How stock is manipulated

  • Article by: MARK BOSWELL , Star Tribune
  • Updated: September 13, 1997 - 11:00 PM

The market price of a stock is supposed to be determined by the arms-length transactions between buyers and sellers. The government alleges that the defendants used several illegal techniques among themselves to create the appearance of an active, buoyant market where none existed. Here's a look at the various ways they did it.


Parking

The sale of securities to a buyer on condition the stock will be repurchased by the seller at a price that leaves the risk with the seller.

Matched trade

The sale or purchase of a stock with the knowledge that a corresponding order of the same size by a fellow conspirator at the same time and price will be entered. This generates artificial volume and price support.

Wash trade

An illegal transaction between accounts controlled by the same person, which generates volume but no change in ownership.

Free riding

Buying stock with no intent of paying, unless the price rises before the settlement date. This ensures that the buyer doesn't lose money and forces the brokerage to dump the shares at a loss if the price goes down and the buyer refuses to pay.

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