Image Credit: Dean Hochman (CC by 2.0)
Parking (or stock parking) is the illicit practice of selling shares to another party with the mutual intention that the original owner will buy them back after a brief period of time. The goal of parking is to hide who really owns the stock while appearing to comply with regulations. Often this is used to avoid having to disclose ownership by a particular deadline. It can also be employed so that a stock transaction appears to have met it’s settlement date (usually two business day after the execution date), when indeed it has not. Brokers will sometimes engage in parking without the full knowledge of the stock owner.
As it represents a form of collusion and artificial manipulation of the market, parking is highly regulated by the SEC. Punishment for parking depends on the number of shares traded, the amount of taxable income undisclosed, and the extent of the colluding parties. Minor violations will result in a small fine and a ban from trading securities. Severe violations can result in a heavy fines and prison time. For instance, in 1989 corporate raider Paul Bilzerian was found guilty of nine counts of tax fraud related to parking, resulting in a four-year prison sentence and a fine of $1.5 million.
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