<Message Board Blatantly UrgesInvestors to Manipulate a Stock
By CARRIE LEE
THE WALL STREET JOURNAL INTERACTIVE EDITION
A new message board on Silicon Investor is raising eyebrows by openly urging
investors to join forces and drive up the price of Globalstar Telecommunications
stock to punish short-sellers.
Short-sellers are investors who hope to profit by betting that the price of a stock
will decline. They do so by selling shares borrowed from their broker, expecting
to replace them for less when the price falls.
But in allegedly trying to throw cold water on short-sellers, the creator of the
Silicon Investor board, "Globalstar Memorial Day Massacre," may be promoting
a plan that violates securities laws against stock manipulation.
What makes it more interesting is that the organizer is very blatant about the
intentions to influence Globalstar stock and hurt investors. Usually, people who
set out to manipulate a stock try to do so very discreetly to avoid tipping off
investors who could be harmed and securities regulators.
A Silicon Investor member who uses the screen name Maurice Winn (which he
says is his real name) set up the board on May 8. The goal is to cause a spike in
Globalstar stock around Memorial Day, May 29, which Mr. Winn calls D-Day.
Globalstar stock has languished amid delays and questions about the viability of
the San Jose, Calif., company's satellite-telephone service. Short-sellers have sold
about 25 million Globalstar shares -- expecting them to decline further and
provide profitable opportunities.
"It would be a nice time, just before the summer holidays, to have some fun, get
stock prices going up, having a battle with shorts. Silicon Investor Short Squeeze
Day!" wrote Mr. Winn, whose Silicon Investor member profile says he lives in
New Zealand.
Mr. Winn is urging investors to pull their Globalstar shares from margin
accounts where their brokers could loan them to short-sellers. He hopes that
would force the brokers to recall shares already on loan, driving up prices as
short-sellers rush to buy the stock on the open market to repay their brokers.
"In fact, just the fear of it happening can make short-sellers cover to avoid being
caught in a rapidly rising market," Mr. Winn wrote. He says his plan also is to
test the "synergistic" power of the Internet to rally investors to move a stock.
But the plan may face a different test from securities regulators, who have been
cracking down on stock manipulation and securities fraud on the Internet. John
Reed Stark, chief of Internet enforcement at the Securities and Exchange
Commission, says a unified effort to influence a stock may be illegal. He declines
to comment specifically on the Globalstar board.
"If you're trying to artificially inflate or deflate the price of a stock, whether by
false information or otherwise, it can be a manipulation and a potential
securities violation," Mr. Stark says.
Any increase in the price of the flagging stock also could benefit current
shareholders, who could then profit on their sales. Mr. Winn admits that he, his
family and friends do own Globalstar shares. "To ensure I stay well inside the
law, if it exists on this, I don't plan on buying or selling over the next month
anyway," he responds by e-mail to a reporter's questions.
Nevertheless, Mr. Winn says he doesn't think his overt plan to have investors
move stocks from margin accounts is "manipulative in any illegal sense." He
adds: "I think what is illegal, is conspiring to move a price secretly to personal
gain by trading on those secretive and manipulative price moves."
Officials at Globalstar declined to comment.
Any coordinated campaign to raise the price of Globalstar's stock would be
difficult. The company has 96.9 million shares outstanding, and institutional
investors own more than 38%, according to the Carson Group, a New York
financial information services firm.
But the potential legal issues are unchanged, whether a plan such as the
Globalstar board succeeds in moving a stock or not, says Bill McDonald,
enforcement director for the California Department of Corporations, which is
the state securities regulator in California.
"It is clearly market manipulation, it is clearly illegal," he says. "These people
are clearly trying to manipulate the market and say so blatantly, other people are
led to try to get a piece of the action."
Investors have long used Internet message boards to discuss stocks -- some with
malicious intent. For example, posters may try to encourage other investors to
dump shares so that they can buy them at a cheaper price, or pump up a stock's
price so that they can sell at a profit.
Silicon Investor prohibits members from using its boards to engage in illegal
activity. "We do respond to regulatory agencies that inform us of illegal
practices, but that area is not our expertise," says Byran Burdick, a spokesman.
"As an investor I would be suspect of what this guy is doing."
The Globalstar Massacre Board was at one point the top "hot subject" on Silicon
Investor on Wednesday. Through Wednesday afternoon, the board had received
38 posts, but 21 were written by Mr. Winn. Nevertheless, some posters say they
support the effort.
"My G* shares are sitting quite happily in my retirement account where they are
(so far) sinking like a stone, tax deferred, and unmarginable. A short squeeze
would be just the right picker-upper to celebrate my birthday," posted one board
participant.
Globalstar shares have had a trying year. After soaring to an all time high of 53
3/4 on January 3, the first trading day of 2000, the stock has fallen to below 10
in recent days. On Wednesday, Globalstar shares closed down 17/32, to 8 7/16 on
the Nasdaq Stock Market.
The stock has come under pressure amid the failure of other satellite-telephone
companies and questions about the long-term viability of its own project. With its
service marred by delays and other snags, the company posted a loss of $208
million for the first quarter amid weak revenue.
Mr. Winn is hoping that any spike in the stock that results from his campaign
would coincide with announcements or fundamental improvements in the
company that would keep the shares from falling back and allowing short sellers
to gloat.
In any event, his posting urges supporters: "Just hang onto stocks and don't sell
on the spike. The worst that could happen is that the share price would go back
to where it was! It would be like going for a roller coaster ride. Fun but not
really useful or dangerous." > |
