Thank you for sharing this link. Not sure what to think about it tho...
"In essence, Bain would value the special, riskier shares at pennies on the dollar. In one deal, employees invested about $23,000 in their IRAs. When the takeover target went public, those shares were worth about $14 million, and were worth about $23 million they finally sold the shares. That’s a 100,000% return."
Meaning, someone was risking their $23k in IRA. And looks like that investment opportunity was given to regular employees as well, meaning it wasn't a rigged up illegal trade based on some kind of insider information?
One legal (AFAIK) method:
The company had low/no valuation, and it was private. Those shares were sold to the employees (likely of the vehicle containing the company) at the stated valuation. Once they went public, there was a valuation event. Roughly, they snuck through the 409a before it had to be reported.
So if shares had a low valuation, employees buying these risked that they will worth nothing in the future. I.e. not really different from buying AMZN shares in IRA.
Unless, shares were valued low on purpose, and were offered to buy at that price as another form of compensation (so compensation was difference between "as valued" and "real value"). In that scenario, it appears that these employees had ordinary income, which was not declared as such... And of course, that smells "fraud"...
So the question is - was the original investment truly at risk?
"In essence, Bain would value the special, riskier shares at pennies on the dollar. In one deal, employees invested about $23,000 in their IRAs. When the takeover target went public, those shares were worth about $14 million, and were worth about $23 million they finally sold the shares. That’s a 100,000% return."
Meaning, someone was risking their $23k in IRA. And looks like that investment opportunity was given to regular employees as well, meaning it wasn't a rigged up illegal trade based on some kind of insider information?