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Is Your Company Stock Being Manipulated? What Executives Should Look For


Rotem Gantz is the CEO at Dolos Consultancy, a data-driven IR firm assisting traded-companies to gain control over narrative creation online

Over the course of the last year, “meme stocks” have constantly made the news. From GameStop Corp. (paywall) and AMC Entertainment Holdings Inc. to BlackBerry, the list goes on. These companies have seen outrageous gains followed by losses in their stock price. Online brokerage apps like Robinhood have gamified investment for their users, and the user base of Robinhood grew to 22.4 million users in 2021, with many of these new investors putting proven strategies to evaluate company fundamentals and strong performance on hold.

As these new-gen investors trade based on the momentum created by social media attention, the power of chatter platforms like Reddit’s WallStreetBets and others become more powerful. The relative ease to orchestrate and craft a bullish or bearish narrative serves as an incentive to naysayers and malicious players in running such influence operations, as they are counting on TikTok, Twitter, Discord and users on other platforms to amplify these pieces of disinformation.

The impact of such malicious and/or orchestrated campaigns is well-felt, as shown by the tech-heavy Nasdaq composite index hit correction and popular stocks falling. GameStop and AMC fell 28% and more this year.

The Evolution Of Stock Manipulation 

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A few decades ago, stock manipulation was something only big shots on Wall Street could do. It would take them elaborate stories, sometimes even shell companies, along with aggressive marketing tactics to drive the stock prices up or down. But today, it can involve setting up a social media handle, gaining some followers and then spreading fake narratives and misinformation. As the CEO of a company that helps monitor and analyze data, I’ve found these pages typically have no data and no sources to back their claims, yet due to their orchestrated amplification artillery, retail investors who don’t cross-check the claims made on such pages or forums can end up following the herd and falling for the same old trap.

Some online influencers are doing a great job educating people about personal finance and financial markets. They call themselves “finfluencers.” The hashtag #personalfinance has garnered billions of views on TikTok. With such a huge following in this space, it’s equally easy to make an impact. Paid influencers and market manipulators can take advantage of emotional and inexperienced investors on such platforms. Moreover, “bot farms” and agencies across the world often go unnoticed in creating such hypes. The thin line between spreading positive and truthful news that is backed with data and mass dissemination of false narratives about stocks can be easily crossed.

The Vulnerability Of Small-Caps

I’ve found that the most vulnerable organizations for stock manipulation are small- and medium-sized companies. Their stocks, which are oftentimes traded over-the-counter or on smaller exchanges, are usually not as heavily regulated and monitored as their bigger siblings on NYSE or Nasdaq. That’s where fraudulent traders often make money, taking advantage of the ability to drive the stock with small amounts of money. Stock manipulators then begin a coordinated campaign to promote the stocks using social media, emails, fake analyst reports, phony pitches and telemarketing to spread misinformation, and executive leaders are often unable to monitor and pre-detect (let alone mitigate) such efforts. 

What Executives Should Look For

Odd performance compared to indexes: Executive management should compare revenue and market capitalization. If the company is generating revenue and has future growth potential, and still the company stocks are plummeting and trading, sometimes as low as its floor, then there’s a high chance that the company stocks are being shorted or manipulated. At this point, management can detect the high short volumes even when short interest is low. Extensive monitoring of trends and under-the-radar mentions can indicate, together with financial data, that a malicious player has joined the game. 

False narrative on social media and online forums: Regardless of the truthfulness of the content, social media manipulators (paywall) are champions in making every negative comment look bigger. With the smart deployment of AI and ML machines, chatter creation turns automatic and leaves companies alone on the battlefield against robust claims with destructive potential on share price and reputation.

In these scenarios, creating honest, authentic and positive chatter on social media should become a priority for CEOs of traded companies. While the outcome of these situations is ultimately out of your hands, prioritizing social media and earned media efforts can help contribute to a more positive image for your company.

Conclusion

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With reputation and sentiment being significant drivers for trade and value for small- and mid-caps on the stock market, it is important to monitor, analyze and identify malicious chatter before it comes to a negative tipping-point for companies online. Once you’ve identified the signs of manipulation, mitigation and narrative amplification may be achieved more easily.

2022 began with well-felt waves in the stock market, and in rough seas, it can be easier for manipulators to make an impact. This is why executives should take action prior to facing a reputation crisis. 

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.


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