Fake News, Real Money

How False Reports Have Affected Finance

Fake News, Real Money
August 6, 2015

Fake news stories have existed as long as the news has existed. The fake stories could be misunderstood parody or entertainment (think "War of the Worlds"), or they could be launched with malicious intent. With the rapid dissemination of news across the Internet, malicious fake news can cause real damage in financial markets.

Twitter’s Takeover That Wasn’t

The most recent fake news story involved Twitter, when a fake report of a $31 billion takeover bid caused Twitter stock to momentarily spike 5% before falling back within a ten-minute window. The story appeared to come from Bloomberg.com, but it was actually produced by a knockoff site under the address Bloomberg.market.com. Bloomberg and Twitter spokespersons quickly denied the report and the market returned to normal, but a malicious trader poised and ready could have taken advantage of the spike to sell at a significant gain.

Hoaxes like this are relatively easy to pull off since the source code behind any website is readily available. Anyone can register a similar domain name (as they did in the Bloomberg case through a Panamanian proxy service), create their own website, and cut and paste the source code. The Bloomberg spoofers went so far as to include links back to the real Bloomberg website.

Avon’s False Filing With the SEC

The fakery does not always take the form of a webpage. In May, a fraudulent takeover offer for Avon Products was filed with the SEC. The listed company, PTG Capital, did not exist — although it was likely chosen to make skeptics assume the bid was from the real private-equity firm TPG Capital. Avon stock rose 20% before Avon announced that the takeover bid was a hoax.

The SEC traced this action to a Bulgarian trader who had also sent out a fake press release in 2014 regarding a takeover of Tower Group International, Ltd. as well a false SEC filing in 2012 for a takeover of Rocky Mountain Chocolate Factory. In each of these scenarios, the trader intended to profit from the temporary stock shift.

Business Wire and Javelin Pharmaceuticals

News wires were hit by a couple of fake reports in 2010. Business Wire passed along false information that Javelin Pharmaceuticals had won a Supreme Court ruling regarding some of their products, and several days later PR Newswire was taken in by a false report implying a government investigation of the supply chain of cereal giant General Mills.

As far back as 2000, people have been faking news online for profit. In March 2000, a Houston day-trader continually reposted a fake press release stating that Lucent Technologies would miss earnings estimates. That earned the trader a $4,000 fine and a two-month jail stint for securities fraud.

In all of these cases, the goal was the same — plant a story that drives stock price temporarily up or down and make money off the initial market reaction. Technology just expedites the process.

The Twitter scammers not only took advantage of the technology, they also took advantage of psychology. Speculation about takeover bids had been building, making those expecting a takeover bid more reactive and less likely to give the story a critical review.

To avoid being taken in by a fake news story, do not overreact. The Internet may make it easy to spread false stories, but it also makes it easier to check them out. Even trusted websites such as Bloomberg are vulnerable to attacks and spoofing, so develop a network of several websites that you trust to visit as a reference. Let everybody else believe that aliens landed in Grover's Mill and plan to take over Apple, while you wisely avoid panic selling.

  Conversation   |   15 Comments

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Angela Keck, Mortgage Broker in Los Angeles, CA | 08.07.15 @ 21:07
Wouldn't you agree that social media is a huge contributor to this phenomenon?
Meredith | 08.10.15 @ 22:50
Honestly, I think there is no such thing as unbiased reporting anymore. It affects our money and mob mentality thinking, carefully guided to boost big market, big pharma, big agri's bottom line. Walter Cronkite would be rolling in his grave.
Angie | 08.11.15 @ 14:21
I think the penalties need to be stiffer as well for perpetrating these acts!
Martin | 08.12.15 @ 01:16
Artificially driving stock prices up or down--what's new about that? Wall Street and the Federal Reserve do it all the time! But seriously, the role of the digital age, hackers, and the internet in general will continue to be a potential source of problems in the market. But so far I'm not sure we've seen anything that would have really affected the average investor. So far we've seen trading events that quickly corrected themselves. If the average investor or even trader steers clear of wild swings in the market--which they typically should--they'll likely be unaffected.
Crystal | 08.12.15 @ 19:59
It's herd mentality gone wild! Really. One person tweets, another posts to Facebook... before you know it, everyone is talking about it like it's fact. Step back, get the right info... stop following the herd.
Sarah | 08.12.15 @ 20:31
I refuse to believe something I see online until I can corroborate it several places with trusted sources. Even then I'm a little leery. I once watched an episode of Brain Games where the host dressed in a suit and had a guy with a camera behind him. He stopped people coming off the escalator in a mall to ask them about a bogus news story. They all believed him, no questions asked because he looked like a reporter. Just because it walks like a duck, doesn't always make it a duck... Just sayin.
Apryl | 08.13.15 @ 18:19
This is why I always double check validity before sharing a post.
Sara | 08.13.15 @ 20:49
This is what we call heard mentality going strong. It is sad that things are happening the way they are. Looks to me like the digital age is not very good huh.
Daniel Dohlstrom | 08.13.15 @ 21:53
If it was on the internet it must be true right? Now more than ever it is so important to take what you read with a grain of salt and do your own research to confirm.
Steffanie | 08.13.15 @ 23:26
Anymore I try to research anything I hear online. Nothing is unbiased anymore and there is usually someone behind it all trying to gain something.
Kaila | 08.14.15 @ 02:43
I can not tell you the amount of times I see people spreading fake news, I will actually go out of my way to do the research and come back and say actually...... this is the truth, or this is fake.
Nancy | 08.14.15 @ 04:48
I think that the majority of news we hear is skewed to serve special interest groups making it all fake or with limited truth. And greed is the reason for most all of it.
Kamie | 08.14.15 @ 06:50
It amazes me, yet doesn't amaze me at the same with some of these fake news things. But the internet definitely has brought a lot of fake news for businesses/companies.
Ron | 08.14.15 @ 10:52
It is a hustle, but if there is an angle to work, someone will work it. Snake Oil went binary a while ago. Before, it was all mail driven. Now, one need not spend money to make money.
Casey | 08.14.15 @ 12:12
As a whole we need to be less trusting of the things we see, hear and read. Until a story of any type is confirmed multiple times over it shouldn't be trusted as news.
$commenter.renderDisplayableName() | 12.06.16 @ 16:23
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