NEW YORK (TheStreet) -- Newly minted IPO shares in social media giant Twitter (TWTR) rapidly declined in value in front of the lockup expiration. A lockup period is designed to protect investors from nefarious stock marketing efforts by underwriters and management. Lockups often have several tranches and 180 days is a key expiration that most investors closely monitor. Significant inventory can come on the market from management, staff and pre-IPO investors at 180 days.
If pre-IPO investors pull the ripcord and jump, shares can fall precipitously, causing significant shareholder pain. May 6 was Twitter's lockup expiration date.
On April 30, CNBC's Carl Quintanilla interviewed Twitter's CEO Dick Costolo and brought up the lockup issue. Costolo responded that he took the time to find out the intentions of most of the pre-IPO investors and as a result of insiders standing still, Twitter, unlike most other companies, would not need a secondary.
Costolo painted a picture (granted with broad strokes) of management's solidarity in its conviction that the shares should appreciate higher.
I understand part of Costolo's job is to be head cheerleader, and I'm not suggesting he lied, because I didn't hear him say anything that's not accurate. However, I also didn't hear him say that some insiders, including the chief operating officer, will sell at the first chance they get.
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