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.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free 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.
-
Medicare Open Enrollment 2025: Live Updates, Tips and NewsMedicare Open Enrollment Updates Medicare Open Enrollment starts October 15, through December 7. We're covering everything you need to know to get the best plan for your health and budget.
-
IRS 1099-K Threshold for 2025 Taxes Just Changed: What to Know NowTax Law After years of uncertainty and changing requirements, the 1099-K reporting rules for 2025 are now set, and the thresholds have changed since last year.
-
How to Invest for Rising Data Integrity RiskAmid a broad assault on venerable institutions, President Trump has targeted agencies responsible for data critical to markets. How should investors respond?
-
What Tariffs Mean for Your Sector ExposureNew, higher and changing tariffs will ripple through the economy and into share prices for many quarters to come.
-
How to Invest for a Fall Interest Rate Cut by the FedA lot can happen between now and then, but the probability the Fed cuts interest rates in September is back above 80%.
-
Are Buffett and Berkshire About to Bail on Kraft Heinz Stock?Warren Buffett and Berkshire Hathaway own a lot of Kraft Heinz stock, so what happens when they decide to sell KHC?
-
How the Stock Market Performed in the First 6 Months of Trump's Second TermSix months after President Donald Trump's inauguration, take a look at how the stock market has performed.
-
Fed Leaves Rates Unchanged: What the Experts Are SayingFederal Reserve As widely expected, the Federal Open Market Committee took a 'wait-and-see' approach toward borrowing costs.
-
Fed Sees Fewer Rate Cuts in 2025: What the Experts Are Saying
Federal Reserve The Federal Reserve cut interest rates as expected, but the future path of borrowing costs became more opaque.
-
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.
