blacklotus
October 1st, 2003, 05:47 PM
http://business-times.asia1.com.sg/sub/companies/story/0,4574,95469,00.html?
Published October 1, 2003
Beware crooked research and placements
By R SIVANITHY
A COUPLE of weeks ago we highlighted the fact that in a hot stock market, lax practices are allowed to proliferate and standards can slip badly.
For example, no one bothers if analysts recommend stocks on TV without proper disclosures, while research reports are increasingly being issued based on spurious forecasts further and further into the future.
Lately, the situation has degenerated still more. Outrageous forecasts and disclosure omissions are - at a stretch - arguably defensible in a market ruled by the maxim caveat emptor. But when outright fraud, crooked research and intimidation creep in, we know things are getting out of hand.
Consider this report from the chief executive officer and majority-owner of a recently-listed company who was approached by stock manipulators with an offer to ramp his company's shares.
The modus operandi of these parties is fairly standard and has been employed many times - the owner was asked to put up a fee of $1 million to $2 million, which would be used to carry out the ramping. Not satisfied with a refusal over the telephone, the manipulators showed up at the company's premises to press the owner further, which most would agree amounts to undue coercion, if not unlawful intimidation.
Paying the price: This particular CEO refused to cooperate. But, unfortunately, he paid a price for not wanting to get into bed with the seedier elements in the market - his shares have stagnated post-IPO and have hugely underperformed several other counters in their cohort.
It seems that if one doesn't employ the services of share manipulators, one's shares face an uphill battle to attract due recognition.
Now if this isn't bad enough, consider this report from another CEO of a different listed company, who was recently visited by analysts from a local brokerage.
On the agenda wasn't an interview to gain insights into the company's business so as to make an investment recommendation. Nothing so straightforward as that. Instead, the analysts asked for a placement of two million of the company's shares at a discount to the market price. What was offered in return? A favourable research report.
After agreeing, and after the report was duly issued, the share price shot up and the placement shares were quickly sold. By the CEO's estimate, the profit made was around $100,000. Not bad for spending a few hours writing bogus research.
Which brings us to the topic of placements. Market watchers would have noticed that every day during the past month, huge blocks of penny shares - some of them in loss-making companies - have been routinely crossed.
In a few cases, vague rumours accompany the crossings, but more often than not, no news accompanies the placement.
Because of the sheer number of such transactions and because no one monitors them, specifics are quickly forgotten.
While some of these deals are legitimate, many are not. The incident described earlier involving the issuing of crooked research in return for a discounted placement is one exercise that investors should be aware of. It could be an insolated incident, but the fact that it has happened - even once - should be cause for concern.
Retail players should also recognise that if the majority of daily volume in penny stocks is generated by house traders and manipulators, eventually these parties have to find some way to exit.
Exit route: If public participation is minimal and if large stakes have been accumulated to ensure manipulation, the only logical exit route for these operators is via placements.
This is why several placements are done every day, and when large blocks cross, investors should automatically be wary. In many instances, news of such deals should be taken as a cue to sell - not to buy.
Finally, there is now an unsettling trend for sales staff to issue strong 'buy' recommendations on stocks that are not covered by their research teams. For example, Devotion Eco-Thermal and Full Apex were two China plays that surged last week in high volume following the issue of sales notes.
It appears sufficient that such reports bear a disclaimer that says the opinions rendered are purely personal and not endorsed by the house, or that the house at which the writers are employed does not have an opinion on the counter.
But if a report bears the house's letterhead or carries the writer's name and designation, surely there is implied endorsement of that opinion by the writer's brokerage?
Full discussion of this subject would require navigating legal and ethical obstacles that space does not permit. Suffice to say for now that retail players should take note of many developments in the local market that are questionable, to say the least.
In this connection, they'll have to take their own initiative to safeguard their own interests - because no one else will. This is after all, a hot market - and we all know what that does to people.
Published October 1, 2003
Beware crooked research and placements
By R SIVANITHY
A COUPLE of weeks ago we highlighted the fact that in a hot stock market, lax practices are allowed to proliferate and standards can slip badly.
For example, no one bothers if analysts recommend stocks on TV without proper disclosures, while research reports are increasingly being issued based on spurious forecasts further and further into the future.
Lately, the situation has degenerated still more. Outrageous forecasts and disclosure omissions are - at a stretch - arguably defensible in a market ruled by the maxim caveat emptor. But when outright fraud, crooked research and intimidation creep in, we know things are getting out of hand.
Consider this report from the chief executive officer and majority-owner of a recently-listed company who was approached by stock manipulators with an offer to ramp his company's shares.
The modus operandi of these parties is fairly standard and has been employed many times - the owner was asked to put up a fee of $1 million to $2 million, which would be used to carry out the ramping. Not satisfied with a refusal over the telephone, the manipulators showed up at the company's premises to press the owner further, which most would agree amounts to undue coercion, if not unlawful intimidation.
Paying the price: This particular CEO refused to cooperate. But, unfortunately, he paid a price for not wanting to get into bed with the seedier elements in the market - his shares have stagnated post-IPO and have hugely underperformed several other counters in their cohort.
It seems that if one doesn't employ the services of share manipulators, one's shares face an uphill battle to attract due recognition.
Now if this isn't bad enough, consider this report from another CEO of a different listed company, who was recently visited by analysts from a local brokerage.
On the agenda wasn't an interview to gain insights into the company's business so as to make an investment recommendation. Nothing so straightforward as that. Instead, the analysts asked for a placement of two million of the company's shares at a discount to the market price. What was offered in return? A favourable research report.
After agreeing, and after the report was duly issued, the share price shot up and the placement shares were quickly sold. By the CEO's estimate, the profit made was around $100,000. Not bad for spending a few hours writing bogus research.
Which brings us to the topic of placements. Market watchers would have noticed that every day during the past month, huge blocks of penny shares - some of them in loss-making companies - have been routinely crossed.
In a few cases, vague rumours accompany the crossings, but more often than not, no news accompanies the placement.
Because of the sheer number of such transactions and because no one monitors them, specifics are quickly forgotten.
While some of these deals are legitimate, many are not. The incident described earlier involving the issuing of crooked research in return for a discounted placement is one exercise that investors should be aware of. It could be an insolated incident, but the fact that it has happened - even once - should be cause for concern.
Retail players should also recognise that if the majority of daily volume in penny stocks is generated by house traders and manipulators, eventually these parties have to find some way to exit.
Exit route: If public participation is minimal and if large stakes have been accumulated to ensure manipulation, the only logical exit route for these operators is via placements.
This is why several placements are done every day, and when large blocks cross, investors should automatically be wary. In many instances, news of such deals should be taken as a cue to sell - not to buy.
Finally, there is now an unsettling trend for sales staff to issue strong 'buy' recommendations on stocks that are not covered by their research teams. For example, Devotion Eco-Thermal and Full Apex were two China plays that surged last week in high volume following the issue of sales notes.
It appears sufficient that such reports bear a disclaimer that says the opinions rendered are purely personal and not endorsed by the house, or that the house at which the writers are employed does not have an opinion on the counter.
But if a report bears the house's letterhead or carries the writer's name and designation, surely there is implied endorsement of that opinion by the writer's brokerage?
Full discussion of this subject would require navigating legal and ethical obstacles that space does not permit. Suffice to say for now that retail players should take note of many developments in the local market that are questionable, to say the least.
In this connection, they'll have to take their own initiative to safeguard their own interests - because no one else will. This is after all, a hot market - and we all know what that does to people.