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May 7, 2001

More of Wall Street's Sneaky Deceptions

We've told you dozens of times about Wall Street's stash of sneaky deceptions such as analysts who praise stocks their firms also underwrite and accounting gimmicks companies use to justify their stock prices. Now, the SEC is investigating another of these sneaky deceptions: Investment banks that parcel out hot, hard-to-get IPO shares to certain investors for kickbacks.

These schemes enable companies and individuals get in on hot IPOs in exchange for throwing some lucrative deals to the investment bank. No wonder most regular Joes can't get a piece of the action! And by the time average investors do get to invest in this hot new stock, it's too late. According to Red Herring, if you bought into all of Goldman's 47 IPOs in 2000 and were fortunate enough to get out on the first day, you'd be up 88%. However, if you'd bought at the end of the day, then held, you'd have lost 48% of your money.

And the practice is obviously widespread. Some of the biggest investment banks in the U.S., Goldman Sachs, Credit Suisse First Boston, Morgan Stanley and Lehman Brothers, are targets of the SEC investigation.

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