Market Sense and Sentiment

[PappaJohn]

Interesting read on "manipulation".

Message Board Blatantly Urges
Investors to Manipulate a Stock

from: http://www.siliconinvestor.com/stocktalk/msg.gsp?msgid=13689722

To: Souze who wrote (60)
From: Maurice Winn Thursday, May 11, 2000 3:58 PM ET
Reply #62 of 197


Souze, I hoped it would be educational - I'd never heard of hypothecate for a start, and here's what the Wall Street Journal says. They seem to think [and so do some other people by the look of it] that we are not allowed to move our stock to cash accounts to raise the price of our stock or tell lots of people that we are doing so. Which means not tell anyone on a 'message board'. That's very interesting!!
What a lot of rot.

They seem to think any legal action which affects the price is illegal. So a company should not split stock? Which they do to increase liquidity and help their market capitalisation?

The Wall Street Journal itself has become part of the allegedly illegal conspiracy by promoting this GGMDM [albeit they do it under cover of reporting the idea]. They are the main instigators of the idea of moving stock to a cash account in that case. I merely picked the idea up and repeated it. Ideas come and go, ebb and flow and that's the nature of the Web.

The heading should read "Message Board Publicly Urges Shareholders to move their shares to cash accounts to raise their share price and keep it there". I guess that would be boring! Oh well, it's over to markets to decide whether to ignore or whatever. Meanwhile, I'm sick of seeing my shares at a low price and will withdraw my stock from my margin account. Check out "Jacobs Patter" by Wall Street Journal for the quality of their material.

The intention is NOT to punish short sellers. Some of my best friends are short sellers!

Message Board Blatantly Urges
Investors to Manipulate a Stock
By CARRIE LEE

THE WALL STREET JOURNAL INTERACTIVE EDITION

A new message board on Silicon Investor is raising eyebrows by openly urging investors to join forces and drive up the price of Globalstar Telecommunications stock to punish short-sellers.

Short-sellers are investors who hope to profit by betting that the price of a stock will decline. They do so by selling shares borrowed from their broker, expecting to replace them for less when the price falls.

But in allegedly trying to throw cold water on short-sellers, the creator of the Silicon Investor board, "Globalstar Memorial Day Massacre," may be promoting a plan that violates securities laws against stock manipulation.

What makes it more interesting is that the organizer is very blatant about the intentions to influence Globalstar stock and hurt investors. Usually, people who set out to manipulate a stock try to do so very discreetly to avoid tipping off investors who could be harmed and securities regulators.

A Silicon Investor member who uses the screen name Maurice Winn (which he says is his real name) set up the board on May 8. The goal is to cause a spike in Globalstar stock around Memorial Day, May 29, which Mr. Winn calls D-Day.

Globalstar stock has languished amid delays and questions about the viability of the San Jose, Calif., company's satellite-telephone service. Short-sellers have sold about 25 million Globalstar shares -- expecting them to decline further and provide profitable opportunities.

"It would be a nice time, just before the summer holidays, to have some fun, get stock prices going up, having a battle with shorts. Silicon Investor Short Squeeze Day!" wrote Mr. Winn, whose Silicon Investor member profile says he lives in New Zealand.

Mr. Winn is urging investors to pull their Globalstar shares from margin accounts where their brokers could loan them to short-sellers. He hopes that would force the brokers to recall shares already on loan, driving up prices as short-sellers rush to buy the stock on the open market to repay their brokers.

"In fact, just the fear of it happening can make short-sellers cover to avoid being caught in a rapidly rising market," Mr. Winn wrote. He says his plan also is to test the "synergistic" power of the Internet to rally investors to move a stock.

But the plan may face a different test from securities regulators, who have been cracking down on stock manipulation and securities fraud on the Internet. John Reed Stark, chief of Internet enforcement at the Securities and Exchange Commission, says a unified effort to influence a stock may be illegal. He declines to comment specifically on the Globalstar board.

"If you're trying to artificially inflate or deflate the price of a stock, whether by false information or otherwise, it can be a manipulation and a potential securities violation," Mr. Stark says.

Any increase in the price of the flagging stock also could benefit current shareholders, who could then profit on their sales. Mr. Winn admits that he, his family and friends do own Globalstar shares. "To ensure I stay well inside the law, if it exists on this, I don't plan on buying or selling over the next month anyway," he responds by e-mail to a reporter's questions.

Nevertheless, Mr. Winn says he doesn't think his overt plan to have investors move stocks from margin accounts is "manipulative in any illegal sense." He adds: "I think what is illegal, is conspiring to move a price secretly to personal gain by trading on those secretive and manipulative price moves."

Officials at Globalstar declined to comment.

Any coordinated campaign to raise the price of Globalstar's stock would be difficult. The company has 96.9 million shares outstanding, and institutional investors own more than 38%, according to the Carson Group, a New York financial information services firm.

But the potential legal issues are unchanged, whether a plan such as the Globalstar board succeeds in moving a stock or not, says Bill McDonald, enforcement director for the California Department of Corporations, which is the state securities regulator in California.

"It is clearly market manipulation, it is clearly illegal," he says. "These people are clearly trying to manipulate the market and say so blatantly, other people are led to try to get a piece of the action."

Investors have long used Internet message boards to discuss stocks -- some with malicious intent. For example, posters may try to encourage other investors to dump shares so that they can buy them at a cheaper price, or pump up a stock's price so that they can sell at a profit.

Silicon Investor prohibits members from using its boards to engage in illegal activity. "We do respond to regulatory agencies that inform us of illegal practices, but that area is not our expertise," says Byran Burdick, a spokesman. "As an investor I would be suspect of what this guy is doing."

The Globalstar Massacre Board was at one point the top "hot subject" on Silicon Investor on Wednesday. Through Wednesday afternoon, the board had received 38 posts, but 21 were written by Mr. Winn. Nevertheless, some posters say they support the effort.

"My G* shares are sitting quite happily in my retirement account where they are (so far) sinking like a stone, tax deferred, and unmarginable. A short squeeze would be just the right picker-upper to celebrate my birthday," posted one board participant.

Globalstar shares have had a trying year. After soaring to an all time high of 53 3/4 on January 3, the first trading day of 2000, the stock has fallen to below 10 in recent days. On Wednesday, Globalstar shares closed down 17/32, to 8 7/16 on the Nasdaq Stock Market.

The stock has come under pressure amid the failure of other satellite-telephone companies and questions about the long-term viability of its own project. With its service marred by delays and other snags, the company posted a loss of $208 million for the first quarter amid weak revenue.

Mr. Winn is hoping that any spike in the stock that results from his campaign would coincide with announcements or fundamental improvements in the company that would keep the shares from falling back and allowing short sellers to gloat.

In any event, his posting urges supporters: "Just hang onto stocks and don't sell on the spike. The worst that could happen is that the share price would go back to where it was! It would be like going for a roller coaster ride. Fun but not really useful or dangerous."

As is said at the opening of "Hill Street Blues", "Hey, let's be careful out there."