Ethical Question - Would you invest based on finding out about an IPO?
Kamala asks:
My neighbour is using my internet connection to connect to work. She is working on an IPO for the investment firm she works for. They expect to take their client public soon, likely in the next month or two. She expects the IPO will likely double in value very quickly. Would you invest in this? Is it a breach of ethics? Would you ask the neighbour if it’s ok to invest or just not tell them that you saw what they were working on?
My neighbour is using my internet connection to connect to work. She is working on an IPO for the investment firm she works for. They expect to take their client public soon, likely in the next month or two. She expects the IPO will likely double in value very quickly. Would you invest in this? Is it a breach of ethics? Would you ask the neighbour if it’s ok to invest or just not tell them that you saw what they were working on?
Related questions:
- I would like to buy Alibaba stocks in pre-IPO. Listed on HKSE but I am based in the US. any ideas? Bobbie asks: www.alibaba.com, the trading (B2B, B2C, C2C) platform is going public in the next few days. I'd like to...
- Is there any MAX limit on amount one can invest in IPO. E.g. upto 1lac only etc? Maura asks: I am basically planning to invest in Reliance Power IPO so can I invest max of 1lac only...
- Why not everyone invest money on IPO instead of shares? Cara asks: Why not everyone invest money on IPO instead of shares? When people have money in their hands why...
- Should I invest in DLF ipo, Considering what happened to another property company’s ipo’s? Charley asks: I want to invest in the DLF property firm ipo coming on 11th this month, the ipo will...
- DLF-IPO -r u going to invest in it? Drema asks: wht will be ur strategy if ur going to invest in DLF IPO... ...
OK, first, my “red flag” meter went off when you told me about the neighbor who is an investment banker and yet doesn’t have her own home computer to do the work on. Frankly, my first suspicion is that she may be trying to scam you. That’s probably an unfounded fear, but I just feel funny about it.
Secondly, if you do trade on inside information, depending on how the laws are structured in your country, there could be ethical or legal issues.
Either way, I would advise you NOT to invest unless and until you’ve spoken with a highly qualified attorney. Someone that has NO connection with the company or with your neighbor.
Best of luck to you.
I would stay far and clear from insider trading.
Personally I would invest all I could but would a little each month or twice a month so as not to draw attention to myself. And i would never say a word to a single sole.
You would be investing based upon information not available to the general public. I also question why someone working for an investment firm wouldn’t have their own computer and ISP. Seems awful fishy to me. At any rate, remember..even if you invest in the IPO you are buying shares on the open market and aren’t getting any “deal”. In fact, you’re driving the profit for the current shareholders….the big boys get invited in prior to the public sale. Unless you know it’s going to hit it big you’re likely padding the wallets of someone else. Not worth the insider trading risk.
There’s something terribly, terribly wrong with the picture of an investment banker having to use her neighbor’s home comp while broadcasting clues and hints about an upcoming IPO all over the map. They don’t behave like this!
I wouldn’t touch this and I wouldn’t spend one penny hiring anybody to advise me.
Desirable IPOs are almost unavailable to retail investors. The bulk of a good issue, usually 80% or more, is presold to institutional buyers. Remnants are offered to the retail trade, and the retail brokers who get a few shares always offer these to their preferred customers.
Considering your neighbor’s behavior, it’s possible a scam is unfolding. The issue may be weak and doubtful, the neighbor and other members of her firm may be deliberately planting “tips.”
For decades, IPO froth has served as one of the signs of a mature bull market at its peak. IPOs that are only vague business plans come to market, later crash and burn. A typical discovery - and one has to read deep into a prospectus to find such information - is that the banking arm of a financial group is quite worried about their loan to company XYZ, so in raging bull market periods their brokerage arm tries to offload the debt by selling newly-minted shares in an IPO to the gullible public. Proceeds of the issue are then used to repay the bank debt.
Right now we seem to have entered another such frothy era, and your neighbor’s IPO may be borderline in more ways than one.