Each situation can be different. The market makers simply reflect sellers. In some cases, the sellers are hedge funds ivolved in the toxic financing of the company. In such cases, the CEO may be fully aware of the funds intentions to sell company stock short, and he may even be participating himself.
In other cases, the CEO may not have known, or been able to prevent the funds activities.
THere are also SEC cases where the CEO worked with a crooked market maker to manipulate the stock price.
Someone on the GHTI board had mentioned a father/son team called "Wolfson", and this is what I was able to find: (the link to the SEC complaint is at the bottom)
From a google search on the Wolfsons:
E. Defendants Manipulate the Stock Price
46. Between July 21, 2000 and October 23, 2000, Wolfson, in concert with Kirkpatrick, Pozner, Chapman, David Wolfson, Tippetts, World Alliance, A-Z Retirement Trust and AZW Irrevocable Trust, manipulated the stock price of Freedom Surf by (i) advancing the bid quotation without relation to genuine market demand or worth of the company; and (ii) engaging in a series of public market purchases and sales among controlled accounts. The foregoing was done to artificially increase the stock price of Freedom Surf prior to Wolfson's block sale of 25,000 shares to Salomon Grey on October 24th, and Grey's subsequent retail selling of the stock.
47. There was no market demand during this period other than that generated by Wolfson and those acting in concert with him. The only trading done during this period was from orders placed by Wolfson and those acting in concert with him, and inter-dealer sales and purchases in response to these orders.
(i) The Wolfsons, Kirkpatrick and Pozner Run Up the Bid Price
48. On July 21, 2000, Kirkpatrick, on behalf of OLIE, posted its first price quotation of $5 "bid" and $10 "ask" for Freedom Surf common stock on the OTC-BB. This was the initial priced quotation for Freedom Surf.
49. Between July 21 and October 11, 2000 (the day of Freedom Surf's stock split), Kirkpatrick increased the bid price fifty-three (53) times, to $40. During that time period, Olsen Payne posted or maintained the exclusive high bid on fifty-one of fifty-eight trading days.
50. There was very little trading done during this time period. During the approximately two months when Freedom Surf stock went from $5 to $40 (July 21 through September 28, 2000), Kirkpatrick reported to NASDAQ only two transactions for a total of 200 shares, and, market-wide, there were only six transactions involving 850 shares, all of which were arranged trades.
51. After the four-for-one stock split on October 11, 2000, Kirkpatrick posted a revised bid of $10 to reflect the split. Thereafter, between October 17th and October 23rd, Kirkpatrick raised the inside bid five times from $10.50 to $11.375.
52. During the entire period from July 21st to October 23rd, Kirkpatrick never reduced OLIE's bid quotation for Freedom Surf.
53. Kirkpatrick had no client orders for his bid increases. He instead was steadily increasing the bid at the direction of Allen and David Wolfson.
54. On July 21, 2000, Pozner, on behalf of Glenn Michael, matched Kirkpatrick's initial bid quotation of $5 just 2.5 minutes after Kirkpatrick's posting. Between July 21st and September 13, 2000, Pozner advanced Glenn Michael's bid sixteen times, from $5 to $35. During this time, Pozner posted the exclusive inside bid nine times, and shared the inside bid with Kirkpatrick four more times. Even when he was not ahead of Kirkpatrick in bidding, Pozner was close behind, and in front of other market makers. Pozner posted the highest daily bid of any firm on seven days during this time period.
55. Pozner had no client orders for his bid increases. He was instead increasing the bid at the direction of Wolfson.
56. In moving the bid at Wolfson's direction, Kirkpatrick and Pozner knowingly and recklessly participated in and furthered the manipulation of Freedom Surf stock.
(ii) The Wolfsons, Kirkpatrick, Chapman, Tippetts, World Alliance, A-Z Retirement Trust, and AZW Irrevocable Trust Effect Manipulative Trades to Increase the Stock Price
57. The Wolfsons, Kirkpatrick, Chapman, Tippetts, World Alliance, A-Z Retirement Trust, and AZW Irrevocable Trust effected manipulative, arranged public market trades among Wolfson-controlled accounts between July 28, 2000 and October 23, 2000, to inflate the stock price of Freedom Surf prior to the block sale of 25,000 shares to retailer Salomon Grey.
58. Six accounts at Canadian broker-dealers generated all of the retail demand for Freedom Surf during the foregoing period: (1) East-West Trading Corporation at Union Securities, Ltd.; (2) East-West Trading at Canaccord Capital Corporation; (3) Karston Electronics at Canaccord; (4) Leeward Consulting Group LLC at Rampart Securities Inc.; (5) Consolidated Euro-Holdings at Credifinance; and (6) AZW Irrevocable Trust at Canaccord.
59. John Chapman, d/b/a International Consulting, had trading authority over five of the six Canadian accounts. Chapman operates out of the same business address as Wolfson, and shares profits from trading in the Canadian accounts with Wolfson.
60. Tippetts is listed as Trustee of the sixth account, AZW Irrevocable Trust.
61. The Canadian accounts collectively purchased 12,950 shares of Freedom Surf from U.S. market makers in ten transactions at increasing prices between July 28 and October 20, 2000. Sell orders from the Wolfson-controlled accounts at OLIE, near in time to the buy orders and in identical or nearly identical amounts, provided to the marketplace the stock that was used to fill the demand from the Canadian accounts.
62. The U.S. market makers that sold stock in response to the demand generated by the Canadian accounts maintained flat inventory positions by immediately purchasing stock from OLIE, which in turn purchased from the Wolfson-controlled accounts. Wolfson's World Alliance and A-Z Retirement Trust accounts accounted for 100 % of the retail sales volume in Freedom Surf between July 28 and October 23.
63. Allen and David Wolfson called in trades for the OLIE accounts to Kirkpatrick during this time period.
64. The foregoing manipulative trades created actual and apparent activity in Freedom Surf stock, and caused the stock price to rise.
65. In effecting arranged trades, Kirkpatrick knowingly or recklessly participated in the manipulation of Freedom Surf stock.
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