MARTHA THRIVED ON BUDDY SYSTEM
By TERRY KEENAN
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PARTY FAVORS:
The Martha Stewart saga gives a glimpse into how the Wall Street game was played among the well-connected.
- Patrick McMullan
July 7, 2002 -- ONE of the most compelling aspects of the Martha Stewart saga is how it keeps on giving.
Giving, that is, almost daily examples of how the Wall Street game was really played by the well-connected in the days before the bubble became real trouble. We all knew that the game was rigged, but Martha's Web helps complete the picture.
And this has nothing to do with trading on inside information.
While we all know that investment tips spread around the New York social scene like air kisses, the real currency of the cognoscenti during the bull market was perfectly legal tender: shares in a hot IPO.
While mere mortals rarely got a crack at a new issue, typically 10 to 15 percent of all IPO shares were earmarked for "friends and family." And in the halcyon days of the late 1990s, an IPO allocation was the closest thing to a winning lottery ticket you could get.
The Martha saga reveals a glimpse into how this gravy train worked.
Although we still don't know exactly why Martha decided to dump all her ImClone shares on that stopover in San Antonio, we do know this: She got her original 5,000 shares of ImClone at the time of its very popular IPO because of her friendship with ImClone CEO Sam Waksal.
More recently, Martha also got to invest in Waksal's venture fund Scientia for a tenth of a penny per share. Both sales were perfectly legal, and potentially very lucrative. Call it the ultimate party favor.
And Martha returned the favors in kind - doling out $10 million dollars worth of shares to her "friends and family" when Martha Stewart Living Omnimedia went public in late 1999.
For Martha's savvy buddies who sold in the days after the IPO, it was a double-your-money proposition, with virtually no downside risk - for them.
The risk was assumed by millions of shareholders out of the loop - those who bought hundreds of billions of dollars worth of IPO shares in the public market in recent years with misguided hopes of a similar moon shot.
With the average IPO rising 70 percent in its first day of trading in the boom year of 1999, the SEC, the investment banks and the CEOs all knew that selective allocation of these IPOs was the ultimate "insider trade," but the practice continues to this day.
Just another ingredient in a get-rich quick recipe that has left those not included in the loop with a bad taste about the stock market.
TERRY KEENAN is senior business correspondent and anchor of Cashin' In, an investing program that appears on Fox News Channel on Saturday mornings at 11:30. Please send e-mail to terry.keenan@foxnews.com. |
