Pipe Dreams
Journalists and academics approach the social world holding two different and sometimes incompatible ways of measuring risk in the world. For example consider what the Wall Street Journal thinks is important about the investment opportunity known as as PIPE: Lawyer Tied to Past Small-Stock Scam Takes Up Contentious 'PIPE' Deals. John Emshwiller writes:
"In 1991, Manhattan attorney Edward Grushko pleaded guilty in a Las Vegas federal court to conspiring to commit securities fraud, part of what government investigators said was a scheme to cheat investors through small-company stock offerings. While a felony conviction usually costs an attorney his law license, a provision of New York state law allowed Mr. Grushko to receive just a three-month suspension.In recent years, the 50-year-old Mr. Grushko has turned his legal talents again to the field of small-company stocks, this time in connection with transactions that some contend harm the companies and their shareholders. And once again, Mr. Grushko is practicing in a contentious corner of the securities markets.
For the past few years, he and his law firm, Grushko & Mittman, have appeared regularly in connection with a new crop of small-company financing deals with the name of PIPE, or private investment in public equity. Critics use more pejorative descriptions, including "toxic converts" and "death-spiral financings."
Now if I am doing due diligence on this business opportunity, Edward Grushko's fraud conviction is a large enough red flag for me to run away, and run away screaming.
But what do the academics think? Well, at a curiously named blawg, Truth on the Market, Bill Sjostrom opines:
"In a typical PIPE, a company privately negotiates a sale of unregistered equity or equity-linked securities to institutional investors. As part of the deal, the company agrees to register the resale of the equity securities, typically within 30 days. The securities are priced at a discount to the applicable public market price to reflect the fact the original issuance is unregistered. PIPEs offer a number of advantages as a financing technique, including quick time to market (no pre-offering delay for SEC filings, abbreviated documentation) and an equity financing option for companies with market caps or deal sizes too small for a registered equity follow-on offering.The Journal article, however, does not focus on the advantages of PIPE deals. Instead, it seems to try to vilify them."
If someone from Mr. Grushko's firm offers me a pipe, I am not smoking it - I don't care what the theoretical basis for the pipe's advantage is. A convicted fraudster wants to put a carcinogenic substance in my portfolio. Not buying.
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