Buy, Lie, and Sell High: How Investors Lost Out on Enron and the Internet Bubble

The Investment Banks and Institutional Investors

When a mutual fund makes an order, it is supposed to be executed. However, with the bubble, traders for investment banks often found themselves calling a large mutual fund to warn them, “You're offering to pay too much for this stock in an IPO.” They couldn't do this for retail investors, as such calls skirted too closely to illegality by providing what might be construed as inside information. Plus, there were too many retail investors to call. Thus, because of their size, mutual funds received many more tips from the investment banks than did individual investors.

In New York at the time of the bubble, the ordinary allocation of shares in an IPO was about 75 percent to institutions, 25 percent ...