Imagine getting Bloomberg to ramp a stock for you...
"CWTD starts to build, investor pay attention...
"China World Trade Corp. Recent news has stirred investors. Volume jumped 2274%. Big news expected. Getting in early is the key..."
Or so the latest batch of junk-and-pump emails to hit our servers here at BullionVault would have us believe. Ramping stocks is illegal, of course. Buying into the hype is stupid. Getting one of the world's major news organisations to do both for you at once...well, perhaps that's genius.
"US financier Edward Pastorini may lead a bid for Gold Fields Ltd, the world's fourth-largest gold producer, to profit from the rising price of bullion," reported Bloomberg yesterday morning.
"The LBO firms, corporate raiders and I feel that gold is going to rise to over $1,000 an ounce over the next two to three years," Pastorini told the newswire by email from San Francisco. Only he wasn't in San Francisco by the time Bloomberg spoke to him by phone. He was in Florida.
Or rather, somebody was.
"I prefer to stay private," Pastorini explained, "which is what I have managed to be for over 25 years in the mergers and acquisitions business. That's how my partners and I like it. I keep my name out of things and simply do the work behind the scenes."
Pastorini's high-and-mighty discretion also seemed to explain why Bloomberg couldn't confirm his identity with any US stock market filings, its own database, or even Google. He's so secretive, the journalists guessed, he's invisible!
But the story did check out with a second source, giving the newswire the green light it needed. Bloomberg was also sent a 3-page document, apparently from one of Gold Fields own executives, outlining details of the bid.
So Bloomberg published; now it's damned.
"It happens [to] all media organisations," smirks the Financial Times online – "the FT included. Whether it’s high market jinks or financial skulduggery, the fact is people make up stories and sometimes newswires and newspapers swallow them."
But swallowing stories – hook, line and sinker - can stick in the throat if you also buy into the shares. Gold Fields' stock jumped 11% on the story as some 10 million shares changed hands. That added $940 million to GFI's market cap. But by the end of US trade, once the scam had been spotted, the shares were back down to the day's open.
Bloomberg now faces legal action from GFI shareholders, or so today's press reports would have us believe. The newswire itself now admits that the Florida phone number used during the "Pastorini" interview was previously used to ramp a hoax takeover bid for Zapata Corp., a US fishing company, in 2003.
Ramping stocks through email is an inconvenience to most investors. Ramping stocks through the respectable media, however, can really hit the jackpot. Last weekend, the Sunday Express reported a potential $50-billion bid for Dow Chemical. The UK tabloid isn't known for its US business scoops. But Dow's stock rose nearly 5% on Monday regardless. Volume was more than four times the daily average.
Back in 1987, as the Toronto Globe & Mail recalls, Dow Jones got a phonecall saying the retailer Dayton Hudson Corp. was about to receive a bid for $7 billion. "Hours later, after the company's stock soared," says the paper, "Dow Jones reported that the circumstances surrounding the bid were 'cloudy'. A bid never surfaced."
Two years later, Reuters said that an "unknown group of investors" was bidding for US airline giant, Pan Am. The newswire's proof? It had received a fax! Trading in Pan Am's stock was suspended. Reuters let the story drop, unable to verify it.
Fast forward to April 2007, and "this is evidence of the frothiness of the market," says John Turner – head of Fasken Martineau DuMoulin, the mining group – of yesterday's Gold Fields sting. "People have been making so much money for so long that they are getting careless."
More money – careless or otherwise – really is pouring into gold-mining M&A, however. Last year saw a record $17 billion spent by gold mining firms digging for ore on the stock market, rather than in the ground. The upshot, however, isn't quite what you'd expect.
Fresh from buying up Bema Gold, for instance, Kinross just gave fresh 2007 guidance for output and reserves. KGC now expects to produce 1.65 million ounces per year, up from 1.5 million as previously announced. Yet Bema itself was producing 230,000 ounces of gold annually.
What happened to the difference? Perhaps, as with most corporate activity, the whole simply doesn't equal the sum of its parts. Just ask anyone still holding GlaxoSmithKline, six years after it was born of the greatest merger (then) in history...and six years after the stock topped out.
Still, at least the story stacked up at the time...unlike Edward Pastorini's Gold Fields sting.