By DAVID MOON, Moon Capital
August 4, 2002
It was his age that shocked me most. People have been breaking rules
since the Garden of Eden ' and God knows we've seen plenty of that lately.
But in 2000, when 15-year old Jonathon Lebed admitted he had been manipulating
stock prices since he was 14, like a lot of people my reaction was
indignation. I blamed his parents who obviously never taught him right
from wrong. I blamed Wall Street for being duped by a tenth grader.
I blamed his teachers who looked the other way while a student turned study hall
into Enron. I blamed a society that allowed Bill Clinton to do what he did
It seems that the budding Bernie Ebbers would buy a bunch of a stock for 20
cents a share, then go on his personal website to tout the company. It
doesn't take much excitement to cause a 20 cent stock to rise. The 1,500
daily visitors to Johnny's website happily obliged. Johnny would then dump
his stock - at a profit. His 'pump and dump' scheme netted him more than
Little Johnny did agree to pay a fine of $285,000 and promise never to
manipulate stock prices again. I would have forever filed this story away
in that place of forgotten news stories ' except that the recent devastation on
Wall Street caused me to rethink the definition of stock manipulation.
It is against the law to do something to try to cause the price of a stock to
change ' at least you can't use the stock market to try to artificially
manipulate a stock's price. Of course, if you're the president of a
company, everything you do is supposed to eventually increase the price of your
stock. But you're not supposed to make comments in the newspaper solely
for the purpose of making your stock price increase or decrease. Imagine
if a company was in the process of buying back some of its own shares and wanted
to do so at lower prices. A company president could simply say that its
sales in Argentina were going horribly, raw materials costs were increasing and
that he was depressed over the recent death of his dog. Just for good
measure, the president might also make mention that he didn't have the greatest
confidence in their auditors and he sure hopes the SEC never investigates them
for accounting irregularities.
That president would get his wish and have a chance to buy back some of his
company's stock a lower prices. Much lower prices. And he would
almost immediately get to visit SEC investigators. Then he would go to
jail or be on the news each night with Martha Stewart or have to pay a big fine,
just like Jonathon Lebed.
I thought about this a couple of weeks ago one Saturday morning as I was
reviewing the week's carnage in the Dow Jones Industrial Average. In the
middle of a horrible Friday afternoon, three prominent analysts released
positive market comments. The President then made a statement of support for
stocks. The Treasury Secretary followed suit. The power structure on
Wall Street and Washington was doing everything within its vast power to stop
the day's decline. And they succeeded. Stock prices recovered
several hundred points following the optimistic comments.
In other words, these folks did exactly what Jonathon did; they manipulated
stock prices. So someone could make some money. When the Treasury
Secretary does it, ostensibly to help the masses, we consider it a courageous
patriotic act. But, it is a crime when a teenager who doesn't yet shave
It is dangerous when the same activity elicits different responses depending
on whether it benefits the one or benefits the many.
David Moon is president of Moon Capital Management, a
Knoxville-based investment management firm. This article
originally appeared in the News Sentinel (Knoxville, TN).