Ever since a shadowy figure showed up at an inn on the coast of England in 1814 wearing a British officer’s uniform, and informed the locals that Napoleon was dead, there have been hoaxes designed to manipulate the stock market. The only difference in the Internet Age is that the news travels much, much faster. It happened again on Tuesday, with a fake story on a fake website about a fake offer to buy Twitter Inc. sending the social-media company’s real stock up as much as 8% in a matter of minutes.
The hoax was fairly complex, even if it was quickly discredited. A website, bloomberg.market, was dressed up to mimic Bloomberg’s real website, copying the layout, color schemes, and typefaces the real news service uses. The hoaxers even put the name of a real Bloomberg employee on the fake story, and used his byline as a hyperlink to his real profile page on Bloomberg. A search of the WhoIs domain registry shows the site was registered just four days ago, on July 10. Whoever built the fake site did so in a small amount of time.
In an age where information travels at what seems like light speed, these kinds of scams are inevitably going to be picked up and amplified. How the website’s story caught fire isn’t yet clear, but it’s not hard to discern what may have happened. There are plenty of products out there designed to “crawl” the web for news. It’s not hard to imagine that some of them are programmed to search the keywords “Twitter” and “acquisition.” It may have been one webcrawler, or many, but once they did, the network effects of the automated web ran into the network effects of real people in the social-media world. Carl Quintanilla, the well-known CNBC news anchor, sent out this update, ironically enough on Twitter, to his 97,000 followers:
Twitter popping 5%, following this report $ TWTRhttp://t.co/UPpU9HAmtC
— Carl Quintanilla (@carlquintanilla) July 14, 2015
Within ten minutes, Twitter shares rose from $ 36.83 to $ 38.52. Just as quickly, though, they sunk back, as the discrepancies were quickly ferreted out, and as Bloomberg and CNBC issued denials. That might be the silver-lining of the age of Internet hoaxes: as fast as the fake story travels, the truth travels close behind.
The linchpin of any hoax is a shred of truth. In this case, there’s been a lot of speculation over Twitter’s future. The company is nowhere near turning a profit – at least not one that conforms to GAAP – and it has seen a significant talent drain recently. The departure of Dick Costolo, replaced by founder Jack Dorsey and his mountain-man beard, seemed to confirm the turmoil. Throughout it all, there’s been steady speculation about a sale of Twitter, so when a on-first-glance credible-looking report from a reputable source hit, it seemingly confirmed what people were thinking anyway.
Hoaxes are a rare but recurring danger in the stock market. Here is a short but by no means comprehensive list of stock-market scams:
– Shares of energy producer Penn Virginia shot up as much as 20% on June 25, after a bogus release hit the wires claiming that oil giant BP was making an offer. The “news” seemed a rehash of a real offer BP made – in 2002.
– Two months ago, scammers got a press release through the SEC’s Edgar filing system, one that claimed Avon Products Inc. was the target of a takeover bid. Shares of the beauty-products supplier shot up 20% before the ruse was unmasked.
– In 2010, a press release was released through PRNewswire that reported, falsely, that the Obama administration was investigating General Mills Inc. The release, which went out in the middle of the night, was discredited before trading started the next day.
– In one of the most notorious cases, in 2000 a former employee of Internet Wire , Mark Jakob, released a press release through the wire service that targeted Emulux. The fake news said that the company was going to restate earnings and replace its CEO. Jakob, it was later shown, had been shorting the stock. He was caught, and tried, and spent 44 months in jail.
– In 1987, investment advisor David Herrlinger called up Dow Jones News Service and informed them he represented an investment firm that was going to make a $ 6.8 billion offer for retailer Dayton Hudson, which had been the target of intense speculation. Herrlinger worked for a real firm, Capital Management, and the call was taken seriously. News of the bid send the stock surging. But Herrlinger, apparently, had suffered a nervous breakdown before making the call. He was fired from the firm, and taken to a hospital for examination.
– For sheer pageantry, though, you need to go far back in time. One of the biggest market hoaxes of all time has to be what’s come to be called “the Great Stock Exchange Hoax of 1814.” In the middle of the Napoleonic Wars, on Feb. 21, 1814, a man showed up at an inn in Dover, England, claiming to be Colonel du Bourg, an aide to Lord Cathcart. He claimed Napoleon had been killed by Cassocks, which overjoyed the amazed locals.
The fake officer made his way up to London, where he was met by a clutch of men also in on the scam, dressed as French loyalists. The show they made sparked a furious rally in the stock market. By the end of the day, though, the ruse was exposed as a scam, and one aimed specifically at manipulating the market.
Eventually blame fell on a gentlemen named Lord Cochrane, an officer in the Navy and a malcontent politician, who was tried (some argue railroaded) and imprisoned for the scam.