Initial Public Offerings
What is an 'IPO'?
An IOP is an Initial Public offering. This is when a company that has been operating privately, wants to come out to the public to generate funds to either increase their exposure, or to allow the public to participate in the business themselves. They therefore feel they have ownership issues. When a company becomes public, then any given person who buys stock and shares in the company has ownership themselves.
If a company becomes public, what disclosures is it required to make regularly?
If a company becomes public, they need to make quite a few disclosures; especially on the financial side. They need to disclose financially a balance sheet, and an income statement. They need to keep that updated periodically, and I think this needs to be updated at least on a quarterly basis. They'll need to disclose information about the salaries being paid to the executives, they'll need to discuss who the executives are, and they'll also need to discuss bonuses and payout options.
Are there state law requirements for IPOs in addition to federal ones?
Each state does have their own rules, and depending on the state there are state laws that will dictate how an IPO or initial public offering is presented in that state.
What is meant by the term 'spinning' and is it legal?
The term 'spinning' means that a broker can pick and choose who they can issue hot stocks or truly hot issues to. Let me explain a little bit on “hot issues”. What that means is if a company is suppose to be extremely popular at the issue, for companies to come up at let's say $10 a share and the next day it's going to be at $20 a share, the broker can determine on those hot shares, who receives the stocks themselves. It's an issue because obviously the broker is going to put these shares with his best clients and if that happens, there is a question on whether or not that should be able to continue on. It is legal. It's just some of the SCC takes a look at to make sure there isn't any improprieties that have gone on with that particular action. IE and he kick backs or anything that would happen that would promote the broker to deliver this particular share to particular client versus others.
A broker sold me a stock but the SEC accused the company of fraud, what are my options?
If a broker sells you a stock that's an IPO and ends up being fraudulent, then you can go back to the issuing company itself to receive your funds.
