Abogado.com The #1 Spanish-language legal site for consumers Goldman Sachs and Meg Whitman, former CEO of eBay, have been embroiled in a conflict of interest scandal that had been considered turning point since the early 2000s. During his tenure as CEO, Whitman was appointed to Goldman Sachs` board of directors in 2001. Her appointment would have given her access to information about hot stock IPOs, and she was named in a congressional investigation into spinning. During the investigation, it was alleged that Goldman Sachs and other companies had used tactics to trade hot stock IPOs for other investment firms. Whitman resigned from the board and eventually settled a lawsuit related to the money she made from IPO purchases. At FindLaw.com, we pride ourselves on being the leading source of free legal information and resources on the Internet. Contact us. Nglish: Spinning translation for Spanish speakers The term spinning refers to the offer of preferred clients in an initial public offering (IPO) by a brokerage firm or underwriter to maintain or maintain their business. Spinning theoretically benefits the underwriter or brokerage firm, as well as the preferred client to whom the shares are offered.
The practice of spinning, also known as IPO spinning, is both illegal and unethical. The act of division has nothing to do with the division – when a company dissolves one of its segments or divisions into a separate entity. Illegal poaching of business from privileged customers using allowances to make a quid pro quo. FindLaw.com Free and reliable legal information for consumers and legal professionals The practice has now been classified as illegal as it has been classified as theft by favoritism and is also considered corruption. Social harm, which is now prohibited, involves the unlawful delivery of the monetary value of rebates to privileged investors selected by investment firms. The start-up selling the IPO could have obtained a higher price by selling directly to ordinary investors if the investment firm had not sold it at a discount to selected investors. Individuals or companies that have committed violations may face a hefty fine. Are you a lawyer? Visit our professional website » Britannica.com: Encyclopedia article on spinning According to a study by Professors Xiaoding Liu and Jay R. Ritter of the University of Florida in 2009, spinning really achieves its goals. Liu and Ritter found that spun IPOs had 23 percent higher first-day returns than similar IPOs.
The average profit earned by executives on the first day from hot IPO allocations was $1.3 million. The ratio of these figures shows that only 8% of the additional amount on the table goes to the executives who are being split. In addition, companies that offered IPOs changed underwriters only 6% of the time, compared to 31% of the time for companies that were not offered IPOs. However, the study`s authors also noted that „since 2001, business executives have largely stopped filming in the United States. This is due to both regulatory crackdown and a lack of hot IPOs. » The FindLaw Legal Dictionary – free access to over 8260 definitions of legal terms. Search for a definition or browse our legal glossaries. LawInfo.com National Directory of Bars and Consumer Legal Resources In the event of a spin-off, shareholders of the parent company are not required to sell shares of their parent company in exchange for shares of the subsidiary.
Spinning is a lucrative way to attract business from large companies. By influencing senior executives` decision, investment brokerages can get something in return. Companies or underwriters offer clients undervalued shares of an IPO – usually those that are a popular issue – to close new deals. In this way, the company offering the shares cultivates loyalty and/or a wider customer base. Meanwhile, the preferred client enjoys benefits such as equity gains that come with investing in a dynamic new public company. Source: Merriam-Webster`s Dictionary of Law ©, 1996. Licensed with Merriam-Webster, Incorporated. SuperLawyers.com directory of American lawyers with the exclusive Super Lawyers rating. Copyright © 2022, Thomson Reuters.
All rights reserved. This situation arises when a parent company organises a subsidiary to which it transfers part of its assets in exchange for the entire share capital of the subsidiary, which is then transferred to the shareholders of the parent company. In the event that the distribution of shares to shareholders of the parent company constitutes a dividend, the distribution may be taxed in accordance with the provisions of the income tax laws. Since IPO profits usually occur on the first day of trading, the demand is for hot IPO stocks that can easily be flipped over on the first trading day to make a substantial profit for the underwriting broker. IPOs created instant profits for underwriters, especially during the dot-com boom of the late 1990s. Some underwriters took the opportunity to allocate shares to their friends in the company, hoping to get future investment banking from them. University of Florida. „The Economic Consequences of IPO Spinning,“ pp.