Front Running and the American Financial System
Can Front Running be a danger to our financial system in general? This is what we will take a look at in this conspiracy theory
One CEO thinks it can be, read his story here, and you be the judge. Here we will explain just what Front Running is and how it works to undermine the value of a company’s stock. The CEO involved is Patrick Byrne the founder of Overstock.
Here’s a straightforward example of front-running: Say a broker gets an order from a major client to buy 500,000 shares of XYZ Co. Such a huge purchase is bound to drive up the price of the stock immediately, at least in the short-term. The broker sets aside the request for a minute and first buys some XYZ stock for his or her own personal portfolio. Then the client’s order is put through. The broker immediately sells the XYZ shares and pockets a profit.
Investopedia
Front Running is Illegal
Front-running is illegal and unethical when a trader acts on inside information.
A straightforward example of front-running occurs when a broker exploits market-moving knowledge that has not yet been made public.
There are gray areas. An investor may buy or sell a stock and then publicize the reasoning behind it. Transparency and honesty are key.
There is some grey area here. For example, a professional short-seller may accumulate a short position and then publicize the reasons for shorting the stock. This seems perilously close to a short-seller’s version of a pump-and-dump scheme, in which a speculator hypes (or bashes) an investment for personal gain.
The Grey Area
There is a distinction, however. If the short-seller in this example reveals his personal financial stake at the time of the recommendation. And, the information conveyed by the short-seller reflects a genuine fact-based view of the outlook of the stock shorted rather than a falsehood intended to mislead.
Front Running and the Short Sellers
Here is the crux of the problem. According to this conspiracy theory, short sellers have been using the media to besmirch the reputation of companies in order to cause the company’s stock value to fall, thereby they make a profit from their short position in that stock. Sarbanes-Oxley Act of 2002 was formalized in an attempt to mitigate front running
The CEO of Overstock.com claims that a front running scheme was orchestrated against his company’s stock. He says that the reason he needed to leave the company he founded was because of some Deep State Operatives’ that they would hurt the company’s stock value and in so doing hurt the investors.
CEO Patrick Byrne says that because he shared information in the early days of the Russia Investigation involving Hillary Clinton, and that people in the Deep State were not happy with him.
He says that he did not want this to become an issue that would hurt the company that he founded.
Deep-capture and Phantom Stocks?
Patrick has written a blog explaining how this works in laymen’s terms. An economist has written a detailed history of “failures to deliver†(i.e. stock sold and not delivered, because it is phantom stock) for Regulation magazine, published by the Cato Institute. A former SEC Chairman has spoken extensively against the problem.
Many other researchers, several professors, a former SEC economist, and a former deputy secretary of commerce have also written papers on the subject. If you are interested in the mechanics of the crime, read some of those papers here, here, here, here, here, and here.
The Bunny and his fellow town criers have what is surely the world’s largest database of Wall Street malfeasance. Patrick examines their data with an open mind. He lends some structure to their efforts.
He funds an expanded investigation. And gradually, he comes to see, clear as day – there is a crime. It is a financial heist of monstrous proportions, and Patrick believes it threatens the stability of the American financial system. He decides to fight the criminals.
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These articles are written to spark your interest so that you can research further and you’ll be the judge of these conspiracy theories.
