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60 Minutes II just did a program alleging that major brokerage firms were “fixing” stock prices and “rigging” the game to benefit a few at the expense of many. You may recall those remarkable stocks that went from $20 a share to $100 or more in a matter of hours only to end up months later at $2 or $3 a share. A number of insiders have come forward recently to say that those “initial public offerings” – IPOs – were rigged through a scam called “laddering.”
The general idea was this: A brokerage company introducing a new company to the market would privately call its best clients and offer a significant allocation of the stock at its lowest price if the client agreed to purchase more shares at higher and higher prices. This process artificially inflated stock prices, creating somewhat of a buying frenzy among the small retail investors who were watching the stocks soar and wanted some of the action. They would get in, usually at the higher prices while the big boys were getting out. Now insiders are saying this practice to make a new company, even a feeble one, look like a winner was not the exception, but the rule, and hundreds of lawsuits against brokerage firms have been filed.
The scam couldn’t have worked without there being an abundance of investor greed to fuel the rising prices but the trap was set by artificially inflating the price at the beginning which helped the stock reach otherwise unobtainable and unsustainable prices. While there’s a flurry of lawsuits now, many could have avoided loss by asking obvious questions: How could a new company double or triple its real worth in only a matter of hours by simply existing? They didn’t discover the cure for the common cold or for AIDS. They hadn’t figured out how to process lead and turn it into gold. The inflation of stock price was all hype and buyers should always beware. Solomon said it best when he said, “He that is greedy for gain, troubles his own house. He that is hasty to be rich has an evil eye, and doesn’t consider that poverty shall come upon him.”
The greed of the masses doesn’t acquit the guilt of the few who were given a sacred trust to manage the life savings of the less informed and spent that trust artificially “laddering” up the stock prices and pocketing millions for their firms and their insider cronies. To no one’s surprise the big firms named in the piece claim they’re innocent. Yeah right… And OJ Simpson is still tirelessly looking for Nicole’s killer – on a golf course in Florida!
Michael Q. Pink is a best selling author, speaker, and creator of “Selling Among Wolves-Without Joining The Pack!” training programs, is founder of the Strategic Resource Institute, providing biblical solutions for maximizing the impact of sales and marketing strategies. For information on free seminars in your area, call (941) 377-9384 or visit www.SellingAmongWolves.com.