[quote=flyer]Have heard many stories like that–sp. Unbelievably irresponsible. Hanging onto the big bucks is not as easy as some might think.[/quote]
A lot of the stories are fabricated or simply don’t add up. What really happened was during the dot.com days many employees were granted Incentive Stock Options… And a lot of employees were not fully vested. Or the ones that were fully vested decided to exercise at a really bad time and then tax year ended before they sold the following year.
A lot of them ended up with an unpayable AMT tax bill, because when you exercise ISO’s, you aren’t subject to ordinary income, but you are subject to AMT, even if you didn’t sell the shares the same year. It was commonly refered to as the AMT tax trap, and lot of people unknowingly got screwed because of it…Most people who never dealt with ISO would have been screwed given the number of paper shares people were granted. I was in the several IPO startups and saw that happen to others quite often.
Others simply didn’t hedge their unvested options with cheap put options, because it didn’t occur to them that in a lot of the startups, due to the nature of how small they were and how disclosures went, that even peon employees were considered “insiders” and hence the company subjected them to very limited trading windows to unload their vested options. And in an IPO company, a few months or even weeks of trading window made an huge difference between recognizing large gains or taking a bath. And yes, some folks did sell their options and buy property in the bay area… Typically people that did that (even if just 1 property) did pretty well, especially if they held on to it until today.
It wasn’t as much irresponsibility, it was more ignorance on how some of these compensations would work and general “old school of thinking” of “holding onto to things for the long term”….The ones that did well, pumped and dumped as soon as they could to retail “investors” who wanted in on the IPO action…Hence, why one really doesn’t want to buy ipo shared companies before any sort of lockup period expires…Winners ended up being insiders. Losers ended up being retail investors that were paying $400+/share for a .com stock.
