Westly's history of questionable IPO stock trades

Lance Williams
Chronicle Staff Writer
February 19, 2006

...Experts say 33 of state Controller Steve Westly's dot-com-era stock purchases appear to be consistent with the banned practice of laddering. Under such a scheme, investors are given a chance to buy at a stock's initial public offering price if they agree to buy a like amount of the stock at a much higher price once the stock opens on the market...Such schemes boost the price of the stock, creating the illusion that the stock is in high demand...Westly says he made no such agreement...

...Columbia University law Professor John C. Coffee, an expert in securities fraud, said Westly's trades in the stocks were "consistent with the pattern and phenomenon of laddering." A rational investor would not continue to make those money-losing second purchases of stock, he reasoned. "I don't see another obvious explanation" except a laddering scheme, Coffee said...

...Experts say laddering schemes have been deployed in every bull market since the 1920s. During the dot-com era, investment bankers often specified the number of shares an insider had to buy in the aftermarket to get in on a hot IPO, said Howard Sirota, a plaintiff's lawyer in the combined class-action lawsuits in New York...

The victim of laddering, said Columbia professor Coffee, is the little guy.