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Transcript of Fraud_CMI
on the stock market
South Sea bubble
the head of Chase bank, USA, 1929
"Believing that the prospects for his own bank's stock were particularly dim (perhaps because of his previous speculation), he sold short more than 42,000 shares of Chase stock. ... Immediately after the short sale the price of Chase stock began to fall, and when the crash came in the fall the stock dropped precipitously. When the account was closed in November, he had netted a multimillion-dollar profit from the operation."
"Some investment bankers held a substantial volume of securities off the market. This made the market so ''thin" at the start that the price rose quickly in the after market. ...In addition, a considerable portion of the entire offering was sold to broker-dealers, many of whom held on to their allotments for a period until the shares could be sold at much higher prices. The SEC also found that many underwriters allocated large portions of hot issues to insiders of the firms such as partners, relatives, officers, and other securities dealers to whom a favor was owed."
The operation of investment pools.
Accumulating a large block of stock through inconspicuous buying over a period of weeks.
Enlisting the stock’s specialist on the exchange floor as an ally.
Through “wash-sales” (buy-sell-buy-sell between manager’s allies), create the impression that something big was afoot.
Tip-sheet writers and market commentators under the control of the pool manager would tell of exciting developments in the offing.
The pool manager also tried to ensure that the flow of news from the company’s management was increasingly favorable – assuming the company management was involved in the operation.
The combination of tape activity and managed news would bring the public in.
Because the public was doing the buying, the pool did the selling.
by Burton G. Malkiel
Capital Market and Investment
Professor Lee Young-Ki
Burton G. Malkiel
"A Random Walk Dawn Wall Street"
Funds managers' fraud
Brokerage houses' fraud
What does it all mean?
Dealing with Stock Market a wise investor should rely only on oneself
knowledge, skills and feelings!
"'A Company for carrying on an undertaking of great advantage, but nobody to know what it is.' The prospectus promised unheard-of rewards. ... when the subscription books opened, crowds of people from all walks of life practically beat down the door in an effort to subscribe... Within five hours a thousand investors handed over their money for shares in the company. Not being greedy himself, the promoter promptly closed up shop and set off for the Continent. He was never heard from again."
Trust, but verify!
Thank you for your attention!
Have a nice day!
1. The “greater fool” theory, most investors think that they could sell their shares at a premium in the “after market”;
2. Isaac Newton, “I can calculate the motions of heavenly bodies, but no the madness of people.”
1. Conflicts of interest apparently do not trouble companies' Top-Management.
1. History teaches us that very sharp increases in stock prices are seldom followed by a gradual return to relative price stability.
2. It is not hard to make money in the market. What is hard to avoid is the
alluring temptation to throw your money away on short, get-rich-quick