Peter is a notorious for using Internet technology to hype stocks. He made over $500,000 by posting false messages on online chats, encouraging people to buy coin stocks he already owned. He used AOL accounts with several fake names and was able to change the behavior of many people around the world making them act to his advantage. In six months, he gained between $15,000 and $65,000 daily each time he posted his fictitious communications on message boards. Many investors read his messages and then invested in the stocks he recommended. According to the US Security Exchange Commission, he did that 10 times increasing the daily trading volume from 50,000 shares to more than a million and driving up the stock price.
His fictitious messages sounded similar to the following one:
FTEC is starting to break out! Next week, this thing will EXPLODE
Currently FTEC is trading for just $21/2. I am expecting to see FTEC at $20
VERYSOON . . .
Let me explain why . . .
Revenues for the year should very conservatively be around $20 million. The average company in the industry trades with a price/sales ratio of 3.45. With 1.57 million shares outstanding, this will value FTEC at . . . $44.
It is very possible that FTEC will see $44, but since I would like to remain very conservative . . . my short-term price target on FTEC is still $20!
The FTEC offices are extremely busy . . . I am hearing that a number of HUGE deals are being worked on. Once we get some news from FTEC and the word gets out about the company . . . it will take-off to MUCH HIGHER LEVELS!
He sent each fictitious message after having bought a block of stocks. His purpose was to influence others to buy the stock and pump up the stock price. After few years, SEC prosecuted him and tried to negotiated an out of court settlement in which Peter forfeited $200,000 in profit and interest he made on 10 trades without admitting any wrongdoings. The chairman of the SEC from said Peter seems to have mastered an age-old Wall Street swindle called the “pump-and-dump.” A pump-and-dump is buy, lie and sell high
Although Peter was uninformed about the companies and the stock market, had no connection to the companies, and never contacted the companies, his false communications looked credible and investors did not even think to investigate the source of the his messages before making decisions about their money.
According to the example, Pick one for each and Justify your answer:
a) Is the weak form consistent, inconsistent, or not applicable?
b) Is the semi-strong form consistent, inconsistent, or not applicable?
c) Is the strong form consistent, inconsistent, or not applicable?