From late 1998 through the summer of 2000, Wall Street was an out-of-control beast, and IPOs were its sustenance. The Securities and Exchange Commission is reportedly investigating a host of questionable issues, including whether investment banks unfairly allotted pre-IPO shares in return for a variety of kickbacks. It is the practice of tie-ins, more than anything else, that has attracted most of the attention from regulators, because tie-ins fall under market manipulation, which the SEC specifically banned in 1997 when it passed Regulation M.
There are several variations of the tie-in, including paying high commissions as a quid pro quo for a higher allotment of IPO shares or placing large trades with banks who are allotting IPO shares. And then there was the practice of promising to buy IPO stocks at fixed minimum prices in the aftermarket.
In this seven-part piece, Red Herring takes you behind the scenes of the IPO allocation process. The series is the result of more than 100 interviews with the people who know what went on: underwriters, traders, hedge and portfolio fund managers, litigators, regulators, and executives from the newly public companies themselves.
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