How not to design a pump-and-dump stock scheme
There often is some degree of subtlety in illicit efforts to manipulate stock prices.
But in a suit the Securities and Exchange Commission filed Thursday, the agency alleges that an East Coast stockbroker issued blatantly phony press releases about companies in attempts to push up their shares.
The case, as documented by the SEC, is downright comical, except for the fact that some hapless investors fell for the scam.
The SEC alleges that 34-year-old Lambros D. Ballas, a Merrick, N.Y., broker who works as an independent contractor for Global Arena Capital Corp., went on a four-day binge in late September and early October cooking up fake releases involving companies including Microsoft Corp., Google Inc., Walt Disney Co., Imax Corp. and Local.com Corp.
Here’s the summary of one of Ballas’ alleged escapades, detailed in the suit (which is well worth reading in full):
--- On Oct. 1, just before the market closed for the day, he bought 5,000 shares of Irvine-based Local.com, an Internet search engine, for $5.33 each.
In the following hour, Ballas posted press releases on two PR wire services announcing that Local.com had agreed to a buyout by Microsoft.
--- Ballas then went on the Yahoo message board for Local.com, directing people to the phony news releases and urging them to buy the company’s shares in after-hours trading. "Woo hooo .... daddy needs a new pair of shoes," he wrote in one post.
Some investors apparently fell for it -- and drove the stock as high as $9.65, the SEC said -- even though the release included sentences like this gem: "For those of you who own it, enjoy the success, for those of you who do not, mergers right now seem to be hot, and keeps [sic] your scanners peeled for opportunities."
--- Within a few hours, Local.com issued a statement denying that it was in a deal with Microsoft.
Undeterred, Ballas tried to issue yet another phony release about Local.com the very next day, this time saying that the company would be bought by Google. The first service he tried to use, WiredPRNews.com, expressed concern that the announcement might be a hoax. So Ballas went to another service, EIN Presswire, and got his fake announcement published for $49.95, the SEC said.
Not surprisingly, once the SEC got involved it wasn’t too difficult for the agency to trace the addresses of the computers that sent the press releases, said Michael Dicke, one of the SEC lawyers who investigated the case.
"This was one of those cases that looked like it was going to be fun to investigate, and it was," he said.
The SEC suit, filed in federal court in San Jose, seeks to get Ballas to disgorge any ill-gotten gains and pay penalties.
Ballas couldn’t be reached for comment.
-- Tom Petruno
Photo credit: Andrew Harrer / Bloomberg News