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bridge financing

Posted by Jenn Gangne on December 7, 2000 at 20:39:27:

In the film Boiler Room, J.T. Marlin was able to afford to give its employees a "rip" of two dollars as commision on every share sold because they were involved in bridge financing. Under this type of financing, investors raise capital so that companies can go public. In this way, the outside investors are the "bridge." Bridge financing is not illegal as long as there is no connection between the company issuing the stock and the firm "selling" it. Clients of J.T. Marlin unknowingly became the bridge investors for small companies owned by friends of Michael, rather than established companies with some promise of a return. Michael depended on the brokers to sell stock and thus create a market for him. The investors then lost a lot of money (in some cases their life savings) when the hype surrounding the new "fake" stock dissipated and stock prices plummeted.

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