Dirty tricks of the trade.

New year, same rotten tactics! For as long as the stock market has existed, market manipulators have also. Market manipulation is when someone artificially inflates or deflates the price of a security, causing stock prices to rise or fall dramatically. There are various techniques that get substantial attention: ‘pump and dump,’ ‘short and distort,’ and ‘poop and scoop.’

• ‘Pump and dump’ is when an investor buys shares of a stock. He will then hype up the stock to sell the share at a higher price than when it was originally purchased.
• ‘Short and distort’ involves shorting a company and subsequently spreading negative misinformation to drive down the value of said company.
• ‘Poop and scoop’ is the reverse of ‘short and distort.’ The investor drives down a stock by spreading misinformation to then purchase the stock at a lower price.

These dirty tricks of the trade can be achieved by employing various techniques on a number of different channels. The simplest, although it varies in effectiveness, is word of mouth among one’s professional network. Much more commonly hedge funds will resort to various media channels. Tesla, for example, is regularly on the receiving end of investor rumours being planted into mainstream media in an attempt to play with their stocks. Today, this approach is even more easy to achieve than it ever had been before.

During the pandemic there was a media crisis in the U.S. Almost 100 newsrooms closed in North America, which soon turned into a convenient tragedy for hedge funds all over the continent. Hedge funds quickly snapped up as many dying newsrooms as they could get their hands on. They understood that if they controlled the media, they controlled the stock markets. In other words, the media could become an investor-controlled vehicle for any ‘pump’, ‘distort’, or ‘poop’ market manipulation schemes.

According to CNBC, “some of the largest newspaper groups in the country — such as Tribune, McClatchy and Media News Group — are owned, controlled by or in debt to hedge funds or private equity groups.” The Financial Times estimates “about half of America’s daily newspapers are controlled by private equity, hedge funds and other investment groups.”

An alternative route is via online communities such as social media and/or chat forums, which can generate substantial success. Both of these tools are easy to effectively employ, therefore it doesn’t take long for hedge funds to master them. The key is persistence, brash language, and maximum controversy.

While all the aforementioned approaches are in the dark grey area, other less common tactics blatantly soar way over any ethical line; life threatening scare tactics and fatal sabotage campaigns.

One research platform, Hedgeye, has been suspected of taking pages out of the ‘short and distort’ playbook. Their supposed strategy often entails a campaign on Twitter followed by the threat of law suits against anyone who criticises them (just ask stay-at-home dad Carmine Pirone).

More recently, Keith McCullough, CEO of Hedgeye, took an even bigger step in a highly unethical directions and posted, oddly proudly, about Hedgeye hiring a private investigator to stalk a competitor and their wife (just ask Frank Wilson, the owner of the research account WifeyAlpha).

The incident received considerable attention after Hedgeye shared an image their PI had taken of a lift which matched that of a photo Wilson’s wife posted of her using the very same lift. At the time, Elon Musk was in the middle of a media storm regarding Twitter’s doxxing policies and the online community were baffled as to why McCullough’s actions, in breach of Twitter’s code of conduct, didn’t warrant him and Hedgeye being removed from the social media platform.

Another even more extreme, by a long way, example of a market manipulation technique took place quite a while back. In 1982, seven random individuals scattered throughout the Chicago metropolitan area died as a result of taking Tylenol-branded acetaminophen capsules.

Later, it transpired what they took had in fact been laced with potassium cyanide. Unsurprisingly, the incident caused the stock to plummet. No one has ever been charged for the Tylenol murders; however, many have long speculated whether this was an act of sabotage by a Johnson and Johnson competitor or anyone who may financially profit from the company’s downfall.

There is no doubt the examples mentioned are just the tip of the iceberg and there is far more that meets the eye when it comes to the underbelly of the financial sector. If you wish to name and shame or share any other tricks, please get in contact: hedgespy7@gmail.com.