Nvidia stock gained ground ahead of tomorrow's after-the-close earnings event, while Super Micro Computer got hit by a short seller report.
By Karee Venema Published
-
Stock Market Today: Dow Hits New Record Closing High
The Nasdaq Composite and S&P 500 finished in the red as semiconductor stocks struggled.
By Karee Venema Published
-
Stock Market Today: Stocks Pop After Powell's Jackson Hole Speech
Fed Chair Powell's Jackson Hole speech struck a dovish tone which sent stocks soaring Friday.
By Karee Venema Published
-
Stock Market Today: Stocks Drop Ahead of Powell's Jackson Hole Speech
Sentiment turned cautious ahead of Fed Chair Powell's highly anticipated speech Friday at the Jackson Hole Economic Symposium.
By Karee Venema Published
-
Stock Market Today: Stocks Rise After Jobs Data Lifts Rate-Cut Odds
Preliminary data from the Bureau of Labor Statistics shows job growth was lower than previously estimated.
By Karee Venema Published