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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