Stock bashing is illegal, which means that anyone caughtengaging in this act may be subject to fines and prosecution. What Is a Stock Basher?
The term stock basher refers to a person who engages in market manipulation to make the price of an asset fall. Stock bashers rely on misinformation campaigns to decrease confidence in a stock, leading to an undervaluation of that security.
In some cases, a stock basher may have a position in the asset which benefits from a fall in price. Stock bashing is illegal, which means that anyone caught engaging in this act may be subject to fines and prosecution.
KEY TAKEAWAYS
- A stock basher is someone who manipulates the market to cause a drop in asset prices.
- Stock bashers disseminate misinformation in the hopes that investors will believe the false claims and sell their stock before the price drops.
- These individuals often target low-priced companies that have little to no available information on the market and may have positions in assets whose prices fall.
- Some bashers may act alone or in groups or they may work on behalf of other individuals.
- Stock bashing is illegal and may be subject to fines and prosecution.
Understanding Stock Bashers
A stock basher is a person who manipulates the market by repeatedly spreading false or exaggerated claims against a public company in an attempt to devalue a stock. They often claim to have inside information on specific stocks or make hyperbolic claims about the future performance of a stock. Stock bashers create misinformation campaigns and tend to target stocks of smaller companies rather than widely-held stocks because the markets are more easily manipulated.1
In most cases, the stock basher will directly benefit from market manipulation by spreading highly negative rumors. The hope is that investors will believe the false claims and sell their stock before it fails. This allows the basher and their backers to purchase the stock and reap greater gains. While this seems to be the primary motivation for most stock bashing, some analysts also speculate that some bashers may be former employees or stakeholders in a company pursuing revenge.
The purpose of stock bashing is usually to drive down the price of a stock so that the stock basher or their employer may purchase the stock at a lower price than it would otherwise be worth.
Stock bashers may target an investment firm that has notes that convert for more shares at a lowered price. If shareholders can be convinced that their holdings are worthless, and bashers can drive down the stock price, the investment firm receives an increased amount of shares. When the stock conversion completes, bashers who have acquired shares through this means will typically sell quickly as prices rise. This is sometimes known as a pump and dump scheme.
Bashers may act alone, with others, or on behalf of one or more individuals. Regardless of who motivates them, the actions that stock bashers take are an unlawful form of market manipulation. As such, they carry significant legal repercussions. This includes fines, penalties, prosecution, and even jail time.
Special Considerations
Stock bashing has become very common in the digital world and often occurs on online trading platforms. Sophisticated technology makes it easy for bashers to remain anonymous. As such, it can be difficult to track, identify, and stop bashers in their tracks.
As the Internet makes participation in the stock market more accessible to more people, new investors emerging in the market are especially vulnerable to the tactics of stock bashers, and many investor boards exist to attempt to track perpetrators.
Though notoriously difficult to track, some bashers have been identified and prosecuted. From time to time, confessional essays about the tactics of bashers emerge online, although these essays are typically also either anonymous or pseudonymous. Many investors speculate this type of behavior tends to follow certain patterns, including a tendency for bashers to only bash stocks which are generally trending upwards and showing potential.
Having said that, financial regulators constantly monitor the markets for what they call bad actors or stock bashers. According to the Financial Industry Regulatory Authority (FINRA), investors may find it difficult to get information about these securities and any tidbits they may find can lead them to act—even if it's misinformation. That's why FINRA warned investment firms and broker-dealers to put controls in place that would raise red flags on any suspicious activity.1
Example of a Stock Basher
The Securities and Exchange Commission (SEC) filed fraud charges against a Scottish trader in 2015 for a Twitter (now X) hoax that led to the drastic drops in the stock prices of two companies.
According to the complaint, James Alan Craig opened fake Twitter accounts made to resemble two different financial research firms. He then sent out false tweets about two different companies—Audience and Sarepta Therapeutics (SRPT)—which caused their stock prices to plummet by 28% and 16%, respectively. Craig tried to capitalize on the movement but only managed to net a $97 profit.2
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Although he neither admitted nor denied the allegations, Craig agreed to pay a fine of $217.3
What Is Stock Market Rigging?
Stock market rigging is the rigging of various financial data, such as quotes, prices, and trades to alter the perception of a stock in order to take advantage of a false move in price.
What Are Forms of Market Manipulation?
The forms of market manipulation include pump and dump, wash trading, market rumors, insider trading, bear raiding, and front running.
Why Are Wash Trades Illegal?
Wash trades are illegal because they involve selling a stock and then buying it again in order to avoid any adverse consequence or fabricating a false notion of market activity in the stock.
The Bottom Line
Stock bashing is illegal as it purposefully uses misinformation to manipulate the price of a stock. This harms the investors of the stock, the company, and any other stakeholder of the stock. Stock regulators monitor the markets for stock bashers and impose penalties for the act.