Document Type

Article

Publication Date

2004

Abstract

On December 6, 2000, the Wall Street Journal ran a front-page story exposing abuses in the market for initial public offerings (IPOs). The story revealed "tie-in" agreements between investment banks and initial investors seeking to participate in "hot" offerings. Under those agreements, initial investors would commit to buy additional shares of the offering company's stock in secondary market trading in return for allocations of shares in the IPO. As the Wall Street Journal related, those "[c]ommitments to buy in the after-market lock in demand for additional stock at levels above the IPO price. As such, they provide the rocket fuel that sometimes boosts IPO prices into orbit on the first trading day." This process of encouraging purchases in the aftermarket at ever-higher prices has come to be known as "laddering." This Article presents a study of the role and extent of culpability of issuers of stock in such laddering schemes.


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