Manipulation by Management, Chat Boards and Email Spam

Manipulation by Management, Chat Boards and Email Spam

Management has an incentive to make unwarranted announcements in their company in order to manipulate the share price. Very often because of their small size regulators or even prudent equity analysts would not analyze these companies and therefore catch out on unwarranted statements. Management can apply a typical strategy where they “inside buy” the stock” and after the load up make an announcement on the success of the company, thereby causing the price to rise.

Chat boards are a great medium for individuals with a vested interest or position in a stock to make any claims they want. Unlike an analyst who by law can only make bona fide recommendations and has to be licensed and monitored, the chat board could be posted by anyone and any rumor can be spread without the regulators being able to track down the origins of it.

Another great method to hype up a stock is through mass spam emails. Most spammers know that the majority of the readers wouldn’t take the stories seriously but as long as a small percentage of the distribution list pays attention to it then that would be enough to manipulate a thinly traded penny stock.

A research study has shown that 15% of all spam emails tout stocks. The study has also shown that on average spammers make approximately 5% in a few days. The average buyer of spam news looses approximately 8% of their investment in two days. Other similar forms of illegal advertising are through faxes.