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
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
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.
-
The Stoic Retirement: Ancient Wisdom for Today's RealityA "Stoic retirement" doesn't mean depriving yourself. It's a character-based approach to life and aging that can bring calm and clarity.
-
My Teen Crashed His Car and Now Our Insurance Has Tripled. What Now?Dealing with the costly aftermath of a teen car accident is stressful. Here are your options for navigating it.
-
11 Outrageous Ways To Spend Money in RetirementWhether you have excess cash to spend or want to pretend, here’s a look at 11 ridiculous ways retirees can splurge.
-
What the Rich Know About Investing That You Don'tPeople like Warren Buffett become people like Warren Buffett by following basic rules and being disciplined. Here's how to accumulate real wealth.
-
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 Fall Rate Cuts by the FedThe probability the Fed cuts interest rates by 25 basis points in October is now greater than 90%.
-
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.
