4 ms·

I remember reading about a teenager who was persecuted (I don't say "prosecuted," because I think he settled for a fraction of his profits) for buying stocks an

I remember reading about a teenager who was persecuted (I don't say "prosecuted," because I think he settled for a fraction of his profits) for buying stocks and making bullish comments about them on the Internet. He fully disclosed that he bought the stock and liked it. Now I read this bearish comment and the author discloses he intends to buy puts. Given that the stock market is run on sentiment, is there a clear line drawn between legal and illegal manipulation? Or does it come down to whether you are in the club or out of the club?

monk_the_dog 15y ago
Are you thinking of this article: http://www.nytimes.com/2001/02/25/magazine/jonathan-lebed-s-extracurricular-activities.html http://www.nytimes.com/2001/02/25/magazine/jonathan-lebed-s-... Good read for sure.
- raganwald 15y ago
  Yes, although I read it in Michael Lewis' subsequent book "Next: The Future Just Happened." Amazon link (with ginormous affiliate revenue!): http://www.amazon.com/gp/product/B004R96TSM/ref=as_li_ss_tl?tag=raganwald001-20 http://www.amazon.com/gp/product/B004R96TSM/ref=as_li_ss_tl?...
jrockway 15y ago
I think the issue in that case was that he made a bunch of shill identities that agreed with him. In any case, it's not certain he did anything wrong. When you settle, it just means you want the case to go away: nothing else.
whakojacko 15y ago
On the flip side (as a casual investor who reads Seeking Alpha a bit in my spare time), I prefer reading financial analysis from people who have positions in the companies they are talking about. Sure they may be biased, but assuming they disclose that properly, I at least know they have their money with their mouth is. If someone writes an article about how great stocks x, y, and z are hasn't bought them, I'm immediately skeptical.
- raganwald 15y ago
  I'm also a big fan of reading about dog fights from people that have a dog in the fight: http://raganwald.posterous.com/bias http://raganwald.posterous.com/bias The big issue I have with the finance industry is that they're incredibly biased with tremendous incentives to talk certain stocks up or sell certain issues to their clients, yet they pretend to be unbiased.
  - michaelchisari 15y ago
    Difference is, talking up your dog in a dog fight doesn't make him any more likely to win.
    - raganwald 15y ago
      As you know, the expression is not mean literally. However, if you bet on the fight and then talk your dog up, you can profit by laying off some of your wager at lower odds or covering by betting on the other dog at higher odds. There's always some way to profit from a change in sentiment caused by your words. My big point is that I like hearing from people on all sides of an argument (pro, con, neutral), and also that I am disgusted by people who claim to be neutral but in reality profit greatly by abusing the public's trust in their "neutrality."
ChuckMcM 15y ago
A friend of mine lost nearly everything selling Yahoo! short in the bubble. He kept saying, this is riduculous, it can't go on. Eventually he was proven right but the window was longer than he imagined. By the time Google went public he got a second mortgage on his house and bought as much stock as he could at the IPO and held on to it. (I do thing he sold it in the high 600's). On the apocryphal teenager story it would be helpful to have a citation since there were many stories of pump-n-dump artists in the dot com days, however most of them involved people doing actually sketchy, probably illegal things (like sending email spam to millions).
- donw 15y ago
  My favorite Keynes quote: "Markets can remain irrational a lot longer than you and I can remain solvent."
- raganwald 15y ago
  Jonathen Lebed: http://www.nytimes.com/2001/02/25/magazine/jonathan-lebed-s-extracurricular-activities.html http://www.nytimes.com/2001/02/25/magazine/jonathan-lebed-s-... http://www.amazon.com/gp/product/B004R96TSM/ref=as_li_ss_tl?tag=raganwald001-20 http://www.amazon.com/gp/product/B004R96TSM/ref=as_li_ss_tl?... http://news.bbc.co.uk/hi/english/static/in_depth/programmes/2001/future/tv_series_1.stm http://news.bbc.co.uk/hi/english/static/in_depth/programmes/... http://en.wikipedia.org/wiki/Jonathan_Lebed http://en.wikipedia.org/wiki/Jonathan_Lebed
  - ChuckMcM 15y ago
    Up top you wrote: "He fully disclosed that he bought the stock and liked it." But the articles say: "... the kid had bought stock and then, ''using multiple fictitious names,'' posted hundreds of messages on Yahoo Finance message boards recommending that stock to others. " That latter is "classic" pump-and-dump. Create a fake pattern of interest in a stock you bought and then sell into that interest that you created. He should have been prosecuted since it's illegal. I'm guessing his current 'newsletter' has the disclaimer it does (at least according to Wikipedia) because now he knows if he doesn't include it he'll go to jail.
artmageddon 15y ago
Earlier this year, 50 Cent more or less did this with H&H stock and made a good amount of money off of it(I'm not sure if he actually sold it, but the value of the stock went down a fair amount two days after the initial rally). The article below also references that teenager you mentioned: http://today.msnbc.msn.com/id/41041141/ns/today-entertainment/t/cent-pumps-doesnt-dump-penny-stock/ http://today.msnbc.msn.com/id/41041141/ns/today-entertainmen... The actor Jesse Eisenberg also quipped the same line from the article, "But is what 50 Cent did really that different from what happens all day long on CNBC when professional money managers take to the airwaves to praise the stocks of companies they already own?" If this sort of thing is illegal* then Cramer should've been charged with a crime on the first airing of "Mad Money". *yes, I realize there's more to the legalities of insider trading than just talking about it on air :)
- raganwald 15y ago
  Your foot note makes an incredibly interesting mistake: What a teenager like Lebed does is not insider trading, because he doesn't work for the company or otherwise have access to inside information. He knows as much as you or I do. Insider Trading is well-understood and easy to define: trading on secret information that is not available to the market. Talking up a stock you own when you don't have inside information... Anybody can do this and everybody does this. How can I talk about Apple and Google taking over Microsoft's business and it's just fanboyism, but if I buy and sell stock while writing the exact same words, it's illegal? Ridiculous, especially in the age of the Internet. Pump-and-dump used to require a boiler room, now it requires a phone with a data plan.
  - artmageddon 15y ago
    If you meant the asterisk at the end, I may not have stated my thoughts clearly(fyi, I agree with everything you said). The only way it would've been a crime on Lebed's part would be if he had gotten non-public information from someone involved in/with the company in question. I haven't researched it but that doesn't seem to be the case. It's utter crap that the SEC can come down on someone hard just for stock tips from someone who's no more well connected than anyone else. Personally, I work in the financial field(as a developer) and won't touch trading just because I feel like if I make one wrong move I could risk getting fired / barred / etc..

monk_the_dog 15y ago

Are you thinking of this article: http://www.nytimes.com/2001/02/25/magazine/jonathan-lebed-s-extracurricular-activities.html http://www.nytimes.com/2001/02/25/magazine/jonathan-lebed-s-... Good read for sure.

raganwald 15y ago
Yes, although I read it in Michael Lewis' subsequent book "Next: The Future Just Happened." Amazon link (with ginormous affiliate revenue!): http://www.amazon.com/gp/product/B004R96TSM/ref=as_li_ss_tl?tag=raganwald001-20 http://www.amazon.com/gp/product/B004R96TSM/ref=as_li_ss_tl?...

jrockway 15y ago

I think the issue in that case was that he made a bunch of shill identities that agreed with him. In any case, it's not certain he did anything wrong. When you settle, it just means you want the case to go away: nothing else.

whakojacko 15y ago

On the flip side (as a casual investor who reads Seeking Alpha a bit in my spare time), I prefer reading financial analysis from people who have positions in the companies they are talking about. Sure they may be biased, but assuming they disclose that properly, I at least know they have their money with their mouth is. If someone writes an article about how great stocks x, y, and z are hasn't bought them, I'm immediately skeptical.

raganwald 15y ago
I'm also a big fan of reading about dog fights from people that have a dog in the fight: http://raganwald.posterous.com/bias http://raganwald.posterous.com/bias The big issue I have with the finance industry is that they're incredibly biased with tremendous incentives to talk certain stocks up or sell certain issues to their clients, yet they pretend to be unbiased.
- michaelchisari 15y ago
  Difference is, talking up your dog in a dog fight doesn't make him any more likely to win.
  - raganwald 15y ago
    As you know, the expression is not mean literally. However, if you bet on the fight and then talk your dog up, you can profit by laying off some of your wager at lower odds or covering by betting on the other dog at higher odds. There's always some way to profit from a change in sentiment caused by your words. My big point is that I like hearing from people on all sides of an argument (pro, con, neutral), and also that I am disgusted by people who claim to be neutral but in reality profit greatly by abusing the public's trust in their "neutrality."

ChuckMcM 15y ago

A friend of mine lost nearly everything selling Yahoo! short in the bubble. He kept saying, this is riduculous, it can't go on. Eventually he was proven right but the window was longer than he imagined. By the time Google went public he got a second mortgage on his house and bought as much stock as he could at the IPO and held on to it. (I do thing he sold it in the high 600's). On the apocryphal teenager story it would be helpful to have a citation since there were many stories of pump-n-dump artists in the dot com days, however most of them involved people doing actually sketchy, probably illegal things (like sending email spam to millions).

donw 15y ago
My favorite Keynes quote: "Markets can remain irrational a lot longer than you and I can remain solvent."
raganwald 15y ago
Jonathen Lebed: http://www.nytimes.com/2001/02/25/magazine/jonathan-lebed-s-extracurricular-activities.html http://www.nytimes.com/2001/02/25/magazine/jonathan-lebed-s-... http://www.amazon.com/gp/product/B004R96TSM/ref=as_li_ss_tl?tag=raganwald001-20 http://www.amazon.com/gp/product/B004R96TSM/ref=as_li_ss_tl?... http://news.bbc.co.uk/hi/english/static/in_depth/programmes/2001/future/tv_series_1.stm http://news.bbc.co.uk/hi/english/static/in_depth/programmes/... http://en.wikipedia.org/wiki/Jonathan_Lebed http://en.wikipedia.org/wiki/Jonathan_Lebed
- ChuckMcM 15y ago
  Up top you wrote: "He fully disclosed that he bought the stock and liked it." But the articles say: "... the kid had bought stock and then, ''using multiple fictitious names,'' posted hundreds of messages on Yahoo Finance message boards recommending that stock to others. " That latter is "classic" pump-and-dump. Create a fake pattern of interest in a stock you bought and then sell into that interest that you created. He should have been prosecuted since it's illegal. I'm guessing his current 'newsletter' has the disclaimer it does (at least according to Wikipedia) because now he knows if he doesn't include it he'll go to jail.

artmageddon 15y ago

Earlier this year, 50 Cent more or less did this with H&H stock and made a good amount of money off of it(I'm not sure if he actually sold it, but the value of the stock went down a fair amount two days after the initial rally). The article below also references that teenager you mentioned: http://today.msnbc.msn.com/id/41041141/ns/today-entertainment/t/cent-pumps-doesnt-dump-penny-stock/ http://today.msnbc.msn.com/id/41041141/ns/today-entertainmen... The actor Jesse Eisenberg also quipped the same line from the article, "But is what 50 Cent did really that different from what happens all day long on CNBC when professional money managers take to the airwaves to praise the stocks of companies they already own?" If this sort of thing is illegal* then Cramer should've been charged with a crime on the first airing of "Mad Money". *yes, I realize there's more to the legalities of insider trading than just talking about it on air :)

raganwald 15y ago
Your foot note makes an incredibly interesting mistake: What a teenager like Lebed does is not insider trading, because he doesn't work for the company or otherwise have access to inside information. He knows as much as you or I do. Insider Trading is well-understood and easy to define: trading on secret information that is not available to the market. Talking up a stock you own when you don't have inside information... Anybody can do this and everybody does this. How can I talk about Apple and Google taking over Microsoft's business and it's just fanboyism, but if I buy and sell stock while writing the exact same words, it's illegal? Ridiculous, especially in the age of the Internet. Pump-and-dump used to require a boiler room, now it requires a phone with a data plan.
- artmageddon 15y ago
  If you meant the asterisk at the end, I may not have stated my thoughts clearly(fyi, I agree with everything you said). The only way it would've been a crime on Lebed's part would be if he had gotten non-public information from someone involved in/with the company in question. I haven't researched it but that doesn't seem to be the case. It's utter crap that the SEC can come down on someone hard just for stock tips from someone who's no more well connected than anyone else. Personally, I work in the financial field(as a developer) and won't touch trading just because I feel like if I make one wrong move I could risk getting fired / barred / etc..