A manipulator starts with chooses a company X. He engages in heavy buying on the market. He might also establish some fraudulent stories about company X in the business press or spreading rumors or engaging in wash sales, or announce dishonest information to increase the stock price. This activity, while generally prohibited by law of most countries. In most cases the stock price manipulation can be observed. The price goes up. He hopes to sell out at the high price and walk away holding a cool profit.
It is much easier to manipulate the share price of smaller
companies, such as penny stocks, because they are not as closely watched by
analysts as the medium- and large-sized firms.
Another example of manipulation would be to place simultaneous buy and sell orders through different brokers that cancel each other out but give the perception, because of the higher volume, that there is increased interest in the security.
Equities by Price
- Bait and switch - Stock-of-the-month recommendations are issued, usually without appropriate foundation, and sold to a group of customers. They then re-sell the stock for a small profit, thereby creating interest and encouraging other investors to buy at higher levels. This process can be repeated several times, pushing the price higher. Highest bidder or transactions at progressively higher prices - consistently appearing as the highest bidder, a device which could be used to support or raise the price of securities; following the market too closely on a rise with either purchases or bids, may also constitute apparent activity. Each time new buyers enter the market, even as a result of an independent purchase or bid, it exhausts the supply of securities at lower levels, and forces others to raise their bid. (See also pump and dump). The inverse is used to lower the price of the security.
- Hype and dump - talking up the price of stock by using false or exaggerated reports, rumours, brokers recommendations etc. Once price has risen, stock is dumped.
- Ramping - marking (up) the close either by placing bid at or near the close which changes the closing price (bid often dropped next morning). Also called painting the tape or window dressing. Can also be used to push share price lower.
Equities by Volume
- Chain letter rally - occurs as speculators enter market thereby unwittingly assisting manipulator by increasing volume and price movement.
- Churning - the manipulator acquires a holding of shares and then places both buy and sell orders either through one broker or several in order to create an impression of large turnover. These orders are usually placed at progressively higher prices. Also called pass the parcel.
- Pools - a group of manipulators who trade shares back and forth between themselves, usually through one broker, thereby raising volumes and creating other investor interest. Similar to churning and pass the parcel.
- Short squeeze - purchasing significant amount of stock i.e. cornering the market in order to force short sellers to purchase shares to cover their short positions at successively higher prices, thereby increasing the price.
· Matched orders - pre-arranged trades by associated parties who enter purchase or sale order knowing associate has entered corresponding order.
· Layering' or 'spoofing - submitting a genuine order on one side of the book and multiple orders at different prices on the other side of the book to give the impression of substantial demand, with a view to sucking in other orders to hit the genuine order. After the genuine order trades, the multiple orders on the other side are rapidly withdrawn.
- Failure to disclose - any failure to disclose control or association of the purchase or sale of securities prescribed by statute. The lack of disclosure can allow a manipulator to incorrectly convey to the market that demand or supply for securities is genuine when, in fact, it is related to his own position.
- Churning and burning - the excessive trading of an account by a broker (churning) for the purpose of generating commission without regard to the needs and objectives of the client (who is burnt).
- Use of nominee accounts - the use of nominee/fictitious accounts to stage widespread buying and selling activity at designated price levels, thereby concealing the actual control exercised by the manipulators and the purpose of such activity.
- Spinning - Securities firms involved in initial public offerings may allocate shares to preferred investors on the understanding of obtaining future business, creating a transfer of wealth to those individuals at the expense of other investors.
- Investor loans - In order to ensure that an underwriting goes well, a bank may make below market loans to third-party investors on condition that the proceeds are used to purchase securities underwritten by its securities unit.
A forensic investigator must always investigate on the valuation figure of the securities by comparing with similar securities. The investigator should look for quick and multiple sales where the same person or different people start and end up with the securities. Forensic accountant should track the factors that impact the question securities to be increased or decreased, and identify the false information provided either by cybermears or by decorative press release of a company.
Proactive measures are key to fighting cybermears. Larger invenstor Companies should assign staff to monitor chat rooms and bulletin boards that may post rumors intended to manipulate stock values. Alternatively clipping services can monitor the Internet as well as print media for articles about the organization. A free service to monitor message board postings about certain companies is www.companysleuth.comSometimes it is possible to trace authors of cybermear using techniques by tracing IP address, Whois, searching in the internet, traceroute, Ping, finger searches, contact authors via phone.