GM IPO: UAW’s Pump and Dump?
Peter Flaherty | National Legal & Policy Center
08/19/2010
More evidence that the GM IPO is being hurried for political purposes is found in the IPO registration filing yesterday. The company cannot assure the accuracy of its financial information because of weaknesses in its internal controls. How can GM offer and price shares if it cannot even attest to its own financials?
The shares being offered for sale will come from the U.S. government and the United Auto Workers (UAW) trust fund, another red flag. If the UAW has such great confidence in the future of the company, why is it selling? Is it to cash in on the superficial media accounts of GM’s “progress,” when it knows the long-term future of the company is less rosy?
Few shares will initially go to retail investors. Instead they will go to hedge funds and professional investors who have no long-term interest in GM. They seek to flip the shares for a profit. Although there is nothing inherently wrong with speculation, the circumstances of this offering create an unholy confluence of interests. The administration wants to have an offering before the elections, the UAW wants to dump shares, and Wall Street is ready to capitalize on the White House-induced hype, no matter what happens following the elections.
The offering is expected to raise between $10 and $15 billion. GM’s unfunded pension liabilities alone are $27 billion. This company has a long, long way to go to become viable. Reports of GM’s “comeback” are premature.
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Consider that this is intended as a way to “launder” the massive losses on the taxpayer bailout of the UAW (with the corporate entity of GM serving as the middleman).
The TARP-recipient banks and other institutional investors (e.g., mutual funds) will be “encouraged” by the Obama regime to purchase shares, notwithstanding the clear financial folly in doing so. After all, the new UAW Boss King is already rattling sabers about “getting back” what they “lost” in the bailouts – so the cycle to insolvency begins anew.
But with those politically motivated purchases the federal government will “recoup” its “investment” (bailout) – so the higher the IPO purchases, the “lower” the loss will appear to taxpayers.
The subsequent bath on those GM shares will be intermingled with diminished mutual fund performance / institutional investment performance will be borne by hapless private investors, but those losses will have been “laundered” off of the federal government’s books.