From www,downside.com:
12.18.2000 - The Golden Life Raft - the rule change that made the Internet bubble possible
Until the late 1990s, the Securities and Exchange Commission's Rule 144 generally required that insiders hold their stock for two years after an IPO. That rule was changed on February 20, 1997 to allow insider sales much
sooner. The boom in dumb IPOs followed shortly thereafter. Under the old rule, if the company tanked months
after the IPO, management, and the venture capitalists, went down with the ship. The new rule provides a
"golden life raft", allowing management and the VCs to cash out and watch from safety while the ship goes down
without them.
It's instructive to read the position of the National Venture Capital Association, the VC's trade association, when
they were lobbying for this change: "The NVCA supports a further shortening of this holding period. This further
shortening would enable venture capital funds to provide faster liquidity to fund investors, thereby increasing
their returns and attracting more capital for investment in emerging growth companies." This is financial-speak for
"let's party".
That single rule change made the bubble possible. In retrospect, making insider sales easier was terrible public
policy. The only people who benefit are those doing IPOs that shouldn't have been done at all.
OR: Screw trhe suckers who put their money in. |
