Rumor mill transforms talk to truth
Four days before Bear Stearns (BSC.N: Quote, Profile, Research) was forced to seek emergency funding, its chief executive was desperately trying to stop rumors that the investment bank was running out of money.
But even though the company had enough capital, speculation fueled the market. Panicked clients pulled out their money and refused to do business with Bear Stearns, whose stock plunged 56 percent in five days.
The bank, which was once worth billions, on March 16 accepted a takeover bid from JPMorgan Chase (JPM.N: Quote, Profile, Research) that valued it at a paltry $236 million, or $2 a share.
Since then, market watchdogs have warned traders against spreading false rumors and market manipulation, such as colluding with others to push a stock down.
Under U.S. anti-fraud law, it is illegal to make a false statement of a material fact in connection with a purchase or sale of a security bad credit payday loans.
Self-regulators Financial Industry Regulatory Authority and Options Regulatory Surveillance Authority have heightened the monitoring and investigation of trading in companies that may be subject to credit market-related volatility.
Likewise in the United Kingdom, the Financial Services Authority said it would not tolerate market abuses and spreading false rumors after talk of liquidity problems at HBOS Plc (HBOS.L: Quote, Profile, Research) battered the mortgage bank’s stock.
But it is not easy to track down a rumor and prove that a trader knew it was false and used it to manipulate the market.
Filed under: online by Wolf