9601180729
DETROIT FREE PRESS
960609
Sunday, June 09, 1996
METRO FINAL
1F
MITCH ALBOM
SUNDAY VOICES
Copyright (c) 1996, Detroit Free Press
LURE OF EASY MONEY A CANCER IN OUR SOCIETY
New York Sen. Alfonse D'Amato has been yelling a lot lately. What a waste.
He could be practicing something he's really good at -- doing nothing and
making money.
Three years ago, D'Amato's brokerage firm did him a little favor. Told him
about a new issue of stock it was handling, and offered Al a shot at 4,500
shares, at the low-low issuing price of $4 a share. All the senator had to do
was say yes. Even someone as confused as D'Amato could handle that.
Now, such an offer is unheard of for clients with a portfolio as small as
D'Amato's -- unless that client, like Al, happens to be on the Senate Banking
Committee.
So he got his stock in the morning, at $4 a share, and a few hours later,
it was selling at $12.25 a share. That's when Al cashed in. For all his time
and patience -- barely long enough to eat breakfast -- Al made a tidy $37,000
profit.
That's $37,000. Without lifting a box, without painting a wall, without
even breaking a sweat, unless you break a sweat by saying, "Sell."
Now, this is infuriating and improper, not to mention hypocritical. After
all, D'Amato has been chasing the Whitewater scandal like a bloodhound,
furious that the Clintons might have made money on a shady land deal -- when
D'Amato did the same with a stock tip.
And Al seems terribly bothered that Hillary Clinton cleared $100,000 in the
commodities market in a few short months -- when he made a killing in one
morning.
Maybe that's why he's so angry. He can't believe the First Lady is so
inefficient.
The ABCs of IPOs
Shady politicians are nothing new. And hypocritical senators? Ha! We don't
have enough space in this newspaper.
But even more disturbing than those old problems is this relatively new
one: the trend of the privileged few making financial killings on IPOs
(Initial Public Offerings) like the one D'Amato pulled off. Once you learn
how this works, it will boggle your mind.
A company decides to issue stock in itself. It meets with investment
brokers, comes up with how many shares it wants to offer, and what it thinks
is a fair price.
Now, you would think OK, they sell the shares to interested parties and --
ta-da! -- it's on the stock market. But it's not that simple. Since there are
so few shares of a new offering, the brokerages keep them for the most
"special" clients. Mostly these are huge mutual funds and money managers --
who need more wealth the way Richard Simmons needs more energy -- and then,
maybe, someone they want to impress, say, a rich friend, a mistress or a
senator on a banking committee?
The reason these original shares are so valuable is because in this age of
greed and speed, everyone wants to make a fast buck with no effort. And when
word gets out on a "hot" new company issuing stock, well, everyone wants to be
there early -- to sell it to someone who comes later.
"It's insane," admits Lew Cohen, a broker with Paine Webber who has been
involved with a few IPOs himself. "The thirst for the stock market is driving
the IPO prices through the roof. Everyone thinks he's gonna get rich quick.
You have people saying 'I don't care what it opens at, I want some.' "
Money for nothing
Unfortunately for these people, IPOs with an original price of $5 a share
might make their first trade at $15 a share. That's a fast 300 percent profit
for guess who? You got it. The original owners. The investment banks, the big
dealers, and those lucky few such as D'Amato.
And then, quickly, inevitably, the stock gets too expensive, and people
begin bailing out as quickly as they jumped aboard. Eventually, the stock can
slip to nothing. D'Amato's little treasure chest, for example, a company
named Computer Marketplace Inc., now sells at around 50 cents a share.
Not that Al cares. He's busy chasing the Clintons.
What's truly sad here is that it's not just the brokerages. Everyone wants
to make money off the useless act of trading money. People jumping in and out
of IPOs don't even know what the company does half the time. They don't care.
They're not investing in people and products. They see money blowing in the
wind, and they want to grab some.
It's the type of greed that was so painfully depicted in the '80s film
"Wall Street." Folks, don't think that film is dated. In today's corporate
culture, where stock price matters more than employees, there are even more
financial bloodsuckers out there than before, creating nothing, adding
nothing, providing no service, simply moving money around the board, and
scooping a bunch for themselves with every move.
It's bad enough when average Americans get mesmerized by this quick greed
stuff. An elected official ought to know better. Which makes you wonder why
D'Amato is so indignant with the Clintons for making their quick bucks.
Maybe he's angry he missed out.
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