Stock Manipulation Probe Launched After Price Spikes
By Daniel at 21 October, 2008, 5:58 pm
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By Edgar Ortega and Jeff Kearns
Oct. 20 (Bloomberg) — U.S. regulators are investigating whether investors manipulated end-of-day stock prices to avoid being forced by their brokers to sell holdings.
These gaps, which caused the Dow Jones Industrial Average to swing as much as 104 points this month in the final minute of trading, suggest investment firms faced with client redemptions and plunging markets may be gaming the closing-auction system. The discrepancies spurred the Financial Industry Regulatory Authority, which oversees 5,000 brokerages, to look for evidence that investors are improperly swaying prices.
General Electric Co., McDonald’s Corp. and the 28 other Dow companies swung 0.6 percent on average at the close the last two weeks, according to data compiled by Bloomberg. That’s almost eight times greater than the average three months ago. Because of the swings, the New York Stock Exchange plans to distribute information on the closing auction more often to help mitigate volatility.
“Investors don’t ever want to see manipulation because it shows that they are exposed to a different kind of risk than just the fundamentals of companies,” said Peter Henning, a former federal prosecutor and Securities and Exchange Commission lawyer who now teaches at Wayne State University Law School in Detroit. “That hurts trust in the market.”
`Inflated Price’
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