Re: 9/24/00 - NY Times: Professionals Play the Stock Manipulation Game, Too
Professionals Play the Stock Manipulation Game, Too
By GRETCHEN MORGENSON
EVERYBODY does it.
That was Jonathan G. Lebed's response to securities regulators last week after they said he had run a stock manipulation scheme as an extracurricular activity. Regulators said Jonathan, a 15-year- old high school student in Cedar Grove, N.J., was incredulous when told that he had done wrong touting nine companies' stocks on the Internet and making $273,000 doing it.
Between August 1999 and last February, regulators said, Jonathan bought thinly traded stocks, then promoted them in hundreds of breathless e-mail messages sent to investing chat rooms. As other investors bought, he sold, in a classic pump-and-dump scheme, Securities and Exchange Commission officials said. It was the first time that the commission had sued a minor.
Jonathan, neither admitting nor denying the allegations, agreed to pay back what he had earned, plus $12,000 in interest. No fines or penalties were levied. Yet, in an interview on Wednesday after news of the settlement, Jonathan's father waved away the incident's seriousness with the words, "So they pick on a kid."
Jonathan was definitely wrong to do what he did, and the S.E.C. was right to pursue him. But he and his father are surely right to feel miffed. Everybody does do it. Manipulation of stocks is the name of the game today.
To be sure, Jonathan's activities were cruder than most. His e-mail messages were short on facts and long on hype, as evanescent as the medium on which they were transmitted. For example, a $2 stock would be worth $20 "very soon," he wrote.
But Jonathan is right to wonder exactly how his game differs from those played by Wall Street equity analysts who place absurd "price targets" on stocks. Sure, Wall Street analysts have degrees in finance, while Jonathan as yet does not, and they themselves may not be selling into the buying frenzy their calls create. But if their firms benefit by underwriting stock offerings that are sold to investors on the strength of rising share prices that their "targets" have helped to propel, the analysts are enriched with bigger bonuses.
And how, precisely, do Jonathan's activities differ from the gunning of stocks by big investors at the end of each day or each quarter, a practice widely known as window-dressing, to make their performance look better and attract more investors?
For that matter, what about the accounting games that corporate managements play to keep their stocks aloft? The manipulations Jonathan was accused of involved misleading statements. Many of today's most popular accounting tricks mislead, too: for example, so-called pro forma numbers that reflect only what companies want investors to see, rather than the entire picture.
Of course, investors can be misled only if they allow it. And as long as stocks were skyrocketing, investors seemed happy to close their eyes to manipulative practices on Wall Street or in corporate boardrooms.
Shares are no longer rising, however. All three major indexes are down for the year. So perhaps investors will begin to take their blinders off.
Or maybe they won't. But to a 20-year veteran of the Wall Street scene, it comes as no surprise that Jonathan thought he had done nothing wrong. The teenager's coming of age occurred in a period of stock market mania, when hyping stocks was de rigueur and when ridicule was showered on those who pointed out the warts on a company's operations. Jonathan is unaware that once upon a time, Wall Street analysts occasionally uttered cautious views on shares and did in-depth work to assess a stock's worth. And the teenage trader was not yet born when accounting standards were dutifully followed, not flouted, by corporations. Finally, Jonathan is simply too young to remember the days when investor disbelief was not in a state of permanent suspension.
Make no mistake, Jonathan is not to be pitied. But neither is he to be scorned. He is not just a symptom of our society's addiction to ever-rising stock prices, he is a creation of it.
nytimes.com |
