Spinning (IPO) is the act or practice of an
investment bank
Investment is the dedication of money to purchase of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort.
In finance, the purpose of investing is ...
offering under-priced shares of a company's
initial public offerings
An initial public offering (IPO) or stock launch is a public offering in which shares of a company are sold to institutional investors and usually also to retail (individual) investors. An IPO is typically underwritten by one or more investment ...
to the senior executives of a
third party
Third party may refer to:
Business
* Third-party source, a supplier company not owned by the buyer or seller
* Third-party beneficiary, a person who could sue on a contract, despite not being an active party
* Third-party insurance, such as a Veh ...
company in exchange for future business with the investment bank.
[ Mishkin, Frederic 2010. The Economics Of Money, Banking & Financial Markets (9th ed.) p. 191. ]Addison-Wesley
Addison-Wesley is an American publisher of textbooks and computer literature. It is an imprint of Pearson PLC, a global publishing and education company. In addition to publishing books, Addison-Wesley also distributes its technical titles through ...
. . This
conflict of interest
A conflict of interest (COI) is a situation in which a person or organization is involved in multiple interests, financial or otherwise, and serving one interest could involve working against another. Typically, this relates to situations i ...
was a relatively common way for investment banks to attract new clients in the past, but has since been prohibited. Those opposed to the practice liken IPO spinning to a disguised form of corporate
bribery
Bribery is the Offer and acceptance, offering, Gift, giving, Offer and acceptance, receiving, or Solicitation, soliciting of any item of value to influence the actions of an official, or other person, in charge of a public or legal duty. With reg ...
and believe that it cheats two classes of investors:
* The shareholders in the third party company who are unable to receive similar favorable IPO terms as those received by its senior executives, and that constitutes a breach of
fiduciary duty
A fiduciary is a person who holds a legal or ethical relationship of trust with one or more other parties (person or group of persons). Typically, a fiduciary prudently takes care of money or other assets for another person. One party, for exampl ...
to shareholders required of the company's senior executives, specifically that they not use their corporate office to extract favors that are not shared equally by all shareholders.
* The
retail
Retail is the sale of goods and services to consumers, in contrast to wholesaling, which is sale to business or institutional customers. A retailer purchases goods in large quantities from manufacturers, directly or through a wholesaler, and t ...
shareholder public who are compelled to purchase large sizes of stock in an IPO at exorbitant prices from the special favored executive friends of the brokerage
underwriting
Underwriting (UW) services are provided by some large financial institutions, such as banks, insurance companies and investment houses, whereby they guarantee payment in case of damage or financial loss and accept the financial risk for liabilit ...
the IPO.
See also
*
Flipping
Flipping is a term used to describe purchasing a revenue-generating asset and quickly reselling (or "flipping") it for profit.
Within the real estate industry, the term is used by investors to describe the process of buying, rehabbing, and sell ...
References
External links
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Initial public offering
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