Anatomy of a 'Chop-Stock' Deal

Stock of XYZ Corporation is trading at $9.60 bid, $10 asked.

1. THE STOCK PROMOTERobtains 100,000 shares of ''cheap stock''--either issued overseas under Regulation S of the securities laws, or issued to insiders under Rule 144. The price: 25 cents a share, or $25,000.

2. STOCK PROMOTER sells the stock to the CHOP HOUSE at $9.60 a share, or $960,000.

3. COLD-CALLERS at the CHOP HOUSE sell the stock to the CUSTOMERS at $10 a share, or $1,000,000.

4. CUSTOMERS deliver $1,000,000 to CHOP HOUSE.

5. CHOP HOUSE delivers $960,000 to STOCK PROMOTER.

6. STOCK PROMOTER delivers the stock to CHOP HOUSE.

7. CHOP HOUSE delivers stock to CUSTOMER's account.

8. STOCK PROMOTER'S profits--$960,000 minus $25,000, or $935,000--are wired to an OFFSHORE BANK.

9. OFFSHORE BANK wires half the profits-- $467,000--to CHOP HOUSE's OFFSHORE BANK, or STOCK PROMOTER gives CHOP HOUSE its split of the profits in cash.

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Updated Dec. 4, 1997 by bwwebmaster
Copyright 1997, Bloomberg L.P.
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