Slashdot Mirror
Barred from Red Hat IPO?
Anonymous Crow writes "I was wondering how many other people out there are in the same situation: I was lucky enough to get "invited" to participate in the Red Hat IPO, but after I opened an account and moved my money I was told that I'm ineligible for the IPO... because I have no stock-trading experience. I opened an E-TRADE account for this purpose, and moved $1400 there to buy Red Hat stock. When I attempted to place my "indication of interest" (which is how you get into an IPO on E-TRADE) I had to answer a bunch of questions stating I'm not an employee of a stock-trading firm, not an employee of Red Hat, etc. And, by the way, how much stock I own and how ofter I play the stock market. After answering these questions the E-TRADE oracle apologized nicely and informed me of my ineligibility. Now, those of you that do this often are probably chuckling at my naivete, but honestly:
I'm a linux geek, not a stock trader. Isn't it ridiculous to "invite" a bunch of linux geeks to buy Red Hat if only experienced traders are eligible? And shouldn't Red Hat have known better?
" (I've had at least a dozen people contact me with exactly this
problem)
I did just what a bunch of people did -- as soon as I heard of the IPO, sent an application and check to etrade, also transferred an account.
(Transfer won't be done in time, hence the check.)
I was told just now --
1) You can't even "express an interest" yet.
2) There will be a 2 hr period when you can express interest and fill out the elegibility info.
3) You won't know which 2 hours. There will be no announcement ahead of time. You need to be logged
in to catch it. You may not even know which day.
4) It's meant to be random. etrade handles all
their IPOs this way.
I would be annoyed at not qualifying, but I'll be
enraged if their definition of random means I
miss the 2 hr window and don't get a chance
to qualify. In that case I plan to bail
out of etrade (to datek, which has worked well for me).
I told him so. Maybe if we all call,
they'll get the message. It's one thing to loose
the lottery. It's another to be denied a chance
to buy a ticket.
Long pig.
One of the things they try to avoid are people out to make a killing on short term gains. It's in a FAQ or something on E*trade, so they try to screen out people who will buy in on the IPO and sell hours/days/weeks/months later.
of course they knew who were and who were not eligible. it is so amusing to watch the naivete and innocence of the free software community. all you forget that when you enter the realm of commerce, suits and bureaucracy, the only substance is "stuff that matters" - yes, you guessed it right - money and profit, that is. and the closed realm of suits, like the every dynamic system surrounded by hostile milieu, has developed the system of mechanisms for protective equilibria, which ensures sutainability. one of the main mechanisms is the means of keeping outsiders out. this has the century-long history, just remember the mediaeval institutes of meisters, the closed guilds of merchants, etc., etc.
so, people, live with it and be happy to donate them your code. dont call them thieves, by any means, they dont like this. better go buy their products.
Don't forget the investment income that ETrade gets from those accounts. Imagine this: 1000 people send $1,000 and cancel the accounts a week later. ETrade waits a week and mails them a check, which takes a week to arrive and clear. ETrade would make a nontrivial amount of money from the deal. I'd LOVE to have $1E6 in my 4% APR savings account for three weeks, and I'm sure that ETrade earns a much higher rate.
It's unfortunate that you're feeling burnt by this, but I really think that it is out of Red Hat's control. E*Trade is one of the underwriters (I think that's the right term...) for this IPO, and they can sell their shares as they wish.
It's cool that Red Hat set aside shares to target people in the community, but let's face it - online investing takes a fair amount of money. If you can't get the $1k there in time (actually, you probably need about $1.5k to participate in the IPO), and if your current personal finances aren't such that you could afford to lose that money, then it might be better that you not participate.
Especially if you think that they were "dangling money in front of your face." They were doing no such thing - IPOs are not sure-fire gains. Lots of them are, some of them aren't.
I don't know your situation, of course, but who's going to feel more "burnt" - the student who scrapes together $2k from his college job and loses it all when RHAT tanks (which it might) or the college student with $5k in the bank who is screened out by E*Trade, and is unable to participate?
There *was* mention of this screening process in the offer letter that was sent out. I don't know the details of the process, so I'm not sure how much wealth/experience they're looking for. There's a thread over at www.techstocks.com on this subject... It's a bummer, but I can see both sides of the argument. I wouldn't take it out on Red Hat, though. This has a lot more to do with E*Trade than with Red Hat.
Red Hat and E*Trade don't have anything to do with it really. They invited you to participate, but if the SEC won't let you do so, there's nothing else they can do about it.
- |Daryll
Well it is actually because of the fact that somebody (NOT Redhat, but rather E*Trade or SEC) is trying to protect you from 'losing' your money in a 'risky' investment by regulating who can participate.
Hal Duston
hald@sound.net
Oh great... Something else to beat up on Red Hat for. Not only are they too commercial and ready to become the next micros~1 of Linux, they also steal candy from babies and fool poor coders into thinking they'll become millionaires. (/sarcasm off)
There are financial realities at work here, folks. Not everyone will be able to participate. Red Hat certainly didn't know who would and would not have the necessary funds and experience to participate. They sent out the letter to a ton of people, which was a generous thing to do. Those who can take advantage of it will. Unfortunately, the Nasdaq is not free as in speech and it is not free as in beer, and some people will be left out. There's nothing that Red Hat can do about that.
That's why I didnt' cash in the money I've been carefully stowing away for the IPO.
I used to work at a brokerage. Let me tell you...there are almost ALWAYS fees associated with closing out an account. The minute I saw all the shit that E*Trade was throwing at me just for the high honor of taking my money, I knew something was wrong.
Also: WHY would one need experience trading in the case of volatile stocks **in one's field of expertise?** ((---note caveat
Seriously. Most of the old brokers I used to work with didn't know their butts from their elbows when it came to ANYTHING with an "on" switch. Yet they were being trusted with huge personal accounts to work IPO stocks and tech stocks all the time. If RH saw fit to invite "the community" to the IPO, then the community should be assumed to know enough about what they are buying.
--
--
Basically the idea behind an IPO is to sell the underwritten shares of stuck to fund the company for growth and immediate short term needs. If 5,000 joe schmoes buy in at 13, and sell at highest bid on opening day that would be an average of 50,000 shares sold and bought and still bouncing around on opening day. The purpose is for funding the company, and in order for this to work there has to be long term investment within redhat.
Just because you can't buy 100 shares and make a quick few thousand bucks doesn't mean E*TRADE is trying to screw you over. If you had a 50,000 dollar investment then that is something the company will benifet from. The average joe would sell immediatly if the stocks went from 13 to 50.00 but an investment firm would hold off for the long run as its cheaper for them to hold up money in investments and such and it offers a higher profit margine then savings and CD's
There is *no* such thing as a free meal, and i personally laugh at everyone of you out there bitching about not getting in on the bandwagon. Its not about YOU getting the money, its about RedHat and the underwritters getting the money. When the stocks settle, well then you can take ownership in part of redhat. but if even 5,000 people are buying 100 shares a piece and 50,000 shares of stock are floating around, its not good at all. The price would be to volital and the market would most likely drop below value or never reach its initiall estimated value and loose money on the IPO. 5,000 is a small #, i'm sure more people then that want in on the IPO bandwagon, so the numbers could be even larger.
You should be proud to own part of Redhat as a company, and not expecting to get rich from it. Hell i've written stuff for linux, i've installed many servers, and i wish i could get rich quick too. but geezus, give the market the faith its been running on for years and shut your whinny traps.
--
So, attached is what was waiting in my mailbox this morning.
Is there an attorney out there who can tell us if we have grounds for a class-action lawsuit?
Date: Wed, 28 Jul 1999 13:42:57 -0700
From: Jason Saxon
Subject: Redhat Community Member
Dear Red Hat Community Member,
Thank you for your interest in participating in Red Hat's initial public offering. We are aware that you have recently not passed the online eligibility profile. Understandably, you are probably frustrated, especially if you feel you've entered a response in error.
We are required to determine whether a customer is suitable to participate in initial public offerings (IPOs), which are speculative in nature. Our online eligibility profile allows us to gather important information about your investment experience, goals and financial background, in order to determine your suitability in purchasing IPO shares.
If you feel you've entered your responses to the eligibility profile in error, please feel free to call us at 888-707-8680 and use the PIN 4263. One of our specially-appointed customer service associates will be happy to assist you in updating your profile.
Thank you, again, for your interest.
E*TRADE Securities, Inc.
Unless the stock goes down, in which case you'd have no profits to redistribute.
10 PRINT CHR$(205.5+RND(1)); : GOTO 10
--
Well of course you have to follow the money. Most brokers get paid per transaction, but there are other financial consultants whose fee is a percentage of the value of the portfolio they are managing for you. Therefore, they make more money if the value of your portfolio goes up: their incentive is tied to you making more money, which is exactly the right thing.
I'm a big fan of delegating to experts.
And if you know what you're doing, you'll never need to buy software, you'll just write your own. And if you know what you're doing, you'll never need to take your car into the shop, you'll just fix it yourself.
Not everybody wants to be a full-time trader. Not everybody wants to spend their time being a slave to their money, and thinking about it all day. Some people just want to hire someone who knows what they are doing, and then ignore everything but the bottom line: ``how many pizzas can I buy today?''
My response to that was simply: fuck you.
I have 60K in liquid cash, and I earn a six digit salary, and I do have some trading experience.
E*Trade blew me off, so I told them to mail me my check back.
I would really want to know how many open source developers would actually qualify under E*Trade's guidelines. Not many, I bet, which would make Red Hat's offer a complete sham.
--
Apparently etrade has the list of email addresses from Redhat. If the email address listed in your etrade account doesn't match, you're denied.
Initially, mine didn't match. (I signed up with an address that was different from the one RedHat used.) So, I couldn't get to the page. I went and changed my preferences to make the email addresses match, and now I can get to the page, only to be told that I don't qualify.
I can afford to lose this money, it's my money. I am not thrilled about etrade deciding what is and is not appropriate for me to do with it. Assuming that this situation doesn't get resolved, I'm getting my money back from etrade and taking it elsewhere. This is annoying.
E-Trade probably doesn't have much choice in the matter; all of this is due to SEC regulations, not E-Trade. As a broker, all sorts of nasty things can happen to you if an inexperienced client loses his shirt.
cjs
The world's most portable OS: http://www.netbsd.org.
...d'ya think you could get some of the RedHat brass to pull some strings on this? "Open source software developer" generally does not coincide with "liquid net worth over $50,000" (which is what I heard the eligibility criterion to be). If you really want to give back to the "little guys" who have helped develop the kick-ass software that RedHat's selling, you might consider easing those criteria a bit.
I'm kinda smoked by the whole deal. I saw the IPO offer as a welcome validation of the principles and spirit of community which have motivated me to expend so much time and energy on open source projects in the first place. And now I feel quite a bit cheated by the whole affair. It would have been better not to get my hopes up in the first place, I think. I hack for love, not money; dangling money in front of my face then yanking it away is just cruel --- an attempted corruption of the soul of this movement.
Here's what happened to me:
Got the letter, transferred my existing brokerage account from TradingDirect to E*Trade, only to learn later on that "securities industries regulations" prevented me from participating because of my nationality. This information was not given to me prior to transfering my account despite a specific question about the subject. At E-Trade, I not only pay higher transaction fees than I did at TradingDirect, but I also get a worse service (no limit prices expressed in 1/32), for no compensation (the possibility of doing IPOs was a lure)
Puzzled, I called the SEC at 202 942 7040. There I spoke to Mr Jack Hardy, who confirmed to me that no such regulation exists. Apparently E*Trade is just limiting eligibility for their own convenience, and are cowardly hiding behind phantasy regulations.
Actually, by claiming the existence of these phony regulations, E*Trade may not only be misleading potential investors, but they may also be misrepresenting the SEC's position. Mr Hardy recommended me to fax a written complaint to 202 942 9634 (attn. Jack Hardy) and cc it to 650 331 6806 (attn. Henri Carter, Vice President of Compliance Department E*Trade Securities Inc.), which I did. So far, no change yet apart from a clearer message on their subscription page. However, I noted that the deadline has been moved to August 4th. This gives us another week, and if enough people make their voices heard, the SEC might lean on E*Trade hard enough to get us furriners our part of the cake too.
Well, damn, I don't mean to sound harsh, but if you had to beg, borrow, and steal to get your $1500 (which actually may not even cover it, if they re-price above $15) then why are you even considering this investment?
Surely Red Hat wasn't aware that this would be a problem when it offered the shares to the community. It sounds as though this is an automatic response by E*Trade's systems--another example of the problem of letting computers make decisions that should be made by people.
I think that the likely solution to this problem is attention; once the usual sources--News.com, Wired, Salon, and so on--pick up on this (and we know they check Slashdot regularly), E*Trade will likely right the wrong. I bet it will look strikingly similar to the Yahoo/Geocities debacle once it's over.
--
Wage Slave Journal
they [the market, not e-trade] don't want people jumping in on an IPO and selling off at $50 higher per share, at the end of the day.
thus, from what I've heard, they're pulling together and choosing candidates through their past trading experience.
This said, someone who gets in, and immediately sells off like I mentioned before, runs the risk of getting blacklisted.
Have you tried opening an account with an are Goldman Sachs?
They are the lead under-writers after all.
Plus, you will not have to go through an automated system in order to get the shares that you have been offered.
It's more like RedHat offering you a car through a dealer, but the dealer finding out you're underage. No car. Redhat isn't responsible, they did what they could for you, the laws guiding the item that they offered you won't allow it, and Redhat has no way of knowing beforehand who is ineligible. You should take it two ways:
1) It's a nice gesture for those who've reported bugs in the past
2) RedHat wants their stock to go way up, so why not invite extra people to participate who normally wouldn't trade stocks? We're not above that sort of thing...
-Adam
From "The Letter":
All applicants for public offering stock will be required to submit and
pass an online eligibility profile at the E*TRADE web site. Public Offerings
are considered speculative investments and therefore you will be required to
answer a series of questions about your Investment Experience, Goals and
your Financial Background.
Perhaps RedHat could have emphasized this more, or pointed out that it's an SEC regulation.
If they're going to screen on these criteria (as they have to), then it should be obvious what sort of answers they're looking for. For example, If you say your investment objectives are income or capital preservation, then you shouldn't be surprised if they think you shouldn't be investing in IPOs. Obviously they have no way of checking your answers anyway, but by asking they've satisfied the SEC and covered their ass in the event that you lose money and feel like trying to blame them...
I just received this in my inbox (bcc).
Subject: interview for Wired News
Hi--I'm a reporter from Wired News working on an article about RedHat's
offer to sell shares at the IPO price to members of the open source
community. Judging by the thread and poll on slashdot, and some e-mails
I've gotten, there's some concern about getting access to the offer.
If you have a minute, I'd like to talk to you about this. I can be reached
at 415-276-8472, or e-mail me with a number to reach you at.
Thanks,
Polly Sprenger
Wired News
IANAL, but I'm pretty sure you can't sue the govt unless they give you permission to sue them.
However, in this case the SEC is not preventing you from making the trade. E-trade is.
However you are also not likely to be able to win a lawsuit against them either. They are most
likely operating under what is know as a 'safe-harbor'.
A 'safe-harbor' is a way that companies protect themselves from silly lawsuits. Basically what
this means is a regulatory agency (like the SEC) say you should operate in a certain way. If the
company does it that way, the company has a built-in defense in saying "hey we didn't cause
intentional harm", which means any chance of big lawsuits is out.
Part of the SEC 'safe-harbor' provisions for IPOs are that the IPO share must be distributed to both
large and small investors, and that investors don't bet too much of their net worth on the IPO,
and that the investors know what they are getting into (hence the experience factor).
E-trade is probably complying with these 'safe-harbor' provisions, so any lawsuit is unlikely
to succeed (since you would have to prove they directly discriminated against you instead of
it just being a consequence of their actions).
Keep in mind, there are only so many shares to sell. In any "fair" scheme, many people will get
left out in the cold.
No, it doesn't.
RedHat has no control over what e-Trade's rules are. And RedHat warned that there were rules.
e-Trade seems to be doing something a little off by accepting deposits to open accounts that can't be used for the purpose for which they were opened. But if they offer to close the account without charging a fee, then I don't see any reasonable beef with them. Other than, possibly, a philosophical point that they shouldn't be protecting you from yourself.
I'm not sure whether e-Trade's rules on who can buy into an IPO are dictated directly by the SEC, but I strongly suspect they are at least "encouraged" by the SEC.
Stock markets are kind of ugly for libretarians. Lots of rules, many of which make little sense taken one at a time or in any particular special case. But those rules make the market. At the very least, the rules increase the value of the market. For example, without the very goofy-feeling insider trading restrictions, insiders would have so much advantage in trading that it would be foolish for those without such an advantage to trade, and the market capitalization of a company would be limited to the wealth of the insiders.
Anyway, IPOs are quite risky. It is easy to lose most of your stake, even if the company is very good. The investment industry doesn't want you (or your idiot brother who would bet next month's rent that RedHat, being such a cool company, is a guaranteed great investment) going broke - that's bad for business, you won't be investing any more. The online companies don't want you going broke - that's bad business AND bad publicity and invites severe regulation. With an actual broker, you would be dealing with someone who can make a judgement call that this particular move isn't going to ruin you. The software isn't up to that.
You can lose your shirt on regular investments, but it's harder to do and takes longer. And playing markets as a form of gambling is kind of silly. Yes, there is risk involved, but the game has a positve sum. Both you and the house can win. Take it seriously and pay attention, and you can make some serious $$.
Lastly, e-Trade is probably doing the right thing in most of these cases. An IPO is not a good introduction to securities trading.
(DISCLAIMER: I'm not a securities expert. This is not advice. Ya can't sue me.)
Fear my wrath, please, fear my wrath?
Homer
We apologize for the inconvenience.
E*Trade has a legal obligation to "know their customer" because they are a registered Broker/Dealer. Because of their obligation they have to qualify customers who are purchasing stocks, options, etc. I'm sure if E*Trade could sell you pieces of the clear blue sky, they would and still get a commission. Thankfully, the SEC regulates brokerage firms to prevent them from doing this.
...and lastly, since I'm at work and should really do something so they keep paying me. E*Trade is not the only one which is selling the IPO. Goldman Sacs is the primary underwriter. Of course you may have issues with their commissions.........
As for your qualification, when you initially opened the account they probably asked you all of those questions anyway to try and qualify you for options, etc. With that information they could have gleaned that you weren't a likely candidate and shouldn't have sent you the letter. (hopefully they have this type of cross referencing in place) Otherwise it sounds like you opened a cash account instead of a margin account and they didn't have the info they needed to qualify you as a registered investor. Once they (E*Trade) were able to determine this they *had* to decline your request or you could take them to arbitration (and get money) because you could say that E*Trade should have known better than to sell an IPO to an inexperienced investor.
How do you get around this? Either start investing more and gain the experience or....lie. The brokerage firm has no idea if you are lying and really doesn't care as long as you have signed a contract stating that you are experienced. Brokerage firms do not have access to other firms trading records. Thus you could tell them that you play Butterfly spreads and foreign currency sythetics for fun and they have to believe you.
Red Hat has no clue who their IPO is being sold to. All they know is that E*Trade bought XX Million shares and E*trade is selling that many shares to customers. Do not be angry at Red Hat for a screwy system for IPOing securities. =)
Jayson Pifer
Never go to sea with two chronometers; take one or three.
I've had an E*Trade account for a while (yes I know better, but once upon a time E*Trade was the only/cheapest game in town). Anyway, if you want to get in on an IPO here's how it works:
E*Trade sucks. Open an acct with Datek for normal trading.
----- obSig
Absolutely.
When a company goes public, it actually sells its shares to the underwriting syndicate who in turn sells it to their friends and customers. Both these sets of sales happen at the IPO price.
As a co-underwriter, E*TRADE has some number of shares alloted to it, that it can sell as it pleases. E*TRADE's standing policy is to sell 50% to its customers and the other 50% to anyone else, presumable institutions.
The other underwriters can do something similar. Chances are, a lot more of their shares will go to institutions than customers.
To make a long story short, unless the members of the syndicate sell allot shares to brokers outside the syndicate, no other brokers will be able to offer a piece of the IPO.