Suddenly theres all this buzz about lockups. And all
Did Facebooks founding investor Peter Thiel really
sink Facebook stock by selling about 20 million shares at
$19.27 to $20.69 each on August 16 and 17 just days
after the lockup expired?
How many shares of Groupon do its insiders still own, now
that the lockup is over and the shares are selling at about $4
a share, nearly 80 percent lower than the IPO price of $20 a
Why did Yelp shares jump more than 20 percent the first day
after its first lockup expired?
Lockups are nothing new to the IPO process. Indeed lockup
expirations are more blog chatter than significant news. They
refer to a period of time after a company has initially gone
public, usually between 90 to 180 days, during which company
insiders and major shareholders agree not to sell any of their
shares unless they are permitted to do so at the discretion of
IPO lockups are Wall Streets dirty little
secret. They are there, and they are not. Underwriters
insist that insiders will not be allowed to sell their shares
during the lockup, to assure that they wont bail out
en-masse and depress share price, thus
scaring away new investors. But more often than not
they allow a select number of insiders to sell, without
adequate warning or disclosure.
In the case of Facebook, the selling by insiders such
as Peter Thiel became so pervasive that CEO Mark
Zuckerberg had to publicly announce he would not sell any
of his shares for at least a year. He wanted to convince
investors that he and other managers were staying the course
and that the rampant insider selling was not a sign of
eroding confidence in the company.
Many bankers worry that insiders are using the
discretion of the underwriter provision to defeat
the intent of a lockup and that such discretionary sales are
disclosed only after the fact. Most important, the SEC has done
little to require greater timely disclosure of the process,
disclosure that might bring some order and greater transparency
to post-IPO trading.
In the case of LinkedIn, which went public on May 19, 2011
and whose 180 day lockup expired on November 19, 2011, the
company filed more than two dozen statements with the SEC, a
number of which are about changes in beneficial
ownership, that is, insiders trading stocks. Similarly,
Groupon filed more than two dozen statements with the SEC
during its lockup, a significant number of which denoted
changes in beneficial ownership.