The Securities and Exchange Commission is cracking down on spinning and laddering.

No, it isn't railing against exercise classes and home improvements. Spinning and laddering relate to initial public offerings (IPOs).

In IPO-speak, "spinning" is when the investment bank taking a company public gives some of the new shares, which have yet to hit the market, to valuable clients (or perhaps would-be customers) in order to gain more business. These lucky beneficiaries then "flip" the shares, quickly selling when they hit the market and initially spike in price. Former WorldCom CEO Bernard Ebbers engaged in one particularly egregious instance of this and netted some $11 million.

It's funny how so many IPOs experience a big jump in price when they make their public debut, isn't it? Well, we can often thank "laddering" for that. Laddering occurs when the investment bank rewards investors, who signal they plan to buy a lot of shares of an IPO on the open market, with pre-IPO (i.e., flippable) shares. Laddering has been blamed for contributing to the wild run-ups in IPO prices in the late 1990s. Insiders got rich as the prices soared, while many of us got stung as the prices fell.

Spinning, laddering, flipping -- these are all win-win-lose practices. Investment banks get to deliver rising IPO stock prices and lure more business; corporate bigwigs and major investors get shares at, essentially, discount prices; and we, the individual investors, pay higher prices and are excluded from these dealings.

According to The Wall Street Journal (subscription required, free trial available to Fools), investment banks Goldman Sachs(NYSE: GS) and J. P. Morgan Chase(NYSE: JPM) are in the hot seat right now, both under investigation by the SEC for IPO practices involving civil securities fraud and market manipulation. Both companies deny wrongdoing.

The National Association of Securities Dealers has also issued proposals for reforming IPO practices, and New York Attorney General Eliot Spitzer is seeking more reform, as well. So rejoice -- the playing field might even out a bit in the near future.

Learn more in our ABCs of IPOs.