United 'bankruptcy' points to new stock scam techniques Market watchers are trying to unravel how a six-year old story suddenly rose to prominence, hammering the share price of United Airlines earlier this week. A 2002 story of a bankruptcy filling by UAL was pushed into the most viewed business story category on the South Florida Sun Sentinel's Web site on Sunday morning. The …
Having something like this happen to you is more or less akin to being hit by lightning in the middle of a beautiful day.
Congratulations to the clever guys who managed to buy at $3. The stock is back up at $10, though it's still lower than the previous level of $12.
Indeed, fake bad news might come up more and more, considering it's much easier to halve the value of a stock in one day than double it... Doesn't say much for the system as a whole, though.
I wonder if it's even technically illegal. Clearly employing a botnet COULD be considered illegal. The action of shorting the stock as it falls due to actions you took, however, now that's gray area. One the one hand, you've artificially manipulated the market to your benefit, but on the other hand, if you just up and bought a boatload of stock, you'd push the price up that way, manipulating the market that way as well.
The question becomes "at what point is manipulation of the market illegal?" Particularly when the manipulation actually occurs OUTSIDE the market, on a media website?? IANAL, but it sure seems to me like if I borrowed stock, sold it at $12 a share, pushed the big-red-botnet-button (causing the stock to plummet), bought back the shares at $3 each, and returned the stock to the lender, pocketing the difference -- it sure looks like the only offense would potentially be the use of the botnet. But a) botnet usage is not necessarily illegal, and b) a botnet wouldn't necessarily be needed to game the system to get the article to float, causing the stock to tumble. So on the surface of it, it looks like this could be done completely legally, which is an interesting thought.
mine's the one with the laptop controlling a botnet and running trading software at the same time...
http://www.fsa.gov.uk/pubs/public/market_abuse.pdf
<extract>Seven types of behaviour can amount to market abuse – see below for more detail. The examples illustrate the abusive behaviour the Code covers.
....
6. Dissemination – giving out information that conveys a false or misleading impression about an investment or the issuer of an investment where the person doing this knows the information to be false or misleading.
</extract>
IANAL
AC as I work in the finance sector
If it was intentional and the perpetrators were smart, they most likely did not short the stock. The most likely bought it while it was down low after the news hit. The reasons are that shorting the stock before the crash will in hindsight look like you knew about the crash and is a financial risk if the article resurrection did not work. Buying when it is low like $5 is hidden in the confusion and can be explained away by saying you realized the article was old and were picking up a bargain stock. Sell it at $10 when it recovers and walk away with the profit.
Expect to see this trick carried out again, most likely by copycats that wont do as good a job as this one.
T
that this happens more frequently than one would imagine, although usually with less dramatic results...
In fact, it happened to me once as well. I used to use the "most read" and "most emailed" links on the Beeb's News site to get a quick overview of breaking news. On day I clicked on a link in the "most read" box and only when I was halfway through the article did I notice a reference to an event that I knew was a few years back. Only then did I look at the (easily overlooked) date stamp, which stated that the article I was reading was almost 5 years old.
It sticks in my mind, because since then I religiously check the date of news articles.
Since it's quite fashionable to have these "most read" links on news sites these days, I can see how this could easily be exploited using a smallish botnet, or even a number of very bored people clicking repeatedly on a link. And once the ball starts rolling, it's difficult to stop: once an article is prominently displayed in the "top five stories" list of a news site, more people will click on it, meaning it'll get propagated upwards, making it even more prominent, which will result in spiders picking it up and promoting it elsewhere.
Paris, because she's got things prominently on display.
"Weitman added that hits on the story had spiked on Sunday and Monday morning. Coincidentally United filed for bankruptcy protection on a Monday in December 2002.
That factor goes some way to explaining why neither Income Securities Advisors, which posted the summary, nor Bloomberg, picked up on the mistake."
Seriously? Investment advisors do google searches and type out the top 5 hits without even vague curiousity? This then gets into Bloomberg with out anyone thinking "Is that true, should we phone UA's press office?" Then investors see the news and dump stock in a wild panic, also with thinking.
Nice to see a chain of credulous fools hold the global economy together.
The kind of manipulation we're talking about is also illegal in the US. It's a thorny problem for the SEC to root out and prove manipulation.
"Expect to see this trick carried out again, most likely by copycats that wont do as good a job as this one."
Good prediction. New laws and updated forensic methods are sure to follow.
What's really cruel is that the traders made a small fortune both on the sell-off and the buy-back. Brokers LOVE an active stock. They could care less whether it's going up or down. They make money both ways, even while not knowing whether the news is true or false. Just like Las Vegas never has a bad day.
I agree that the deliberate use of a botnet probably makes this a form of insider trading. Except one could argue that the news was already in the public domain!
This happens to me almost every day - I receive Google alerts that turn out to be "old" news. I'm not sure how or why this happens but Tony hit the nail on the head - there needs to be some general best practice for the news industry to use date and time stamps.
Yeah, google forcing conditions on the sites it indexes for news... nice idea but most of them would just remove all dates because they don't *want* to be indexed and provide people with news for free when they could be forcing them to register or buy antiquated paper versions of their news websites.
"6. Dissemination – giving out information that conveys a false or misleading impression about an investment or the issuer of an investment where the person doing this knows the information to be false or misleading."
But are they disseminating anything? They owned none of the media outlets, wrote none of the articles and didn't didn't give out any information. All they did was repeatedly *view* an article which was then (correctly) listed by the site as 'most viewed'.
They relied on the predictable media frenzy to concentrate on the word 'bankruptcy' and not look into it further.
Mentioned this in another comment yesterday but now found the BBC news articles.
See
http://news.bbc.co.uk/1/hi/business/4778046.stm
to explain why "Hotmail about to charge for email" hit the most read listings several years later. (I wonder it this will now propel this article up the rankings :-)
AC - If you are blaming Bloomberg then why aren't you blaming Google? Both are news aggregators. Both also removed the story when notified (Bloomberg within 8 minutes of its release I believe). It is the researchers who really come out of this looking badly. And also the Sun Sentinel for not dating their story.
"""
6. Dissemination – giving out information that conveys a false or misleading impression about an investment or the issuer of an investment where the person doing this knows the information to be false or misleading.
"""
Just consider the Fannie Mae / Freddie Mac debacle:
http://panzner.typepad.com/photos/uncategorized/2008/09/08/fnmcitigroup.gif
@AC:
I believe the original Anonymous Coward was too referring to the researcher. His comment:
"Investment advisors do google searches and type out the top 5 hits without even vague curiousity?"
seems to imply that searching in Google without critical thinking or actual analysis (read: research) is, well, lazy and stupid.
I agree.
-dZ.
Frank Sattler wrote above: "Since it's quite fashionable to have these "most read" links on news sites these days..."
Yes, because apparently many of the instant-news junkies (this is not directed at you, Frank) aren't bright enough to do anything other than read whatever their fellow instant-news junkies are reading.
That's what's great about this exploit - it leverages the stupidity of the crowd.
I notice we're hearing less nonsense about the "wisdom of markets" these days, though.
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