Sound familiar??6 Feb 2019 07:01
Manipulate With Smears
S&D traders, on the other hand, manipulate stock prices in a bear market by taking short positions and then using a smear campaign to drive down the price of the targeted stock. This is the inverse of the pump-and-dump tactic, whereby an investor buy stocks (take a long position) and issues false information that causes the target stock's price to increase.
Generally, it is easier to manipulate stocks to go down in a bear market and up in a bull market. The pump-and-dump is perhaps better known than the short-and-distort because of the long bull market and the media. For example, the stock market had been in a general uptrend in the early to mid-1980s, which provided ample fodder for "pumpers." Movies like "Wall Street" (1987) and "Boiler Room" (2000) helped educate investors about the risk of this type of stock manipulation. (To read more about stock market movies, see Financial Careers According To Hollywood.)
Short-and-distorters try to profit by stimulating fear, but this only works if they have credibility. Therefore, they will often use screen names and email addresses that imply they are associated with the SEC or the Financial Industry Regulatory Authority (FINRA). Their goal is to convince investors that every proponent of the stock has ties to the company and that the SEC is watching and will halt the stock. S&Ds also intimate that they are looking out for investors' interests.
Short-and-distort players clutter message boards, so optimistic information cannot easily be found. "Get out before it all comes crashing down" and "Investors who wish to enter a class action lawsuit can contact …" are typical posts, as are their projections of $0 stock prices and 100% losses. If their strategy is suspected by longs, they attack the person who has caught them. In other words, the market manipulator will do everything in his or her power to keep buyers out of the stock and keep the price heading south.
The Net Effect of Short and Distort
When a short-and-distort maneuver succeeds, investors who initially bought stock at higher prices sell at low prices because of their mistaken belief that the stock is worthless, caused by an effective distortion campaign. At the same time, the S&Ds cover at low prices and lock in their gains.
In the uncertainty following some prominent bankruptcies such as Enron in 2001 or Nortel in 2009, investors were more susceptible to this type of manipulation on other stocks than they were likely to be during prosperous periods. During downturns, the first appearance of impropriety could easily cause investors to run for the hills. As a result, many innocent, legitimate and growing companies are at risk of getting burned, and some investors along with them. (See also: How to Profit From Panic Selling.)
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