In the world of investing, there’s one question that’s asked quite often. That question is, “Can the stock market be manipulated?” With strict Securities and Exchange Commission (SEC) laws surrounding the stock market in general, and various safeguards in place to stop manipulation from being possible, it would seem that stock market manipulation would be difficult, if not impossible. However, this concept is nothing new. The reality is that there’s more than one answer to this question when we go into detail, but in short, the answer is yes. The stock market can absolutely be manipulated.
The Short-And-Distort Stock Market Manipulation
While the short-and-distort scheme is a very illegal one, it’s still something that happens in the market quite often. The idea is to first short the stock, making a bet that the value of the stock is going to fall. From there, the con artist behind the move spreads either false information or confidential information that leads to a massive decline in the value of the stock. Every penny the value of the stock goes down is another bit of gains for the con artist behind it.
One of the most famous short and distort con artists to this day is Egyption scammer Anthony Elgindy. In order to manipulate the market, Elgindy worked with a corrupt FBI agent by the name of Jeffrey Royer. Royer would feed Elgindy information on companies that were being investigated by the FBI. From there, Elgindy would short the stock before spreading the damning information, leading to massive declines in the values of stocks and making a profit in the process.
Elgindy didn’t stop there though. He found more ways to make millions from his illegal activities. Aside from short selling, Elgindy was also known for using his website to blackmail companies and sold subscriptions to his website for $600 per month for what he called expert stock tips. All in all, Elgindy not only manipulated the stock market, he conned corporations and investors alike out of millions of dollars in the process.
Institutional Market Manipulation
While most ways to go about manipulating the stock market are completely illegal these days, they aren’t all illegal. Another very common form of stock market manipulation is also very legal. This is called institutional market manipulation.
Essentially, institutional investors manipulate the market all the time. By making big moves, either buys or sells, institutional investors have the financial power to cause the values of stocks to either rise or fall by large percentages. At the end of the day, while this is viewed as manipulation, there’s nothing wrong with these types of moves. After all, the market is built for them.
When companies go public, their goal is to raise funds. They pay massive sums of money to get meetings, put on events, take part in conferences, and take other actions that help them grab the attention of institutional investors. However, a company’s valuation can only be so large. Every one of them has a market capitalization. When a large percentage of this market capitalization is either purchased or sold by a single entity or group of entities, we can expect to see vast movement in the market as a result.
Media Related Manipulation
Another form of stock market manipulation that we tend to see quite often is media-related manipulation. The reality is that the news moves the market all the time. News of a CEO stepping down or other management changes, news of product releases, news of earnings, and more will lead to movement in the market. On a larger level, economic and political news can lead to movement in the market as a whole. However, these types of news can’t be considered manipulation. This news took place naturally, and the stock the news was about naturally moved as a result.
However, various other types of news can be viewed as market manipulation. One of the most common of these is market rumors. Dialing it down a bit more, one of the most common types of market rumors is a rumor of a coming takeover. This happens quite often, and those who start the rumor are ultimately manipulating the market. When takeover rumors hit, they have the potential to cause massive spikes in the values of equities. In fact, I’ve seen spikes of more than 20% on unconfirmed rumors that a stock will be taken over.
This type of manipulation creates an opportunity for traders who catch the rumor early. However, I urge you never make a long-term investment decision based on a rumor. At the end of the day, these rumors happen at least once per week, and like most rumors, they generally prove to be invalid. So, if you’re going to attempt to take advantage of these moves, please be sure to do so with caution as they tend to be highly volatile short-term spikes.
Finally, another form of market manipulation that happens quite often is known as the pump-and-dump scheme. While pump-and-dump schemes are just as damaging as short-and-distort schemes, they work in the exact opposite way. During the short-and-distort, the con artist purchases a short position in the stock before spreading either false or confidential information. In the pump-and-dump scheme, the con artist purchases a long position in the stock before pumping out positive news. This news is often coupled with marketing campaigns that lead to a large gain in the value of the stock. The con artists end it by selling their position at the top before the value of the stock goes on a dramatic fall.
If you were asking that big question, “Can the stock market be manipulated?” You have your answer. At the end of the day, the stock market can be manipulated, and it is actually manipulated quite regularly. In most cases, this manipulation happens by legal means. However, illegal activity is not uncommon either. Nonetheless, manipulation happens quite regularly in the stock market.
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