Featured image by Bruno /Germany from Pixabay
Let me be up front Giant. Every form of market manipulation is illegal. It is also true that no stock market can exist without market manipulation. These so-called financial magazines and newspapers, they are the get out of jail free cards for the companies manipulating the price of their stock. Those brokers and analysts do the same thing. You see them on television giving buy/sell/watch recommendations, well, that is market manipulation done under the not so heavy cover of journalism. When Fortune 500 company X announces a stock buyback plan, that’s market manipulation.”
But companies still do stock buybacks” Giant stated.
Yes. And they don’t get prosecuted for market manipulation because they announce it through the journalism channels” I responded. “In today’s world, you need to have a semi-official press release or a rumor air quote confirmed end air quote by the press.”
What kind of rumor?” asked Giant.
Well, the best kind of rumor is a reverse merger target” I answered. “During the 80s and 90s this happened a lot. Ordinarily a company which wants to become publicly traded has to woo some big financial firm to back their IPO. This involves a lot of gifting of shares and paying hefty fees to the backing firm. It sours the milk for many high dollar closely held companies. You often hear of firms canceling IPOs but you rarely hear the reason why. Usually some phrase like ‘not a suitable time’ or ‘not in the best interest of our employees’ gets floated. It’s bullshit. The fees, gifts and loss of control were simply far too high for current company management to stomach. Most notably the loss of control.”
So what is their alternative?” asked Giant.
A reverse merger” I stated. “There was a cottage industry and might still be of people with a bit of money buying up all of the shares of a defunct company which still had a stock symbol on the pink sheets. In truth, most times it was the companies only remaining asset. For the cost of having an authorized accounting firm file financial reports at the SEC mandated times the new shareholders could keep the symbol alive on the pinks. Reporting requirements for the pinks used to be almost non-existent. I believe they are still dramatically reduced, but could be wrong. I know there was a move to try and clean up that Wild West area of the stock market. I don’t think it really worked though, especially because a reverse merger is legit.”
What is a reverse merger?” asked Giant.
Quite a few different forms actually” I said. “I don’t know them all. I know when big profitable companies do it, they tend to reverse merge with an off-shore company in a lower tax country. This lets them transfer revenue generating instruments such as patents and software licensing off to those entities. The one I’m talking about is when a publicly traded company basically buys the stock symbol of a defunct company and reverse merges with it to avoid the expense of an IPO. There are a few hoops to jump through. They must acquire enough shares to hold a controlling interest then force a proxy vote or some such thing, but, when they offer something like a dollar per share for a worthless stock as part of the reverse merger, whatever outstanding shares they couldn’t find to buy tend to vote their way.”
As I said, this was quite common during the 80s and 90s. Then most of the defunct companies got used up and the financial institutions got a bit more reasonable with their fees and gifts to try and bring that era to a close.”
At any rate, to transfer funds from one brokerage account you cannot directly pull money from without leaving too many fingerprints, you buy a bunch of shares, slowly, of the defunct company in your destination account. You choose a realistic strike price to begin selling. You then put out rumors all over the place that defunct company xyz is an excellent target for a reverse merger. Helps if one or more IPOs have publicly fallen apart in recent weeks. One of your sock puppets starts positing the theory in the various on-line penny stock chat locations that defunct company xyz would be an excellent reverse merger candidate for the now fallen apart IPO bid. In the brokerage account you want to transfer from you start buying lots of shares driving the price up. The rumor starts getting traction. Others join in. The SEC cannot easily contact the people behind said stock symbol. You dump the shares the destination account holds and let the transfer from account eat the loss. Dumping in both would definitely get you in trouble and leave you with even more money in an account you cannot directly access without leaving a trail. Not that any of this is legal, mind you.”
Another popular method was fake-news about a down and out company people know” I continued.
How is that?” asked Slim.
You have a defunct company nobody can get in contact with, or better yet, a fake company which doesn’t have a symbol but is on record somewhere. Smith Corona, we will pick on them. Everyone remembers the typewriters and they used to have a stock symbol. You guys all remember the show ‘Warehouse 13’ with those funky keyboards and gadgets, right?”
They nodded their response.
Let’s say, before they lost their symbol you had your fake company put out a press release that they were considering buying all of Smith Corona’s inventory of old typewriter keys, potentially contracting them to make more so they could manufacture a line of Steam Punk type keyboards and computer systems. You do this _after_ you have purchased all the shares you can. Send that and several similar news reports out via press release services using fake company letterhead and names of listed officials which cannot be reached for comment until some reporter, or your sock puppets, pick up on it. People think this fad will bail them out. They go whole hog buying shares despite Smith Corona saying they’ve never heard from or of the supposed company. You dump well before the steam runs out of the rumor.”
None of this is legal, but it is so well documented because it was done so many times. How many times have you heard financial press report a company is rumored to be an excellent take over target? Lots if you listen to financial news. How many times have you heard about grand deals between two or more major companies which then don’t materialize? Lots. It’s done all of the time. I do not recommend it, especially since so many people don’t have the ability to do it in a manner that won’t land them in prison. You can read about all of these things on Wikipedia.”
What is that manner?” asked Giant.
Pay Hillary Clinton $750,000 in ‘speaking fees’ to whisper in the ear of the Justice Department so prison time is taken off the table when negotiating a settlement. How do you think all of the Wall Street bankers kept themselves out of prison?”
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