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Barred from Red Hat IPO?

CmdrTaco posted more than 15 years ago | from the this-ain't-fun dept.

Red Hat Software 284

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)

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Hmmm (0)

chromatic (9471) | more than 15 years ago | (#1778541)

I wonder if there's such an animal as an open source stock brokerage.

Somehow, I doubt that would work, but it's an interesting idea.

QDMerge [] -- data + templates = documents.

I agree *completely*. (0)

Anonymous Coward | more than 15 years ago | (#1778544)

But I'm not above a little fraud to get in on this.
The way I figure it, if I open an new account *today*, I just *might* be able to squeeze in by the Aug 4 deadline. And you better bet that I'm checking all the "experienced" and "net worth over 50k" options this time.

Ugh. Sickening (1)

Gambit Thirty-Two (4665) | more than 15 years ago | (#1778546)

Thats absolutely ridiculous. If they send an invitation, then they shouldnt try to stop you after that.

Thats like inviting someone over to a party, and when they get there ask them "Do you go to many parties?" When the answer is no, they get shoo'd away.

What a waste.

I don't get it. (1)

Cacophony (16125) | more than 15 years ago | (#1778548)

What do they care? as long as you have the dough and can prove it what does it hurt? Who are they trying to protect?


how are they stopping people.... (1)

mjankows (21230) | more than 15 years ago | (#1778551)

just out of curiosity, how are they giving the people on "the list" special permission beyond anyone who can try to get in early on IPO's through e*trade or witcapital or anyone else who lets you try to do that on a fairly regular basis...obviously you are logged in to your etrade account, but how does redhat communicate to them of "hey, this guy is our special buddy, let him in"...
-Matt Jankowski

SEC Requirements (5)

Caballero (11938) | more than 15 years ago | (#1778553)

The securities and exchange commission (SEC) is protecting you from yourself and fraudulent investment brokers. IPOs are considered extremely risky investments. You have to demonstrate (via the form) that you are qualified to invest in such things. That typically means a certain amount of trading experience, that you're not investing too large a percentage of your net worth, etc.

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

Did not get letter, but... (2)

hald (1811) | more than 15 years ago | (#1778555)

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

I love my stockbroker (1)

siberian (14177) | more than 15 years ago | (#1778635)

I call him, I say 'Hi Ken' and we talk about it and then he helps me out and then I get to hang up and know that he is working his ass off for me. This electronic trading stuff is for the birds. Yea, its great if you think you are macho man day trader but to really reach an investment goal and to really not get screwed its good to pay a person to help you.

People pay geeks to make their computers work for them, why are we so hesitant to pay people to help us make our money work for us?

Re:I don't get it. (2)

cjs (12969) | more than 15 years ago | (#1778636)

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.


Re:FUCK RED HAT!!!! (1)

hald (1811) | more than 15 years ago | (#1778638)

Sold out to whom exactly? Would have been me if I had the funds.

Hal Duston

If anyone from RedHat's reading... (2)

Anonymous Coward | more than 15 years ago | (#1778642)

...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.

Re:I love my stockbroker (1)

landtuna (18187) | more than 15 years ago | (#1778644)

Because the people who are "making money for you" are also trying to make money for themselves. They have a vested interest in getting you to invest in funds their companies manage as well as stocks that their companies hold.

How trouble some (2)

pluteus_larva (13980) | more than 15 years ago | (#1778648)

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, 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.

Re:FUCK RED HAT!!!! (0)

Anonymous Coward | more than 15 years ago | (#1778649)

You're right. They shouldn't actually make any money.

I suppose you don't make any money sitting in front of a computer either?

Just sit in your parents basement all day tapping on a ratty old keyboard in your underware? Or do you work in a McDonalds or something... Or are you 12 and still don't have a clue as to how the real world works?

Or have I just responded to some really lame bait?

uh, you're supposed to lie, dude (1)

Anonymous Coward | more than 15 years ago | (#1778653)

Remember those Clinton press conferences? "Mr. President, how do you feel now about Ms. Lewinsky?"
  • (a) best damn blow jobs I ever had
  • (b) I deeply regret my behavior, etc, etc.

Sorry you got tripped on this, but if you read the accompanying material, it was pretty clear that you're supposed to pass yourself off as a "high roller". They changed the deadline, so you might still have time to open another account, assuming that would work.

Re:SEC Requirements (5)

Shafik (29058) | more than 15 years ago | (#1778660)

Well you are a bit misinformed. The idustry is not directly regulated at all. The SEC can ONLY recommened they don't have direct control like the FCC does over AT&T. Both the NYSE and NASDAQ are self-regulated bodies. E*Trade has come under pressure by stories of people who have never traded becoming bankrupt to implement stricter checking policies. It was their choice and theirs alone to implement such policies. But it is true that they are really only attempting to protect inexpereiced invenstors from being screwed.

Re:Did not get letter, but... (1)

Fryguy_ (6197) | more than 15 years ago | (#1778661)

I did get the letter and started the proccess to open the E*TRADE account... But I could meat the deadline for opening the E*TRADE account by sending them @least $1k. If I had I would be one angry dude because from the sound of it I would have been denied as well.... UGLY!! Why only 1 week to open the account anyways??....

they do this for a reason. (2)

cswiii (11061) | more than 15 years ago | (#1778665)

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.

Perhaps a backlash? (0)

Anonymous Coward | more than 15 years ago | (#1778666)

If I remember correctly, there was a story(can't remember where I saw it) dealing with the "old guard" of the stock market being extrmemely displeased with Redhat for not following the tradition of allowing the rich to get richer by giving them the first shot at the IPO.

Perhaps this is their way of getting back at Redhat by exercising some little known rule?

If this is the case, then I wonder what, if anything, can be done about it...

Just some thoughts...


We all have to pay our bills (1)

r055b (62041) | more than 15 years ago | (#1778667)

If Linux is to compete in the market place and be become a viable platform it needs more companies willing to take that step. You can't have a full time staff providing support and improvements if you don't pay them. Let's face it, I'm a Linux hobbiest, but I have a full time job to eat and pay my bills.

uh huh (1)

kaisyain (15013) | more than 15 years ago | (#1778670)

What exactly would an open source stock brokerage be? The source for their trading software is available for download off the web? Even if you could convince the exchanges to let you connect to them electronically I have my doubts as to whether the NASD and SEC would be too happy about it.

Somehow I have a feeling that simply having the source code "open" isn't what you meant. What did you mean?

If something is too good to be true... (0)

Anonymous Coward | more than 15 years ago | (#1778672)

Should Red Hat have known better? Hard to say. But *somebody* has to handle the IPO. I guess the question is whether Red Hat should have known in advance that they were dealing with pond scum (e-trade).

Should *you* have known better?

Hmm. Perhaps it was easier for me, or maybe I'm naturally more skeptical. All I can say is that when I first heard about the Red Hat IPO, my first thought is that it would be nice, but there's no way in hell that I'd be allowed into the front row where the spectacular profits are to be made.

So when the e-mail arrived from Red Hat, I was suspicious. (If *I'm* on this list, there must be thousands of others too.) Visiting the e-trade site and reading the fine print confirmed for me that this was just a scam to get people to open up accounts.

Re:I love my stockbroker (0)

Anonymous Coward | more than 15 years ago | (#1778674)

Yeah, but if he was really any good, he would be making a fortune himself and wouldn't be helping YOU with YOUR trading. If you know what you're doing, and spend the time to do the proper research on companies you're investing in, there's no reason to pay someone else for advice.

Re:Did not get letter, but... (1)

Anonymous Coward | more than 15 years ago | (#1778676)

They later extended the deadline to Aug 4.

You still have time if you act now.

No suprise here... (1)

Rabbins (70965) | more than 15 years ago | (#1778679)

I will never hide my dislike for on-line brokerage firms. I feel that they are very misleading and send people down the wrong road towards investing.

Re:SEC Requirements (1)

Caballero (11938) | more than 15 years ago | (#1778681)

Thanks for the correction!

I've done a couple of these before and was told that's where the requirements come from. I never asked if it was required or implementing recommended policy.

In any case, it is standard procedure.

- |Daryll

Re:If anyone from RedHat's reading... (1)

Anonymous Coward | more than 15 years ago | (#1778683)

BTW, if some "major media" would like to write an article on the "little guy" getting burnt by RedHat, my name's Scott, my website is, you can find my email address on there, I wrote the above comment, and I'd be happy to give quotes.

I also contributed parts of the linux x86 kernel, the 68k-macintosh port, currently maintain the CUP and Lex parser generators, submitted some of the first patches to IBM's Jikes compiler, and have done other good things that I'll endeavor to remember should you decide to scribble them on newsprint.

Anyone asked etrade yet? (0)

Anonymous Coward | more than 15 years ago | (#1778685)

According to +IPOTombstone?Message=IPOrhatt:1 [] , etrade doesn't expect to be accepting indications of interest yet. Maybe it's just a bug in the system? Why not just call and ask. In the e-mail from Red Hat, it gave a phone number and a PIN to call to ask questions.

Re:I love my stockbroker (1)

kaisyain (15013) | more than 15 years ago | (#1778687)

So get a stockbroker who isn't affiliated with a company that sells their own funds. That was tough.

Re:I love my stockbroker (1)

slouie (8781) | more than 15 years ago | (#1778688)

Because, like great programmers and great sys admins, they are hard to find and with all that power (our money), you can't always figure out just how much you can trust them.

-S. Louie

Re:they do this for a reason. (1)

moitz (65511) | more than 15 years ago | (#1778689)

Why am I not seeing a problem with this whole "selling off at $50 higher per share" bit? Sounds like some high profit investment to me.... Hell, if I had the money, that's exactly what I'd do.

reasons (1)

kaisyain (15013) | more than 15 years ago | (#1778692)

Huh? That's like saying that a person who is really good at writing software would be making a fortune himself and wouldn't be giving it away for free.

Believe it or not, some people actually like helping other people.

And rather than spending the time to do "proper research" I can pay someone else to do it and spend the weekend having sex or whatever else I think is more important than researching companies.

Just because someone doesn't make the same tradeoffs you do in life doesn't mean they don't have a reason.

Protect Us? (1)

Bud^- (70689) | more than 15 years ago | (#1778695)

They are here to protect us from "losing" our money or because it is a "risky" investment?

HAHA, I wish Los Vegas worked the same way.

Seriously if the company says it is ok for you to get some shares before the public, and you have the money up front, and you sign a paper saying,that you are a legal adult, sane adult, understand the risks involved, will not hold anyone liable but yourself. They should let you in on that sweet RH IPO.

sweet is not a fact, it is an opion of the author, which in fact, may not be really an author

Re:they do this for a reason. (2)

Chris Gori (1825) | more than 15 years ago | (#1778697)

Hardly. Selling immediately is what most of
the principals in an IPO deal do. The investment banks and all early-round investors (like VCs) typically sell almost right away.

Getting access to the pre-market (i.e. listing) price on an IPO is a carrot held out by many brokerages for their high-net-worth clients, so that they can make even more money.

Some other folks have posted (correctly) that what ETrade is doing is enforcing SEC guidelines for IPOs, which are inherently risky. The guidelines protect the individual investor from getting swindled or defrauded, and thus require some degree of experience, plus cash/assets such that IPO "speculation" wouldn't wipe you out, if it were to tank/vaporize.

Further proof of the axiom, "It takes money to make money".

Goldman Sachs (2)

Rabbins (70965) | more than 15 years ago | (#1778699)

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.

Bad Analogy (2)

stienman (51024) | more than 15 years ago | (#1778700)

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...


SEC rules, not E-Trade's (0)

Anonymous Coward | more than 15 years ago | (#1778703)

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.

The questionaire preventing people from reserving stock in RedHat's IPO is an SEC questionaire in place to enfore SEC rules. E-Trade has to have this in place to comply with SEC rules, not because they wish to prevent people from investing in IPO's themselves.

Re:I love my stockbroker (1)

Phillip Birmingham (2066) | more than 15 years ago | (#1778705)

But even he doesn't get paid for making you money; he gets paid for moving your money from place to place. Does your stockbroker get paid on commission?

No surprise... (4)

SpinyNorman (33776) | more than 15 years ago | (#1778707)

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...

This is impossible (1)

LLatson (24205) | more than 15 years ago | (#1778709)

I signed up for e*trade this week as well,
with the intention of trying to get my hands
on some redhat stock (among other things).

There "IPO Center" states that they will
begin taking "indications of interest"
sometime in early to mid August. I don't know
what form this guy filled out, but I can't
find it anywhere on e*trade's website.


The 'ol bait-n-switch... (1)

Steve Baker (3504) | more than 15 years ago | (#1778711)

Does this seem like the old bait-n-switch tatic to anyone else?

"We're sorry, but you can't buy into that fantastic too good to be true offer that we spammed your mailbox with, but now that you've gone to the trouble of setting up your account, you're free to invest in any of the other fine stocks we offer for sale here."

I am also curious about the assertation that they do this for your own good, when exactly how do they prevent you from losing your shirt on non-IPO transactions? Gambling is gambling, IPO's are just for higher-rollers?

I'm not going to blame Red Hat for this, but it is frustrating. I assume this will also put a end to community invites from future linux IPO's such as VA linux systems upcoming IPO.

Two Meanings (1)

chromatic (9471) | more than 15 years ago | (#1778714)

Flippantly, a brokerage run like an open source project. Run away in terror!

More seriously, a brokerage that specializes in open source stocks. Not that there are very many of them -- and that's probably a good thing. Can you imagine the government getting involved in free software? Next, you'll hear Al Gore inventing gcc.

QDMerge [] -- data + templates = documents.

What's sauce for the Goose... (1)

!ErrorBookmarkNotDef (15865) | more than 15 years ago | (#1778715)

Stock traders are tired you newbies asking dumb questions. In spirit 'Debain users get tough on newbies' I say to hell with your questions.
Just read the freakin' public laws and regulations. You can't figure it out for yourself?

(I'm only half kidding about this; see how we all need to help each other along in the digital age?)

Computers are useless. They can only give answers.

Re:I don't get it. (0)

Anonymous Coward | more than 15 years ago | (#1778716)

E-trade's interest is in leveraging the IPO to gain longer-term customers. This is STANDARD in the stock brokerage industry. If this is the only time you'll ever invest in stock, you're not a good prospect for them. OTOH, if they find someone who does $50k a year in investments and thay get them the RedHat IPO, they've gained a valuable customer.

This concept that you were somehow a privelaged invitee is just plain wrong. You got an announcement and nothing more. The announcement is a valuable courtesy in that you know when to act, but that's it. If I'd been logged into the etrade at the time I could have signed up without an invite.


Re:how are they stopping people.... (1)

gelfling (6534) | more than 15 years ago | (#1778717)

In simple terms virtually all IPO allotments are parsed out to institutional investors well before any IPO goes to market. Have you ever tried to do what you suggest? If you try to purchase at market the day an IPO goes to market you'll be extremely lucky if you don't wind up purchasing at the peak of the market, or, if you stipulate a fixed price or higher your trade may never get executed at all. Obviously its the underwriters and VC's that get first whack then the unwashed masses.

Re:I love my stockbroker (1)

Zoltar (24850) | more than 15 years ago | (#1778718)

Sorry Bro...but your broker is nothing but a "hopefully" well conncted salesperson with acess to finacial data. Do you want to know what your brokers job is....? To get you to buy and sell stocks. Granted if you make money your broker will get a chunk when he gets his commision when you sell...and granted if you make money you will keep calling the same broker, but I doubt that your broker is busting his ass for you.

Don't ever kid yourself that your broker gives a crap about you (unless you have BIG $$$$ invested). You broker only gives a crap about buying and selling..that's how they get paid.

Re:If anyone from RedHat's reading... (1)

Enry (630) | more than 15 years ago | (#1778719)

The liquid net worth over $50k isn't it. I do know that for a fact.

Re:Bad Analogy (1)

Midnight Thunder (17205) | more than 15 years ago | (#1778720)

Well, shouldn't RedHat at least have included the small print in the e-mail? In a certain sense this could be seen as misleading advertising, something that I believe is not totally legal.

Re:Goldman Sachs (1)

seva (5510) | more than 15 years ago | (#1778721)

Are you freaking joking? Did you look at them at all?

They are for large companies and HUGE traders, not for people who can't qualify for E*Trade...


Re:how are they stopping people.... (0)

Anonymous Coward | more than 15 years ago | (#1778722)

Actually, I have a question about this. What does E-trade mean when they say that they have been given an allocation of shares to sell to its customers? Does that mean that some other stock brokers would not have these allocations to sell?

Re:they do this for a reason. (0)

Anonymous Coward | more than 15 years ago | (#1778723)

Exactly. Part of the funder's job in an IPO is to try to make the stock as stable as possible. Fluctuations are a problem for the investment industry. So they don't like to work with people who sell immediately. In fact, part of E-trade's explaination in their IPO area is that if you sell before a certain time (I think it was 2 weeks) you will probably be barred from future IPOs.


Re:I don't get it. (1)

Bellwether (12891) | more than 15 years ago | (#1778724)

Actually, E*trade does check (purportedly) against the invitee list. When I submitted my interest, it asked me for the email account address that the invitation was sent to, and said that fraudulent attempts to sign up would be blacklisted. This does make it sound more like an invitation than a public announcement.

Sec regulations STINK (1)

Panaflex (13191) | more than 15 years ago | (#1778725)

I am a long time Linux Developer, got the letter, went and opened an account with e-trade. I took the questionair, thought I did a fantastic job. It took 30 seconds for the system to churn out an answer. It said Nope.

What the hell? I would be an idiot if I didn't know the risk! I WANT to take the RISK, ok?? I will sign up to take the risk. I want it. I just want to own the stock, and get it at a good price.

I don't understand, what can I do? If anybody knows a way around this, let me know.

Idiot (1)

Rabbins (70965) | more than 15 years ago | (#1778726)

So you have see the E-Trade Ads huh?

Brokers are there (hopefully) to direct you towards the best growth with the least amount of risk. Historically, the best methods of investing involve next to no "trading". This explains why the best profesionally paid mutual managers rarely even beat the market averages.

Yes, good day-traders eventually make billions of dollars by taking advantage of market swings and short term jumps. Oh wait!! Come to think of it,
I have not heard of a single person who has amassed a great fortune through active day-trading and jumping in and out of stocks and the market.

But I have heard of Bill Gates... the richest man in the world. How often do you think he is jumping in and out of Microsoft's stock? I have heard of Warren Buffet, the second richest man in the world. He owns approximately 8 stocks, and has NEVER jumped in and out of them.

Day trading is not the road to riches, despite what E-Trade tells you. No one in the history of the world has been able to outguess the market for any extended short-term periods of time. Do not fool yourself.

Wired News reads Slashdot (2)

landtuna (18187) | more than 15 years ago | (#1778727)

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.


Polly Sprenger
Wired News

Re:SEC Requirements (1)

Anonymous Coward | more than 15 years ago | (#1778728)

While it is true that they are self regulated bodies, the reality is the following: You participate in an IPO, you lose lots of money, you charge E*Trade, Goldman, Redhat, etc. with securities fraud. In addition you sue them. This is what they are protecting themselves against. It is for this same reason that you have to fill out a questionaire before you are allowed to trade options. They need evidence to prove that you were aware of the risks involved in trading such instruments and thus were not fradulently lured into a risky venture. In addition E*Trade or Goldman have a responsibility to RedHat to sell the issue to investors who will not flip the stock(i.e. buy at 10am on IPO day and sell at 3:30pm). "Flipping" makes investment banks look bad and can lead to major stock crashes after the IPO(i.e. the market says, how come so many people bought in and cashed out so fast, maybe this is just a fly-by-night stock and not really worth even the IPO price).

The Red Hat Invitation (1)

bmecca (5288) | more than 15 years ago | (#1778729)

If he really got the letter, he would have been told to contact a certain person at E-Trade. You don't have to fill out any forms. Just e-mail him your E*Trade account number.

Suggestion (1)

eyeball (17206) | more than 15 years ago | (#1778730)

I think we need an Investing Linux HOWTO.
(If anyone takes this seriously, email me -- I want to read it since I know nothing about Investing..) (0)

Anonymous Coward | more than 15 years ago | (#1778731)

I wonder if Redhat will cover this thread on their site.

... (1)

bcboy (4794) | more than 15 years ago | (#1778732)

The "protecting you" explaination is pretty weak, though that's what I was told by Etrade on the phone when they told me I wouldn't be allowed to participate. The public can blow money any way they wish, including blowing thousands on state lottery tickets, but they can't spend the same money on IPO stock? What a crock. This really reeks of keeping the money in the hands of the rich.
It was an amazingly generous offer by Red Hat. Too bad so many people are being screwed by this "profile" nonsense.
Now we just need a CSPP plan, where "C" is community. ;)

In any fair scheme... (2)

slew (2918) | more than 15 years ago | (#1778733)

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.

Re:they do this for a reason. (1)

arthurs_sidekick (41708) | more than 15 years ago | (#1778734)

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.

Let me preface this all with an "if that's true, then ..."

Man, this is old-boys-networkism if I've ever come across it. If they truly think that only old hands at the market deserve to be in on IPOs, it amounts to saying to the people who aren't in the game yet that they aren't allowed to make some really big money -- and under the guise of "it's for your own protection."

If somebody understands the stock market at all, they know that *any* stock can tank at just about any time. IF they don't understand that, then sure, don't let them invest. But then, don't let them walk unsupervised out of the institution they are most likely in either.

I suppose the argument you're pointing to is the one that goes "day traders introduce too much instability into stock prices," so it's supposedly bad for the nation as a whole that trading by inexperienced people be allowed. Ahh, but now the vaunted "wisdom of the free market" argument has been largely trashed. It's not free markets, but markets guided by the all-too-visible (but yet, apparently invisible to popular culture) hand of Wall Street bigwigs.

"Y'see, an elected gummint always does wrong, so they shouldn't be allowed to run things. The rich, on the other hand, know what's good for you, so they should be allowed to run things."

I mean, this seems like where this reasoning leads.

Crikey, dunno if the Echelon stories or *this* trend worries me more ...

Re:The 'ol bait-n-switch... (2)

Error 404 (50896) | more than 15 years ago | (#1778735)

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?

The One question they should ask: (1)

Joseph Vigneau (514) | more than 15 years ago | (#1778736)

[x] Did you read the prospectus [] ?

That's it. That's the only question they should ask. S-1 statements are full of warnings in all caps that say


Re:they do this for a reason. (1)

Erik Hollensbe (808) | more than 15 years ago | (#1778737)

Man, this is old-boys-networkism if I've ever come across it. If they truly think that only old hands at the market deserve to be in on IPOs, it amounts to saying to the people who aren't in the game yet that they aren't allowed to make some really big money -- and under the guise of "it's for your own protection."

Money (unfortunately) is very important to people. Think of it like having the difference between a trained surgeon and joe down the street performing an operation. Not that I'm saying it takes 6 years of training to trade stock, but it should be something that people are at least experienced in before investing in something flaky, if not to protect themselves but the businesses that depend on the stock. Imagine if many of the Open-Source writing investors cashed out the day after Red Hat went fully public? There is a good reason.

In my (very uninformed and inexperienced :) opinion, I think that there should just be a holding limit on anyone who invests before an IPO.


Protects the brokerage, not the investor (0)

Anonymous Coward | more than 15 years ago | (#1778738)

It is called Cover Your ASS (CYA). If a numbnuts investor buys the IPO, it tanks, he sues E*Trade, E*Trade has some pretty damning evidence that numbnuts knew what he was doing, because he said so on the form. Blame lawyers, not E*Trade.

Shut up and be happy (0)

Anonymous Coward | more than 15 years ago | (#1778739)

If you don't have any stock trading experience, you shouldn't be buying an IPO. Period. No but's. If it were not for self-regulation by brokers, all individual trading would be prohibited. There is such a thing as suitability in securities industry and you just don't qualify. I don't want to see people like you to lose money and then whine to NASD and SEC how you never touched a stock in your life but they talked you into a risky IPO, prompting more regulation.

Re:Idiot (0)

Anonymous Coward | more than 15 years ago | (#1778740)

Maybe its just because you dont move in those circles. I've made some good money daytrading before I decided to get more involved in CS (it paid for my CS degree). I've got a few friends who have succeeded in making a nice bundle. Enough to stop working anyway. They still trade because they find it being good fun (one of them actually started working again as a Dealer, just for the fun of it).

E*Trade should have known better (5)

jaypifer (64463) | more than 15 years ago | (#1778741)

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.
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. =)
...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.........

Jayson Pifer

Re:Goldman Sachs (0)

Anonymous Coward | more than 15 years ago | (#1778742)

Haha! Goldman doesn't open accounts for less than 500,000 I think. Might be higher now.

Re:How E*Trade Works (1)

bcboy (4794) | more than 15 years ago | (#1778743)

>> At that point presumably if you got a letter you will automatically get approved. Otherwise, E*Trade will use things like your current acct. balance, past trade activity, and the amount of shares you want to buy versus the total left to determine if you can get in.

Well, no on both counts. Read the thread you just posted to. They never ask how much you want to buy, and the letter isn't automatic approval.


BrutusAIC (53395) | more than 15 years ago | (#1778744)

E*Trade has not yet started taking indications of intrest on the RedHat IPO. Also just because RedHat says come buy our stock does not mean you will get it. E*Trade only gets a certain amount of shares and those are distributed by lottery from qualified investors. E*Trade asks those questions to help keep the SEC at bay about selling speculitive stocks, like IPOS, to people that may not know better then to blow thier life savings on a stock. Also I don't know if I would count on the RedHat IPO taking off.

Re:Speculative IPOs for Newbies (1)

bmacy (40101) | more than 15 years ago | (#1778745)

That's a ridiculous statement... regardless of your experience if you understand you could lose every dime the second you invest it, you have enough understanding to participate.

I wonder why noone talks about... (1)

Fionn (8047) | more than 15 years ago | (#1778746)

... all the Open Source people outside the United States. It looks like sheer sarcasm to send out the IPO email to all Open Source people world wide and then include a notice that the offer is available to US residents only.

Everyone can sign up at e-Trade, not only US residents. I wonder why they did that.


Re:This is impossible (1)

classic (62725) | more than 15 years ago | (#1778747)

He probably filled in on the wrong offering.

Anyways, I've been trying to get into lots of IPO's with E*TRADE for while, and never gotten any allocations. If you ask me, I think it a "scam" to attract customers. They changed the allocation rules lately, depending on your previous holding time of IPO shares (you get out quick, you most likely won't ever get in on any offering again). Well that's like getting credit, u need a history of it..but that first time you're screwed.

I've yet to hear of any person that I know, being successful getting shares.

imo E*TRADE stinks...not to mention half the times you can't log in (due to market activity being too high? or maybe they run their web servers on NT IIS servers... *fear* ;)


Re:SEC Requirements (2)

gsaraber (46165) | more than 15 years ago | (#1778748)

I didn't get the letter but ...

Why are they trying to protect me?
I'm over 21, and it's my damn money, if i want to throw it away on some stock certificates that might become useless, that should be entirely up to me..
Secondly the only one suffering if I mess up with the IPO investment is me, i pretty much game my money away .. so what it's MINE

rant off :-)
Gerard Saraber

Re:reasons (0)

Anonymous Coward | more than 15 years ago | (#1778749)

Listen, believe what you will, but the fact is that good stock brokers are rare. They just don't exist. If you really want to make great investments, a broker is not going to help you. If you're willing to settle for the standard advice that everyone else gets, pay high commissions, and achieve mediocre returns, then by all means let your broker make your decisions for you. But you will never make as much off your investments as I do.

anyone get in? (1)

blandest (25682) | more than 15 years ago | (#1778750)

has anyone gotton "accepted" yet, and if so, how did they go about filling out the survey? There are 6 million shares to be distributed...share the knowledge a little...

applying twice? (1)

bcboy (4794) | more than 15 years ago | (#1778751)

Does anyone know if you can do the screening a second time, if your financial situation, goals, or experience change?

Anyone out there who has *passed* the screening? We've so far established that having enough money in the account, having over $50k liquid assets, and having income to easily cover the loss are not sufficient to pass the screening. What *is* sufficient?

How E*Trade Works (2)

vinn (4370) | more than 15 years ago | (#1778752)

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:

  • Open an account. Put money in it.
  • Now, it helps to have traded on E*Trade before because it will presumably give you a better chance of getting in an IPO - however if you got a letter your experience should not matter. If you didn't get a letter, don't open an account and daytrade to get experience. That will probably just look worse. (Flipping on IPO's will ban you from future ones.)
  • Once the account is open you need to hang out in their "IPO Center" and keep looking at the "Current Offerings.". Red Hat will appear on there at some point. That means you can fill out a form stating the intention of wanting to get in on the IPO.
  • At that point presumably if you got a letter you will automatically get approved. Otherwise, E*Trade will use things like your current acct. balance, past trade activity, and the amount of shares you want to buy versus the total left to determine if you can get in.
  • You cannot margin your current account to place an order for an IPO. This is to cover E*Trade's butt.

E*Trade sucks. Open an acct with Datek for normal trading.

Turned Down... (1)

mhatle (54607) | more than 15 years ago | (#1778753)

Personally I just dumped $3700 into an etrade account only to find out that I need to yank it all back out and stick it back in my savings account. What a pain in the ass.

$3600 (assuming $12 a share) isn't going to bankrupt me. They should have at LEAST asked how many shares do you want at max price of X. Then figured out if it's going to bankrupt you!

At the worst, I'd be more then happy to sign a document that says if the shares tank I won't sue. Personally I was planning on buying 300 shares and holding onto at LEAST half of them for the long term. Ohh well... They can close my account for all I care.


It's not an SEC's eTrade! (1)

rjaninda (58617) | more than 15 years ago | (#1778754)

There are no current laws prohibiting first time investors from getting in on IPO's. However, the underwriters of the stock get to pick who they give the shares out to and most require you to fill out "forms of eligibility" that they use to screen you out. You can read more about this on the eTrade site and other online brokerages

Re:I don't get it. (1)

SwissPope (33213) | more than 15 years ago | (#1778755)

Did it say U R BLAQLISTED, LAMUR?!@#?!

It's like you know the New User Password,
but you didn't have any affils & you couldn't
correctly expand the acronym for iCE!

I got mine (0)

Anonymous Coward | more than 15 years ago | (#1778756)

This might be little consolation to the rest of you, but I would like to put to rest a lot of the FUD here.

I am a fairly ordinary guy, with a decent amount of stock/mutual fund investments. I got the letter, I gave the answers, and I was approved. I also "indicated my interest" for a certain number of shares, and everything's set and ready to go. I did this all by phone -- the E-Trade web stuff seems to be severely broken.

So I have seen no evidence that this is an elaborate scam to keep out the little guy, or anything like that.


Anonymous Coward | more than 15 years ago | (#1778757)

>E*Trade has not yet started taking indications
>of intrest on the RedHat IPO

Yes they are. You need to phone them though,
you can't complete the IOI via the web

Re:reasons (1)

kaisyain (15013) | more than 15 years ago | (#1778758)

I agree that good stock brokers are rare. I just took issue with your claim that good stock brokers wouldn't bother to help other people.

I still say that some people may validly decide that the lower returns they get by going through a stock broker are worth the extra time in their live to devote to other things. They aren't necessarily obsessed with obtaining higher returns than every other person on the planet. All they care about are obtaining high enough returns to meet their financial goals.

Speculative IPOs for Newbies (0)

Anonymous Coward | more than 15 years ago | (#1778759)

Look, all this whining about the
Red Hat IPO is ridiculous.

First, you should feel privileged that
Red Hat invited you to participate
as "friends and family" in their IPO.
Second, if you have no investment
experience, too bad, you should not be
touching this with a ten-foot pole!

You need to be a somewhat experienced
investor before you should even
consider speculating with IPOs.

Read every investment book you can get
your hands on, start investing (not
speculating) now, and in about five years
you may be ready for soemthing like this.

That said, as an invitee I've got my IOI
in with E*TRADE for a few hundred shares.
But I'm prepared to lose it all!

Bzzt Re:SEC Requirements (0)

Anonymous Coward | more than 15 years ago | (#1778760)

I believe you are mistaken, because this isn't just everyday trading. This is an IPO, which is covered by a morass of regulations.

There are significant restrictions on the sale of stock by a company. One of these requires that purchasing individuals be experienced traders.

The shares involved aren't *public* shares yet. They would be coming right from the company.

Among other things, this is to prevent scam artists selling lots of worthless stock in their private company to gullible people.

Re:how are they stopping people.... (3)

rlcarr (71695) | more than 15 years ago | (#1778761)


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.

Re:Protect Us? (0)

Anonymous Coward | more than 15 years ago | (#1778762)

which in fact, may be not really a smart man.

It's a sad day for Los Engles language.

Re:I love my stockbroker (0)

Anonymous Coward | more than 15 years ago | (#1778763)

Not that mutual funds aren't brokered. Not that there aren't fill profits off managing a mutual fund. In the end, whether you use a broker or not, it all evens out in the end, in broker's fees, federal, state, and local taxes, or estate fees. There is no one way to gain. But there is one thing that brokers have that very few people do... Any idea what they are doing, and the right way to pick funds. Sure the prices are going to be volatile, welcome to the free market enterprise system; but I'd rather let a doctor perform surgery on me than some kid who just got out of biology class. Difference? One knows what the hell they are doing, one has just enough knowledge to screw things up very badly. I'd rather trust a broker than an individual "hobby trader".

Offer make to 16year olds (1)

mgrennan (2067) | more than 15 years ago | (#1778764)

I don't think this was Redhat's falt. They made a best effert to give back to the people who have been developing code in the RedHat distribution.

I have a friend who is a member of GNOME. He is 16 and received a letter. Even with 50k in his pocket, there is no way he could answer the letter. He can't sign a contract.

I was hopping to answer the letter for him. RedHat doesn't know him. The trading company dosn't know him. They just made the offer to an email address.

I am also a developer so he was glad to let me take it over. However, I know better then to put 1.5k into an account only to be told NO.

If I had real money, I'd Buy the email address of some of the people who can't take advantage of the letter and buy lots of shares.

The rich get richer.... (1)

Shotgun (30919) | more than 15 years ago | (#1778766)

Didn't get the letter, but isn't this SEC rule just a way to limit the participation in IPO's to those who are already rich? Sure, IPO's are some of the riskiest investments that can be made, but they're also provide some of the highest returns. If I know that the RedHat IPO is a good deal, why can't I invest my life savings in it? Who is the SEC to say that I'm not rich enough to play in the game? As it stands, the SEC is acting as the muscle for some fat cats who don't like the unwashed masses moving in on their exclusive territory.

Re:Shut up and be happy (1)

Panaflex (13191) | more than 15 years ago | (#1778767)

I do own stocks, and I was still banned. So what's your point anyhow? I think having the developer base as stockholders would be a hell of a lot more stable than "brokers" and "financially gifted hedge funds."


IPO Why Individuals Have Difficulty Getting Shares (1)

Anonymous Coward | more than 15 years ago | (#1778768)

This is from the SEC's website I will be looking at the National Association of Securities Dealers, Inc to determine my eligability for the IPO.

Individual investors may be unable to buy shares in an initial public
offering or IPO, for a number of reasons. When an IPO is "hot," appealing
to many investors, the demand for the securities far exceeds the supply of
shares. The excess demand can only be satisfied once trading in the IPO
shares begins. This imbalance between supply and demand generally
causes the price of each share to rise dramatically in the first hours or
days of trading. Many times the price falls after this initial flurry of trading

The way companies become public through an underwriting by a
broker/dealer determines who gets to buy IPO shares before they start
trading. The IPOs of all but the smallest of companies are usually offered
to the public through an "underwriting syndicate," a group of underwriters
who agree to purchase the shares from the issuer and then sell the shares
to investors. Only a limited number of broker-dealers are invited into the
syndicate as underwriters and some of them may not have individual
investors as clients. Moreover, syndicate members themselves do not
receive equal allocations of securities for sale to their clients.

In most cases, the underwriters assume the risk of the offering by
agreeing to pay the company issuing the shares a set price per share,
whether or not investors buy all the shares being offered. The managing
underwriter and the company decide on the basic terms and structure of
the offering well before trading starts, including the percentage of shares
going to institutions and to individual investors (retail customers).

It is unclear how "hot" the offering will be until close to the time when the
shares start trading. Since "hot" IPOs are in high demand, underwriters
usually offer those shares to their most valued clients.

We receive complaints from individual investors who believe that new
rules should be put into place to assure that IPO shares are distributed
more widely. Some have suggested that we require a lottery to distribute
IPO shares. Unfortunately, instituting and enforcing a lottery would create
substantial costs that would undoubtedly far outweigh the benefits.
Although we sympathize with those who want the chance to buy "hot"
IPOs, it is unclear how we would successfully mandate such access.

The General Accounting Office issued a report on the allocation of IPO
shares. Their research indicates that most underwriters target
institutional investors in IPO distributions for a variety of reasons.
According to the report, underwriters believe that institutional investors
are better able to buy large blocks of IPO shares, assume the financial
risk, and hold the investment for the long term. However, underwriting
firms that have a high percentage of individual investors as clients are
more likely to allocate portions of IPO shares to individuals.

Underwriters generally have wide latitude in allocating IPO shares. To
maintain the fairness and integrity of IPOs, the National Association of
Securities Dealers, Inc. has rules governing these "hot" issues. These
rules ensure that the brokers, dealers, and underwriters make a bona fide
distribution to the public and not keep these "hot" shares for their own
benefit. The rules prohibit firms from keeping these shares in their own
accounts or selling them to their directors, officers, employees or to other
brokers/dealers. The rules also restrict sales to particular groups of
people. Both the SEC and the NASD periodically examine underwriting
firms for violation of these rules.


Re:I love my stockbroker (1)

Anonymous Coward | more than 15 years ago | (#1778769)

Yea, its great if you think you are macho man day trader but to really reach an investment goal and to really not get screwed its good to pay a person to help you.

Well of course, most stock brokers are also traders which means they make most of their money on the fill, not on the commission. The fill is the difference between the bid and ask price.

This is basically what happens. Lets say the bid price is $50. Thats the price the buyers want. The ask price is $58, thats the price the sellers want. Somewhere in there is where you get your fill.

A broker/trader typically has connections...that you don't have, especially on the NYSE. That means he can buy under the ask price, and turn around and sell it back to you for the ask price. So he pays $52 for the stock, turns around and sells it to you for $58, the current market ask, pocketing the $6/share difference for himself.

This is where your friendly everyday financial planner/stock broker makes his money. Not in the $25/trade commission.

So while you are chuckling all the way to the bank because your neighbor thought he could beat the market and lost a bundle when E-trade went down while you pocketed a nice 15% gain this year, your broker is laughing at you because he made a 30% gain with your money.

If you want managed money, invest in a mutual fund or two, or a hedge fund if you have the capital.

Re:Idiot (0)

Anonymous Coward | more than 15 years ago | (#1778770)

Boy are you dumb to call me an idiot. First, let's get one thing straight: I'm not a day trader. Just because someone uses a discount or online brokerage does not make them a day trader. I started investing with about $4000 I made off shareware programs I wrote when I was 15, and now I'm 22 and on the verge of being independently wealthy. I have never been a day trader.

Secondly, the reason mutual funds rarely beat market averages is because they are too diverse. This is obviously to minimize risk, but in order to make a lot of money, you need to take well calculated risks. I have a hard time believing that any mutual fund manager would be a day trader. They'd be fired pretty quickly if that was the case.

With the advice of a good broker, you might do better than you would putting your money into mutual funds. But the broker is still going to give you fairly run-of-the-mill advice. You're not going to get rich. You aren't likely to double your money every year.

Not ETRADE's fault (0)

Anonymous Coward | more than 15 years ago | (#1778772)

Brokerage firms have a fudicary responsibility to "know" their client. Thus if you are a newbie when it comes to investing a brokerage firm has the responsibility to make sure you are investing relitive to your responsibility. Having worked at a brokerage seen many lawsuits from "conservative" investor who would get into IPOs, margin accounts who would sue and win their losses back because a broker let them trade above their experiance and risk tolerance. Etrade is just covering their arse.

Exchange rules govern IPOs (1)

Anonymous Coward | more than 15 years ago | (#1778773)

The NYSE, NASD, and every other stock exchange authority has rules that limit the behavior of broker-dealers for the protection of investors.

NASD Rule 2310 "Recommendations to Customers (Suitability)" is probably what is controlling here. The rule states, in part:

(a) In recommending to a customer the purchase, sale or exchange of any security, a member shall have reasonable grounds for believing that the recommendation is suitable for such customer upon the basis of the facts, if any, disclosed by such customer as to his other security holdings and as to his financial situation and needs.

I can't find an interpretive memo on point, but I'm guessing that every member of the underwriting syndicate must be construed to be "recommending" the stock.

I agree that the rule may limit some people from investing in lucrative IPOs - but overall I think the rule is sound. It provides recourse against any shady person who sells IPOs (or other risky financial instruments) to investors who are inexperienced or not able to bear the financial risks.

Here E*Trade is also protecting themselves. If Red Hat should tank (I mean, after we all switch to the OS panacea coming from Redmond next year who'll need Linux?) they don't want you to claim they duped you into buying something that wasn't a suitable investment for you.

IMHO you should be able to call your broker and explain the circumstances and make an argument that you are particularly suited for this or that risky investment. Because of E*Trade's business model they may not be able to provide that kind of full-service relationship.

Disclaimer: nothing in this post constitutes legal or investment advice.

At least I'm denied for a reason I know. (1)

bkosse (1219) | more than 15 years ago | (#1778776)

My mom works for an investment company.

That makes it illegal for me to buy/sell any "hot" stock (a new stock that rises more than 1/8 in the first 4 hours on any given day) or get into an IPO.

It's not necessarily a good reason, but it's a reason nonetheless.

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