Financial Post: Bre-X stories on Internet may be manipulation
By BARBARA SHECTER
The Financial Post
The wild ride of Bre-X Minerals Ltd. stock this week has led at least one investor to question whether people are putting rumors on the Internet for profit.
An Internet posting on April 23 was at least partly to blame for a rumor, almost immediately disproved, that Freeport McMoRan Copper & Gold Inc. chief executive James "Jim Bob" Moffett had resigned.
Calgary-based Bre-X's shares (bxm/tse) reacted by spiking from a $2.60 opening to $5.75 before quickly falling back to $3.62, up $1.22 from the previous day's close.
"Whoever's propagating these stories on the Internet may be playing the stock as well," said Colin Kelleher, a Toronto-based private investor.
Many investors appear to have taken the Moffett rumor to mean that Freeport's shocking announcement in late March that it found only insignificant traces of gold in what was supposed to be the world's largest mine was wrong.
Of the 17 million shares that changed hands that day, only 2.7 million were block trades, the kind usually bought and sold by institutions.
The timing of the surge in price, and the fact that it looked like many of the traders appeared to be small retail investors, led Kelleher to conclude that Bre-X shareholders hungry for news -- official or otherwise -- could have been duped into handing over their money to benefit the supplier of the fake news.
It would be fairly easy to do, according to regulators in Canada and the U.S. who realize they are powerless to control much of the information flow on chat lines and Web sites.
"There's so many pages going on with this thing," said Neil Winchester, head of the Toronto Stock Exchange's surveillance department.
"It's being monitored, but it's not impossible for things to slip through."
Winchester said he isn't allowed to talk specifically about Bre-X, but he said the Internet in general is difficult to monitor, especially with only one person in his department assigned to the job part-time.
"We've been presented with situations from the Internet before," said Winchester. "Most of the time people look at them and say 'that's silly'."
Not, apparently, on Wednesday [April 23], said Kelleher.
"I think right now it's being used to move the market."
In the U.S., state and federal securities regulators are beginning to lay charges for securities fraud on the Internet, including the "pump and dump" scenario of artificially inflating a stock price for quick profit.
"The Securities Exchange Commission now has staff that do nothing but surf," said Jeff Himstreet of the Internet offerings committee of the North American Association of Securities Administrators.
But convictions for Internet manipulation are extremely rare, even in the U.S. Himstreet said manipulation that targets small groups, such as a particular or ethnic group, are much easier to track down and investigate.
In a situation like Bre-X [if manipulation did occur], it would mean tracking down the origin of the tip on a chat line or Web page and proving that someone planted it to artificially inflate a stock price for personal gain.
The TSE did not even have time to call Freeport McMoRan for confirmation or denial when Bre-X stock started to trade wildly on Wednesday's rumors that Freeport's chief executive had resigned.
"That happened so quickly -- I swear it was up and down in a matter of minutes," said a TSE employee who requested anonymity. |
