In a twist on the old stock scam known as the “pump and dump,” Twitter’s stock briefly spiked yesterday as a result of a fake buyout story. Specifically, a false story claiming that Twitter had received a $31 billion buyout offer appeared on the website ‘www.bloomberg.market’, which is in no way affiliated with Bloomberg or its newspage bloomberg.com. As a result of the false report, Twitter shares rose a whopping 8.5% and the stock was heavily traded for a short period of time. Once the story was confirmed fake, the stock dropped and closed up only 2.6% at $36.72 per share.
The fake report seemed believable to many investors due to Twitter’s recent financial struggles. The messaging service went public in 2013 but as of yet, it is not profitable and its user growth is sluggish at best. As of Monday’s close to the stock exchange, the value of Twitter shares was down 31% since April 27th. The stock plummeted after Twitter’s first quarter report showed dismal revenue and a forecast lower than Wall Street expected.
The fake Twitter buyout story comes in the wake of another scam involving Avon Products. In that instance, a fake document filed with the Securities and Exchange Commission claimed there was a bid for the cosmetics company. As a result of the bogus report, Avon’s shares soared as much as 20% before falling.
Following the Avon scam, the SEC sued Nedko Nedev, a Bulgarian man who claimed he and a few others worked together to violate United States securities laws by creating fake takeover offers. The SEC reported that Nedev and his cohorts made fake bids for Rocky Mountain Chocolate Factory and Tower Group International in addition to Avon.
In these scams, known as pump and dump schemes, investors of a particular stock mislead people into buying shares with fake news or false “insider information.” The duped individuals buy shares, the share price goes up, and the deceitful investors sell their stock at a profit. The value of the shares then plummets and the unwitting purchasers lose money. Such scams are the basis for Hollywood movies such as Boiler Room and The Wolf of Wall Street.
The recent scams further demonstrate the important lesson that retail investors must be careful when trading in the stock market and that any such stories influencing stock prices must be verified beforehand.