The National Association of Securities Dealers will review the practice of underwriters setting aside shares of hot new stocks for venture capitalists and corporate executives, an incentive some securities experts say is legal.
The Wall Street Journal reported that some underwriters “spin” shares being sold at a profit on the first day of trading of initial public offerings to the brokerage accounts of executives in an apparent bid to win business from the executives’ companies on other offerings.
“Spinning may be benign, and in some cases it may be a capital offense,” said Alden Adkins, general counsel to NASD Regulation, the enforcement arm of the industry group charged with regulating the activities of broker-dealers.
“We are looking at the whole notion of spinning and when it’s consistent and when it’s not consistent with our rules,” Adkins said.
