Bookmaking 101

Order shares in a hot initial public offering (IPO), and you won’t know if you’re getting any or how many, until it’s all over.  Way over too, often enough.  Some times there’ll be a bunch in your account.  Others, not so many.  Maybe you won’t take down any at all.  Crime Families say they’re rewarding “good customers” this way.  Somehow.  They’re not all that clear on the somehow part.


Interest in the recent Facebook IPO gives us a chance to pull back that cover story, and show our readers who’s really getting rewarded here and precisely how that goes down.  Lets take a look at the worst-case IPO swindle.  It’s infuriatingly unethical to pull off.


First of all, the lead underwriter has to book the new shares.  Who owns them now, and how many, gets officially written down.  Then the Street’s market makers can start trading in the issue, and – wait a minute - here’s where the fun begins.  In fact, it’s already begun.  Right at the giddy-up.  In the worst of IPO cases, that timeline isn’t what happens at all.  What you’ve got with this one is the old switcheroo.  You book the shares after trading begins.  Some of them anyway.  Yours, specifically.  And long after, if you play it smart.


As we pointed out in the last blog, the mob can take down shares for themselves in an IPO, adding on as much as 15% to what’s issued and sell their allotment to the public, and that 15% is conveniently flexible, as is when the shares really get sold.  Particularly convenient for the old switcheroo.


If the Crime Lords wait until their new listing hits the open market, and then a bit longer to see how things actually went, they’ll know for sure whether the price headed up or down, and by how much.  That’s when a heartless swindler wants to complete his book.  If the mob’s cut is, just to throw in a number, 63 million shares, every one-point move in the aftermarket pulls in a $63 million profit.  After ten points, that would come to $630 million (of our money, don’t forget).  The incentive to screw with this IPO thing is enormous.


And so, when the stock's price goes up in the aftermarket, the Crime Families would buy those 63 million shares at an offering price of, to throw in another number, $38, and write a check to the issuing company for something around $2.4 billion (63 million x $38).  If the aftermarket price soars, the money-sucking thieves can just take the whole allotment for themselves, which, of course, means friends and relatives too as well as offshore bank accounts and the like, as they’re sticking blocks and blocks into their firm’s proprietary trading position.  Quid pro quo is big in the financial rackets.  You give me $100 million from your IPO and I’ll deal you in for $100 million with mine.  It looks like they’ve got a legitimate business going on down there if the goons are stealing from everybody’s customers and not just their own.  In the instant case, we’ll say the mob finally sells their position to the public after a ten point pop to 48, garnering that $630 million trading bonanza we just told you about, of course.  A bonanza, it bears repeating, that would’ve belonged to their customers if we suckers weren’t dealing with crooks.


On the other hand, when the aftermarket price heads south in the worst-case IPO swindle, the Crime Lords would place what would’ve been that 15% allotment into public hands anyway, only 63 million shares aren’t issued; they’re just sold.  Short.  This time these are just play shares, and whenever the price is right, the phony-baloney stock, existing only at the crime scene - on the trading ledgers of the mob, disappears into thin air when it gets bought out and the short position closed.  We’ll say this happens at 28, at which time the scoreboard reads $630 million SCAMMERS - ($630 million) PUBLIC.  Again.  (You will note that the only purpose served by the mob’s shares here was to loot our savings.  This stock played no part in providing capital to American business.  None whatsoever.  Mob didn’t buy those 63 million shares from the company this time and the company didn’t get any $2.4 billion.  Company got zilch because the racketeers simply made those shares up to rip off their customers.)


It’s all win-win for the money-sucking reprobate (investment banker) inside the worst-case IPO swindle model.  As long as this purse-snatcher knows where the aftermarket price has landed before he completes the book.


How close actual practice comes to worst-case, we’ll probably never know, and unbelievably, the Feds say there’s no need for oversight here.  Crime Lords stuff Washington pockets big time to keep regulatory hotshots away from a topic like this.


Remember The Sting?  That movie about this betting parlor, out-of-town horse races, and those two charming lowlifes presented as grifters.  Paul Newman and Robert Redford figure out how to get race results before the betting parlor does and put a pile down on a horse that’s already won.


It’s baffling to us why these Wall Street con men never get fingered for doing the same damn thing.