The practice of allocating shares in what are expected to be "hot issues" to favored customers of a broker-dealer. The favored customers can then immediately sell or "spin" them off, realizing a substantial profit between the original offering price (the $12 share in the above example) and the price the shares immediately climbed to when sold, perhaps the same day or shortly thereafter (the $36).
The entire issue as to how brokers decide to whom to allocate shares is a sticky one. Is it "fair" and appropriate for brokers to treat good, established customers better than strangers? Are brokers using the shares of hot issues to in effect "bribe" persons with whom they have or want other relationships? Are the underwriters being subjected to a type of "extortion" forcing them to allocate shares in hot issues from people who can direct or influence their firm's trades, or future underwriting?
The issues involve questions of "improper appropriation of corporate opportunity" by employees for their personal benefit, rather than that of their employers, "commercial bribery", "extortion" and "breach of fiduciary duties". In short, "spinning" is now a very "hot" topic under the Securities Laws.
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