Candidate's questionable trades

California State Controller and Democratic candidate for governor, Steve Westly, may have participated in an illegal trading scheme called laddering with which he bagged $286,000 in profits in 1999, according to the SF Chronicle.

His tax returns show that on 33 occasions between April and October 1999, Westly -- then an executive at the online auction house eBay and today a Democratic candidate for governor -- bought blocks of hot new dot-com stocks at the initial public offering price, a lucrative investment opportunity that underwriters steered to wealthy clients and other insiders.

Then, after the market opened and public trading began, Westly bought more of the same stocks -- almost always an identical number of shares. He paid premium prices, sometimes as much as triple what he paid for the IPO.

Westly lost money on all of the purchases he made on the open market, to the tune of $71,000, but those trades were more than offset by the profits on the IPOs.

In a laddering scheme, investors are offered shares of hot IPOs with the condition that they buy more stock as soon as it starts trading on the open market, creating the illusion that the stock is in heavy demand. Ordinary investors who are unaware of what's happening, often take large losses when the insiders start dumping their shares.

Westly's broker was Robertson Stephens who went out of business in 2002 and is one of 22 investment banks accused in class-action lawsuits of defrauding investors through laddering and other illegal schemes during the dot-com days.

Oh, the go-go days of the dot-com era...it was quite a time to be in San Francisco and working for a big Wall Street firm. Glad it's over.