Question about influencing share prices

Hey everyone, I aren't too much of a newbie, but its a bit of a newbie question so I thought I would ask it!

I am wanting to know if there is regulation or if it is simply market regulation regarding the influencing of the share price of a company. Take this example:

Person A has 1,000 shares in a company. Person B has 1,000 shares in a company.
The company has 10,000 shares and is barely ever traded. The share price is 50c.

Person A meets person B and they decide to drive up the share price. Person A says "I will sell you 50k shares for $3 each one day, then the next day, you sell me 75k shares for $3.15, the next day I will sell you 100k shares for $3.25 and we will create a buzz and some big paper profit". (simplistic but you get what I mean)

As Person A and B have only sold 100k out of 1000k, they haven't really made a huge loss. At this point others enter the market thinking that the companies sudden rise in share price must have some cause and therefore start buying in at above $3. This sets up person A & B who then sell their 1000k shares for $3+ and make a huge profit. In reality, during this time, the company hasn't changed any of its fundamentals and therefore the price should still be 50c.

Does that happen? You don't really hear about it, but it seems like it could easily happen and be difficult to regulate. If you had a sharemarket full of "buzz" investors (those that didn't really look at financial reports, just bought into companies at the start of the companies getting good buzz), I am sure that would happen often. Is there any regulation that prevents such actions?

Cheers!

Quote:

---

Originally Posted by blobbles

Hey everyone, I aren't too much of a newbie, but its a bit of a newbie question so I thought I would ask it!

I am wanting to know if there is regulation or if it is simply market regulation regarding the influencing of the share price of a company. Take this example:

Person A has 1,000 shares in a company. Person B has 1,000 shares in a company.
The company has 10,000 shares and is barely ever traded. The share price is 50c.

Person A meets person B and they decide to drive up the share price. Person A says "I will sell you 50k shares for $3 each one day, then the next day, you sell me 75k shares for $3.15, the next day I will sell you 100k shares for $3.25 and we will create a buzz and some big paper profit". (simplistic but you get what I mean)

As Person A and B have only sold 100k out of 1000k, they haven't really made a huge loss. At this point others enter the market thinking that the companies sudden rise in share price must have some cause and therefore start buying in at above $3. This sets up person A & B who then sell their 1000k shares for $3+ and make a huge profit. In reality, during this time, the company hasn't changed any of its fundamentals and therefore the price should still be 50c.

Does that happen? You don't really hear about it, but it seems like it could easily happen and be difficult to regulate. If you had a sharemarket full of "buzz" investors (those that didn't really

look at financial reports, just bought into companies at the start of the companies getting good buzz), I am sure that would happen often. Is there any regulation that prevents such actions?

Cheers!

---

At this point C enters the market thinking the shares are way overvalued and sells all the way down to $ 2.00 to liquidate his holding ..........

Quote:

---

Originally Posted by stoploss

At this point C enters the market thinking the shares are way overvalued and sells all the way down to $ 2.00 to liquidate his holding ..........

---

And $2 is way above the original market price still...

This story goes wrong around the"if you had a market of buzz investors"
oh, and brokage.

This apparently happened with housing back in the early 2000. People would sell their houses to a trust/company at an inflated price so the sales history looked good.

Dont know the rules around shares but I would think it would be illegal as it is effectively a pump and dump scheme.

Does sound like a modern day pump and dump. There are many variations of these types of scams.

A and B work together to pump up share price by buying large quantities of shares, day traders get involved with the hope of making a quick buck pushing the price further upwards. A and B then sell their stock at a premium.

This can essentially be done by A alone with multiple brokerage accounts if he has enough capital.

On a recent discussion with friend, he believes that this scenario would not be considered illegal. His reasoning is that there has been no attempt to defraud C, as A and B did not know C. As such, A and B were engaged in a purely speculative market making ploy which is not illegal. Anyone else have an opinion?

Quote:

---

Originally Posted by JPW

On a recent discussion with friend, he believes that this scenario would not be considered illegal. His reasoning is that there has been no attempt to defraud C, as A and B did not know C. As such, A and B were engaged in a purely speculative market making ploy which is not illegal. Anyone else have an opinion?

---

I dont know any of you on this forum which is why I pump all the stocks I am trying to dump.

Dont think that excuse holds unfortunately. You are doing it to defraud someone, I dont think it matters that the target is not identified.

Quote:

---

Originally Posted by CJ

I dont know any of you on this forum which is why I pump all the stocks I am trying to dump.

Dont think that excuse holds unfortunately. You are doing it to defraud someone, I dont think it matters that the target is not identified.

---

I think you're right CJ, I wrote that incorrectly. The emphasis was meant to be on defrauding an individual. Generally pump and dumps include someone providing misleading information in order attract buyers/sellers so that the company or individual providing the information can make a quick buck.