Manipulating the market is actually fairly easy, just following these steps
1. You buy a small, lightly traded stock.
2. You go on the message boards and say stuff like “I hear this company has cured cancer, I’m buying all I can.”
3. The people on the message boards believe you and buy the stock, so it goes up.
4. You sell the stock for a profit.
And for an influencer with many subscribers, the process is similar, but more profitable.
1. Buy stock.
2. Tip the super-secret, top-tier-subscribers only, whom you charge a ton of money.
3. Tip the regular subscribers, whom you charge less money.
4. Fake rumors to the public.
Why would this work? If you had asked me a year ago “if a dozen guys on internet message boards decide for no reason to make a stock go up, can they do it?” I would have said “I don’t know, maybe, if it’s a small and illiquid stock.” Now I’d just say “oh yes, that’s a very normal thing to happen”.
And this is exactly the reason behind a Securities and Exchange Commission enforcement action from last week:
The Securities and Exchange Commission yesterday announced charges against Mark Melnick, the host of a stock trading webcast, for spreading more than 100 false rumors about public companies in order to generate illicit profits. The SEC previously charged Barton Ross for his role in this scheme.
According to the complaint, filed in the United States District Court for the Northern District of Georgia on September 30, 2021, Melnick received advance notice of companies about which another scheme participant planned to spread false rumors, and then shared the companies’ names with subscribers to his online trading room. Melnick advised the subscribers that he had taken positions in the companies, while other scheme participants also spread the false rumors through real-time financial news services, financial chat rooms, and message boards. These false rumors caused the prices of the subject companies’ securities to rise temporarily. Between January 2018 and January 2020, Melnick allegedly spread and/or traded around the false rumors over 100 times, generating more than $374,000 in illicit profits. The other scheme participants also traded around the false rumors, generating significant profits.
This year has been strange so far, meme stocks, NFTs, and now this.