IMAA: Internet Chat Rooms Send Stock Prices on a Wild Ride
By GRETCHEN MORGENSON
EW YORK -- Online stock traders, goaded by an Internet chat
room leader, commandeered the shares of an obscure company
last week, taking it on the kind of roller-coaster ride that veteran traders
worry may harm investors and undermine faith in the overall stock
market.
Shares of Information Management Associates, which owns a fledgling
Internet shopping site, soared from $4.0625 to a high of $14 before
finishing the week below $10 in unusually heavy trading.
Driving the stock upward was Tokyo Joe, the Internet moniker of Joe
Park, who owned burrito restaurants in New York before becoming a
stock picker. Subscribers to his chat room cheered each other on. "Wait
until the traders see IMA after lunch," one participant said mid-Thursday.
"It will be $14 when you get back," responded Tokyo Joe.
Such rapid-fire moves threaten to become commonplace as the Internet
captures the imagination and attention of investors eager to profit from
tips received electronically from people they consider stock market
sophisticates and wise men.
The rocketing behavior, fueled by fickle chat room emotions, is of
concern to company management and securities regulators, who fret that
investors may begin to question the integrity of the market.
Muriel Siebert, chairman of the discount brokerage firm that carries her
name, expressed outrage over a similar zest for her company's shares last
April. When recommended in a popular chat room called
trading-places.net, the stock catapulted from just over $19 to about $70.
It closed Friday at $18.875.
"There's a lack of accountability in these chat rooms, and it's necessary
for the regulators to do something if these people move individual
stocks," Ms. Siebert said. "If the regulators want me to lead a parade
against some of the things going on, I would do it." People approach her
on the street, she said, describing their anger over paying $70 for a stock
that has now returned to a more reasonable level.
Securities regulators as a matter of course do not comment on
investigations into suspicious movements in stocks.
What concerns many experienced traders is that some of the hottest
Internet gurus have little to no investing background. The man behind the
run-up in Siebert Financial Corp. was Chris Rea, who ran
trading-places.net under the moniker Merlin. Before that, he was
designing mailers for automobile dealerships. Rea is not a registered
broker, but says he once was a trader in London.
The man of the moment, traders say, is Tokyo Joe, aka Joe Park, who
runs Tokyo Joe's Societe Anonyme, an investing chat room. Traders
who subscribe to the chat room believe Park, who also goes by the name
Tokyo Mex, has some 900 followers who pay $100 or $200 a month,
depending upon on the specific service.
Stories about Park and his stock market exploits have appeared in
Money, The Wall Street Journal and New York magazine. An immigrant
from South Korea, he is in his early 40s and lives in Manhattan. He has
recently told subscribers that he intends to start a hedge fund, a type of
investing vehicle for the wealthy. But he did not respond to an e-mail
asking for comment on Friday.
Park put IMA stock on his alert list for subscribers on Monday, Aug. 16.
He called it "the next Priceline.com," an Internet company that allows
consumers to name the price they are willing to pay for a product.
Priceline's stock has been a highflier; the shares were brought public at
$16 each in March and traded as high as $165 in April. The stock closed
Friday at $67.75.
The comparison to Priceline was based on IMA's announcement on Aug.
12 that the company had sold for $10 million a 29 percent stake in a
subsidiary, buyingedge.com, to the venture capital arm of CMGI, an
Internet giant.
As soon as Park posted the recommendation on his web site,
tokyojoe.com, the stock started to move. But the frenzy did not hit until
Thursday when Park told loyalists that shortsellers, investors who sell
borrowed shares in a bet that a stock will fall and that they can replace
the shares cheaper, were coming after the shares.
When the stock was around $10, Park predicted it would be $14 when
traders returned from lunch. Throughout the day, Park and his followers
cheered the stock on as it rose. "Shorts making a good stand," chatted
one participant. "They will die soon."
The company has but 4.5 million shares available to be bought and sold
by the public, yet 14.1 million shares changed hands on Friday.
Traders say that Park has always been forthcoming about his positions in
the stocks he recommends. He informs subscribers that he buys before
he posts recommendations and that he may sell. On Wednesday, he told
subscribers that he held 48,750 shares of IMA, but he did not respond
to questions from subscribers about whether he had sold shares into the
rally Thursday and Friday as the stock raced ahead.
One trader who has been a Tokyo Joe subscriber for almost a year said
that Park's actions were out of character. "He has run a responsible
operation until now," said the person, who requested anonymity. Baiting
shortsellers was something new, the trader said.
For much of the week, many of Park's loyalists were building large
positions in IMA. One subscriber said he had bought 15,000 shares on
Park's recommendation, another said he owned 27,000 shares.
As the buyers multiplied, so did the stock price. On Thursday, a
subscriber named Tiny posted a fake press release that said IMA. was
going to spin off buyingedge.com, the Internet shopping site.
Peter Harris, at Peppercom, IMA's public relations firm, said Friday:
"We represent buyingedge.com, and I'm not aware of anything like that
going out."
After the market closed on Thursday, Tokyo Joe put his
recommendation on IMA on a public relations wire service consulted by
journalists and investors. The announcement noted that IMA shares had
gained 211 percent in three days since his recommendation.
On Friday, the shares climbed to $14, but by late morning started to fall.
Participants in the chat room started to get nervous. Then, at around 1
p.m., disaster. Subscribers were disconnected from the chat room.
The stock fell to about $9.50 a share. Losing the connection was highly
unusual, and some traders suspect foul play. Park later told subscribers a
server had failed overseas. Then, a little after 1:30 p.m., the connection
reopened, and Park pounded the table again on the stock. At 4:03 p.m.,
Tokyo Joe exulted: "I made over 250k."
One trader said the action in IMA stock was a parable for our times.
"This is typical of the wild, wild west," she said, "and how day traders get
buried." After all, those who bought at $14 had heavy losses, at least on
paper.
Albert R. Subbloie, chief executive officer of IMA, which is based in
Shelton, Conn., and primarily creates software for telephone call centers,
was on vacation in Rhode Island on Friday. When reached by phone, he
said that he was unaware of the activity in the stock but not distressed by
the trading. He conceded that he might feel differently if the shares
collapsed.
The company's market capitalization, about $96 million, "is still quite low
for a company that has gone headlong into the internet," said Subbloie,
who added that he had sold none of his stock during the rally. |
