AmplifiedVolatility 55The most innocuous form of the ris kof negative information
volatility is the rumor mill—Internet postings that stop way short of
fraud—but these rumors can have equally significant effects on
stoc kprices. Ber kshire Hathaway’s stoc kprice was hurt when wholly
unfounded and viscous rumors that Warren Buffett’s health was fail-
ing spread all over the Internet in early 2000. Equally vicious were
the rumors spread in 1996 that executives of Quigley Corporation, a
company that had just introduced a cold remedy called Cold-Eaze,
were really mobsters: Its stoc kprice dropped from $37 to $10 on the
lies. Worst of all was the day when Michael Hackworth, president
and chief executive officer of Cirrus Logic, clicked on a Yahoo! site
to a message pronouncing him “dead after a long illness.”^2
More pernicious than rumors in motive and in their effect on
stoc kprice accuracy are the deliberate defrauders, those who have
adapted a host of age-old fraud techniques to the Internet at a very
low cost and a very low ris kof detection.^3 Spamming is one of the
Internet defrauders cheapest mechanisms of deceit. For a few hun-
dred dollars, a spammer can buy software that enables the harvest-
ing of thousands of e-mail addresses from Internet files. A whole
e-mailing list can be devised. For higher stakes—say, $10,000—
spammers can buy e-mailing lists numbering tens of millions of ad-
dresses. They blitz them for bogus bucks.
These spammers sometimes get caught. One who did promoted
stocks by spamming to several million e-mailees, touting the stocks
of two companies in exchange for a fee. The spammer did not dis-
close his true identify or the fact that he was being paid to do the
hawking. A California court in October 1998 slammed the spammer
with a fine and an injunction against doing it again.^4 In a similar
case, a convicted felon just out of jail and on probation for previous
securities fraud spammed 30 million e-mailees with lies about his
company that were intended to prop up its price precisely so that
he could generate enough money to repay the victims of his earlier
fraud!^5 What a Ponzi scheme.
A more elaborate spamming technique seeks to disguise the
source of the e-mail and the identify of its sender, making it look as
if the message were misdirected to the recipient and making her feel
she had “overheard” a hot tip being exchanged between friends. In
one case, two men indicted in early 2000 on charges of securities
fraud “made” more than $1 million by sending hundreds of
thousands of e-mail messages about dozens of small companies to
subscribers of America Online (AOL).^6 The subject stocks were just