Poop and Scoop is an illegal market manipulation scheme wherein false, negative information about a stock is spread, typically via the Internet, with the intent to depress the stock’s price. The manipulators, having sold short or planning to buy more cheaply, then acquire the stock at the deflated price. Once their bearish positions are established, the manipulators profit as the stock price rebounds.
How Poop and Scoop Works
Dissemination of False Information: The manipulators circulate rumors, fake news, or misleading analyses online, often targeting social media, forums, and financial news websites.
Price Drop: As uninformed investors react to the negative information, they start selling the stock, causing its price to drop.
Acquisition: The manipulators buy the stock at the artificially lowered price.
Correction: As the market eventually corrects itself and the truth comes out, the stock price rises again.
Profit: The manipulators sell their holdings at a higher price, thereby realizing a profit.
Historical Context and Notable Examples
The practice of Poop and Scoop gained a considerable profile in the late 1990s and early 2000s with the advent of Internet forums and online trading platforms, making it easier for manipulators to spread misinformation quickly and anonymously. Although this type of fraud predated the Internet, technology has magnified its efficiency and reach.
Comparison with Pump and Dump
Pump and Dump is the converse scheme, where positive false information is spread to inflate a stock’s price, allowing manipulators to sell at the peak price. Once the truth emerges, the stock price plummets.
| Aspects | Poop and Scoop | Pump and Dump |
|---|---|---|
| Nature of Information | Negative | Positive |
| Initial Action | Spreading false bad news | Spreading false good news |
| Objective | Lower the stock price to buy cheaply | Raise the stock price to sell at a high price |
| Duration | Short-to-Medium term | Short term |
Legal and Ethical Considerations
Poop and Scoop is illegal as it violates securities laws against market manipulation and fraud. Regulatory bodies like the U.S. Securities and Exchange Commission (SEC) monitor and prosecute such activities stringently. Penalties can include hefty fines, disgorgement of ill-gotten gains, and even imprisonment.
Examples
In 2018, several individuals were charged with spreading false rumors about public companies through various Internet platforms to manipulate stock prices, embodying the typical Poop and Scoop scheme.
FAQs
What are the legal consequences of Poop and Scoop?
How can investors protect themselves?
How do regulators detect Poop and Scoop schemes?
Summary
Poop and Scoop represents a pernicious form of market manipulation designed to profit through deceit. Investors are urged to practice due diligence, scrutinize sources of information, and remain vigilant to avoid falling prey to such schemes. Regulatory bodies continue to enforce laws and educate investors to safeguard market integrity.
References
- U.S. Securities and Exchange Commission (SEC) - Market Manipulation
- Financial Industry Regulatory Authority (FINRA) - Scams and Fraud
- Investopedia - Pump and Dump
