Here in Southern Oregon, Applegate is the charming valley and river that was named after early settlers. For Silicon Valley the new term “AppleGate” refers to the top tech blog Engadget’s posting of a fake email suggesting that Apple’s iPhone would be delayed. The report led to an almost immediate sell off of Apple stock and a 4 billion dollar decline in Apple’s market capitalization, though the stock rebounded quickly when it became clear the email was a fake.
This appears to be a *superb* example of how information is reflected by the stock market and how quickly. I get the idea the (bogus) iPhone delay rumor affected the price of APPL almost immediately but have not checked the timing.
Mike at TechCrunch has a nice play by play and graph of AppleGate, and the Engadget post AppleGate post is here.
I would think the bogus email was an attempt to manipulate the stock price and to benefit from it via the options market.
Why issue a bogus Press Release when you can get some insider to eventually “issue” it for you by just circulating a fake email that is sure to eventually be “leaked” by an employee who thinks that it is real but worthy of outside distribution.
Yes, I was wondering about that also Fools Gold. As Arrington at TechCrunch noted he also would have published the note because it was forwarded from a real Apple insider (in cider?). Thus in the lightspeed news world all you had to do in this case was fool a few employees and you can hurt a stock severely – enough to make a fortune off the options.
However, I’d guess the options trading is not so massive as not to be traceable. If I were the SEC I’d want to examine all option activity in that short period just before, during and after the news was wrong. Of course they could have planned this for some time, but in that case the natural volatility of Apple would have made it less of a “sure thing”.
Some newly opened account in a firm where paperwork is slow and diligence a bit low might work. So would a large, active account wherein the activity would look “normal”.
Also, I wonder if any derivative might be involved… does the share price of Apple constitute a component of some prediction market derivative? You don’t have to tamper with all the horses to skew the TriFecta results.
And what about that woman in NYC who prostituted herself for $5,000 worth of virtual gold so she could qualify for a certain goal in a role playing game. Surely if virtual gold useful only in a Role Playing Game had value some sort of a derivative in a Prediction Market would be worth the trouble.
Concerning Apple Stock and Prediction Markets, the following is from Jan 2007:
Could we have a private variation of a public prediction market on a private, corporate server? For instance, let’s say we would have a public prediction market on the business fate of Apple Computer (at TradeSports or BetFair) linked in some kind of way with an internal prediction market run on Apple Computer’s server (using an open-source software for prediction markets from the prediction exchange in question). No idea whether it would make sense. To render the problematic more complex, you could envision imaginary prediction markets… Would a prediction exchange grid come handy, then? No idea.
I have a feeling that REAL dollars were the goal, but such real dollars could be obtained from a derivative or a prediction market.
Dec 22 2006 Discussion of manipulating Apple stock:
Cramer talks for a while in considerable detail about how, if he were short Apple’s stock today, he would knock Apple’s stock down. Then he says:
What’s important when you’re in that hedge-fund mode is to not do anything remotely truthful. Because the truth is so against your view that it’s important to create a new truth to develop a fiction.
A minute later, when talking about how company fundamentals don’t matter, Cramer says:
The great thing about the market is it has nothing to do with the actual stocks. Now, maybe two weeks from now, the buyers will come to their senses and realize that everything that they heard was a lie, but then again, Fannie Mae lied about their earnings for $6 billion, so there’s just fiction and fiction and fiction.
I think it’s important for people to recognize that the way that the market really works is to have that nexus of: Hit the brokerage houses with a series of orders that can push it down, then leak it to the press, and then get it on CNBC—that’s also very important. And then you have a kind of a vicious cycle down. It’s a pretty good game. It can pay for a percentage or two.
a component of some prediction market derivative?
I hadn’t even thought of this angle. It would not yield as much but the risk for the scammer would be much less.
Isn’t Cramer’s portfolio (post fame) actually down compared to the market? I like listening to him, but in the same way I like to watch people argue.
I have no idea of Cramer’s portfolio, I was merely posting that quotation to show that there had been considerable prior speculation concerning artificial manipulation of Apple stock and that such speculation showed a variety of motivations and techniques to be employed.
I do not know of any actual derivatives that Apple might have affected, but merely suggested the existence of such a derivative as yet another method by which a manipulator could profit from his nefarious activities and yet be less traceable to the SEC than if he directly dealt in options on Apple shares.
In the heady markets of the sixties, Seabord World Airlines Railroad would bounce up a few points on good news for the airlines. It was a railroad with merely the word airlines in its name, but buyers would not think first. Its the same way with news or rumors these days: a “leak” is concocted and by the time the usual denial is issued, someone is already walking away with millions. Trading on inside knowledge is a way of life for businessmen in other countries, its not even viewed as a crime many places.
RE: Insider trading. Even in USA it was legal in the old days to manipulate stock. Joe Kennedy and friends were very successful at this pumping and dumping stock activity. I think the tech bubble saw a lot of quasi legal manipulations which in part led to the meltdown. e.g. analysts in firms handling IPOs being bullish on stocks with which they or their firm was associated.
Long ago Wall Street changed dramatically.
It was popular to have first day IPO climbs of phenomenol amounts. In the olden days the investment banking firms would have considered such a thing to be a shameful disgrace to their underwriting department for having mispriced the offering.
Now small moves in key stocks can affect so much that foreknowledge becomes vital and most foreknowledge is based not so much on rumors but on manipulation. There are so many ways to profit: the stock, options, indexes, derivatives, etc. that one wonders if the high volume of esoteric financial instruments doesn’t hide even greater manipulations that simply fail to make headlines or be so obvious.
Joe Kennedy was such a hated pool operator that if he joined in any concerted efforts his fellow pool operators tried to keep his participation secret because his fellow manipulators would never trust him not to betray them.
During the crash, a pool was formed to attempt to save the market by walking in and announcing they would Buy Steel at some very high price. Joe Kennedy subverted the pool that had tried to stave off the crash.
No wonder he was the first SEC chairman. He was the chief Fox for guarding the hen house.