Thursday December 9, 5:10 pm Eastern Time
SEC's Levitt urges investors to shun "IPO game"
NEW YORK, Dec 9 (Reuters) - The top U.S. securities regulator on
Thursday warned people against investing in initial public offerings,
saying the risk of losing money in the long run outweighed the allure of
sharp initial gains.
Securities and Exchange Commission Chairman Arthur Levitt, speaking at
Columbia University Law School, used every possible opportunity to
discourage ordinary people from jumping into the ''IPO game.'' He
stressed it as he fielded questions from the audience at an appearance
that is part of a national investor awareness campaign sponsored by the
SEC. Sen. Charles Schumer of New York also spoke at the event.
''I'm worried about investors making short-term judgments, and firms
(hyping) ... hot new issues,'' the 68-year-old Levitt said. ''I think
they are doing a disservice to a lot of investors. I think it's
reprehensible.''
He said people should avoid making IPOs a main pillar of their
investment strategies and said investors who did so were foolish. ''I
think they are taking an unwarranted risk.''
The Brooklyn-born SEC chairman, who was once a stock broker, told
investors more IPOs end up dropping sharply in price after an initial
run-up in value. Investors must also be wary of brokers or securities
firms that hype IPOs, he said.
The warning, however, was not on the minds of investors scrambling to
buy shares of computer systems maker VA Linux Systems Inc.
(NasdaqSC:LNUX - news). The stock opened on the Nasdaq stock market on
Thursday at $30 a share. It shot up an eye-popping 800 percent to $274
by midday.
Ordinary people have only recently been able to access funds that buy
into IPOs. In the past, powerful Wall Street firms representing
institutional investors have had a virtual monopoly on the often
lucrative but risky IPO business.
Institutional investors have been able to double or triple profits when
they've been able to buy new issues at their initial IPO price and then
sell, or ''flip,'' them once they shoot up in value.
Consequently, individual investors began clawing to buy into IPOs in the
last few years after watching institutional investors and wealthy
individuals profit handsomely. |
