how to manipulate stocks

8/6/2019 How To Manipulate Stocks

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NFIFWI, Tirunelveli Division [email protected]

How To Manipulate StocksByDeepak Shenoy| Opinions Wed, May 18, 2011

Dear Upcoming Stock Manipulator,

You have heard from all sources that stocks are manipulated, which is why you want a piece ofthe action. While we cannot hope to enumerate all the methods by which you can steal moneyfrom the pockets of retail investors, we can provide you with a few starting points.

Insider Decider

In the large number of stocks available in the country, the real information is available only tothe management of companies. Before results are announced, results are already known. All youhave to do is to find that inner circle of people that are aware of such details, or tap into theauditing or consulting agency and find "impressionable" people who are responsible for drafting

such results. Or find the investment banker responsible for a merger or acquisition. Or getinformation about a private placement to a large institution from its employees. You might thinkit is only the young or the less-well-heeled that can be bought with money, but that is thethinking of a beginner, a rank amateur at the art of manipulation.

The biggest fish are even more likely to be "bought", as long as you disguise the purchase as aregular business transaction. Where a direct offer for rewards in return for information doesn'twork, you invite the person over to "exclusive" parties, pay for an upgrade of his family's ticketswhen they go for a holiday or befriend him in the promise of a lucrative position in a companyyou will eventually create. The promise of power, fame and exclusivity is intensely attractive,even to those without the need for material trappings. Such attractions seem like legitimate

benefits of friendship, and it brings across information the general investing public can onlydream of.

All you do then is to buy or short the stock with the information you have. Remember of coursethat this can go wrong insiders, having found that their information can move stock in thedirection they want it to go, might throw about wrong information to suit their own needs. Butthat's the risk. A smaller risk, you will admit, than acting purely on public information, otherwiseknown as "being fed to the vultures".

Recently, in very bad news for the insider trading industry, Raj Rajarathnam, a famous hedgefund manager was found guilty of insider trading as if it were a sin. It is truly disturbing that our

industry that has been flourishing for decades has been singled out for treatment by those whothink that everyone should have access to the same information. The fools.

The Circular Trade

Stocks move up based on demand, and when people see there is demand, they come and buythinking there is more demand. In such a situation, it is useful to "manufacture" demand, bybuying and selling to yourself. Because you can't really do that, you involve a friend, buy certainshares from him and then sell those shares to him back at a higher price. Continue until othershave jumped into the fray and taken the share price to levels so high that you can sell and exit ata profit.


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NFIFWI, Tirunelveli Division [email protected]

Every once in a while SEBI will detect and discover such circular trading activity. Have no fear,because all SEBI can do is to scream and ban you and your friend for a while. Then, open anaccount in your nephew's or niece's name and continue your activity. They can't stop youraccount, but they can't take your money (yet). And if they do get tough, go to the SecuritiesAppellate Tribunal, then to the Supreme Court, and eventually, like Reliance promotersattempted recently, request a "settlement". You might pay about 1/50th the amount of profits youwould have made, which is a small percentage of the Income Tax you didn't pay last year.

Pump and Dump

A variation of the circular trade method, here the idea is to use news to pump your stock up, addsome money and then transfer the stocks to greater fools.

In India, you will hear "tips" from operators who keep a stock price high by using large amountsof cash, and then dump it on unsuspecting investors after some seemingly bullish news comesalong in the manner of "Shell oil considering acquisition of small toothpaste cap manufacturer".This simple method never fails to line your pockets, having bought at a very low price, usually incollusion with promoters.

Our heroes are Nirmal Kotecha and P S Saminathan of Pyramid Saimira fame, who along with a journalist Rajesh Unnikrishnan, forged a letter from SEBI asking them to buy shares of thecompany in an open offer at a price much higher than the existing market price. The stockzoomed up and then crashed and when SEBI unearthed the scam, Kotecha had already exited.Later in March 2011, another SEBI order revealed that the promoters made up the financialaccounts a large number of the "agreements with theaters" never even existed, and a goodportion of their revenues were fictitious. It should be a matter of great pride to budding stockmanipulators such as you that a stock could have gained so much attention.

Money Power

When you have some money and stocks trade in miniscule volumes, you can easily move themarket by just your actions.

Using money power isn't a big deal. Even Warren Buffet, in 1974, manipulated a penny stock(thanks James Altucher) so that the price would stay high, and paid a $115,000 fine (although hekept buying high so that he could buy the entire company, and that's a terrible use of moneywhen he could have manipulated the stock instead).

The Hunt brothers, in the mid 1980s, tried to corner the silver market by buying all the silveravailable. They succeeded in driving the price up to $50 then, a price it hadn't reached till 2011.Real estate developers buy their own flats in proxy names and then claim there is too muchdemand and the price must be hiked.

Hedge fund manager and media personality Jim Cramer sums it up in a video, that they just keephitting the stock until the person on the other side gives up.

This is not just a refuge for you; it is now being done even by governments. The US Feb buystreasury bills and long term US bonds, and sometimes even junk mortgages, just to keep theirprices high. India doesn't like the rupee strengthening against the dollar, so it buys dollars andkeeps the exchange rate down. Of course, they have the excuse that they are not just buying tosell it at a higher rate they buy to hold but why should such flimsy reasons stop you? If theprices go out of control you can always sell and if asked, say that the "market behavior hadchanged" and you no longer wanted to keep the stock.


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NFIFWI Tirunelveli Division nfifwi tirunelveli@gmail com

If you think you need a lot of money to manipulate stocks, you are wrong. The smallest stock inthe Nifty trades just Rs. 10 crores ($2.2 million) a day, and most stocks beyond the top 200 willfind it difficult to even trade Rs. 10 lakhs ($22K) per day it doesn't take a lot of money toraise the price, or indeed to "show" the presence of a large buyer.

And if you are caught

You will of course have to burn this letter. But have no fear even if you have manipulatedmarkets as much as Ketan Parekh has, you will find easy ways to come back into the markets,using other people's names and accounts. Nothing will ever happen to you what, after all, hashappened to the bigger political manipulators and scandals? If there are suckers waiting to makelosses, why shouldn't you be the beneficiary?

On that note, we invite you to write in with more lucrative and innovative ways to move stocksaccording to your whims and fancies. And let us know which stocks.

Sincerely,

The Secret Committee of Asset Manipulators (SCAM)

Deepak Shenoy is co-founder atMarketVision, a financial education site and writes atCapital

Mind. You can reach him at [email protected] or@deepakshenoy.

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