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AEHI: Stock Manipulation 101 / Pre-open Bid Stuffing

Ok, the past few days on my blog about AEHI have all largely been about demonstrating misrepresentations by Gillispie and AEHI. We had a lot of them:

 
  1. $3B reliable profit: lie
  2. $150M in credit: lie
  3. credit agreement signed on 11/1/10: lie
  4. never late on a SEC filing: lie
  5. >80% support in written testimony: lie
  6. Gillispie's MIT degree: lie
  7. Gillispie's executive role at Browns Ferry: lie
  8. Business man of the year: lie or stupidity
I have a lot more material and could go on like this for a long time (and I probably will!). But today we'll look at a different angle that's part of any serious pump and dump. And that's technical stock manipulation.
 
In today's first session we'll cover a popular mechanism that is just beautifully visible in today's two week chart: issuing artificial bids before the market opens. Some investors looking to buy/sell the stock look at the bid/ask before the open and submit their orders with limits chosen accordingly. Before the open there's hardly any volume so it is very cheap to position bids at that time. The overall effect is an upward manipulation of the market price.
 
And this is exactly what it looks like:


















Now people have asked:

"I don't follow--it appears the price went down over the 2 weeks. On days without the artificial bids, the price closed higher. As the very informative investor that you are, please help us understand better. Where is the manipulation & its intended impact?"

Here's what happens: an artificially high pre-open bid creates the appearance of additional buying interest. The technique especially makes sense when a special event is coming up to create an illusion of excited anticipation.
 
The hope of the manipulator is that investors seeing the increase pre-open will jump in and drive the stock up. This didn't happen here and I think that's most likely because of the recent negative publicity (StreetSweeper, AEHI Truth et al) which created selling pressure that counteracted the manipulation.
 
But that's not to say that there was no success. The right question to ask is where would the stock trade at if it weren't for the bid stuffing.
 
The thing is: once doubt develops a stock like AEHI can plunge very hard very quickly. A 50% drop on a single day is not unheard of. I'll discuss the reasons for that when we'll talk about intraday bid stuffing, ramping and matched orders.



 


Disclosure: short AEHI