Rumors And The Stock Market

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Do public companies have an obligation to tell the market when there are baseless rumors driving up their stock prices? Probably not. Although, most will make announcements when their shares are falling without reason.

Yesterday, shares of Circuit City (CC) rose fairly quickly from $8 to $8.63 on rumors of a buy-out from Sears (SHLD). That’s a move of almost 8% in a few hours.

Echostar (DISH) shares rose from $46.94 to $52.15 during the day yesterday, up 11% at one point. Word went around Wall St. that AT&T (T) might buy the satellite company.

If these company’s knew that there was real news, the spikes would be based on insider trading, and the problem would have to be reported to the SEC. The companies would probably have filed the information for the public to see in an 8-K. But, that did not happen in either case here, so the rumors were just rumors.

And, some poor soul who bought the shares will get burned. There ought to be a law.

Douglas A. McIntyre