Wednesday, October 28, 2009

How not to design a pump-and-dump stock scheme

From the Los Angeles Times' Money & Co. blog:

There often is some degree of subtlety in illicit efforts to manipulate stock prices.

But in a suit the Securities and Exchange Commission filed Thursday, the agency alleges that an East Coast stockbroker issued blatantly phony press releases about companies in attempts to push up their shares.

The case, as documented by the SEC, is downright comical, except for the fact that some hapless investors fell for the scam....

...--- On Oct. 1, just before the market closed for the day, he bought 5,000 shares of Irvine-based, an Internet search engine, for $5.33 each.

In the following hour, Ballas posted press releases on two PR wire services announcing that had agreed to a buyout by Microsoft.

--- Ballas then went on the Yahoo message board for, directing people to the phony news releases and urging them to buy the company’s shares in after-hours trading. "Woo hooo .... daddy needs a new pair of shoes," he wrote in one post.

Some investors apparently fell for it -- and drove the stock as high as $9.65, the SEC said -- even though the release included sentences like this gem: "For those of you who own it, enjoy the success, for those of you who do not, mergers right now seem to be hot, and keeps [sic] your scanners peeled for opportunities."

--- Within a few hours, issued a statement denying that it was in a deal with Microsoft.

Undeterred, Ballas tried to issue yet another phony release about the very next day, this time saying that the company would be bought by Google. The first service he tried to use,, expressed concern that the announcement might be a hoax. So Ballas went to another service, EIN Presswire, and got his fake announcement published for $49.95, the SEC said....MORE

Hell, that's nuthin. We relayed this story a couple years ago:

And here's a story from twenty years ago this summer (I hope this is fair use, I've got a reason for putting out the abstract found on Proquest, this story was class act journalism). I made a mistake in the post below, it appears the the securities analyst making the buyout offer was hospitalized subsequent (not prior) to the call to DJ:
Publication Image
Herd on the Street: 'Garbitrage' Bulls Go Mad
By Brett Duval Fromson. Wall Street Journal. (Eastern edition). New York, N.Y.: Jun. 30, 1987. pg. 1

One week ago, a troubled Cincinnati man made a bogus bid for control of Dayton Hudson Corp. Paul David Herrlinger caused the retailer's stock to shoot up $9 a share hours before a family lawyer announced that Mr. Herrlinger was more crazy than rich. Investors who bought Dayton Hudson stock on the preliminary news wire reports found that by the end of the day they had lost an estimated $15 million.