Text of WSJ article about Maurice (and this thread) (for those who do not know that it is also posted within post # 62).
May 11, 2000
Message Board Blatantly Urges
Investors 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."
Write to Carrie Lee at carrie.lee@wsj.com
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