The Social Media-Enabled Pump and Dump

The Social Media-Enabled Pump and Dump

Hopefully prospective SEC Chairman Gary Gensler will work to rein in the frothy activity that has occurred in the capital markets over the past decade. These range from slap on the wrist fines (large banks in particular), which amount to nothing more than a Cost of Goods Sold charge, to SPACs to more recently social media-enabled pump and dump schemes. We have previously covered SPACs and meaningless banker fines in print and on our podcast, so let’s focus on social media-enabled pump and dump schemes – one in particular.

Chamath Palihapitiya’s social media-fueled pump and dump. Chamath Palihapitiya made his bones as an early-days Facebook (tkr: FB), executive. Mr. Palihapitiya has spent recent years as a Venture Capital founder (SocialCapital), and SPAC sponsor. Mr. Palihapitiya is popular with the Populist crowd. The morning of January 26th Mr. Palihapitiya Tweeted to his 1 million followers that he purchased GameStop (tkr: GME) call options with the rally cry “Let’s gooo!!!” (see Tweet below), only to announce the following day on CNBC that he closed out his position (see video below). GameStop of course along with AMC (tkr: AMC), are the two stocks that ran up over the past number of weeks as retail traders colluded on WallStreetBets to engage in a short squeeze. These unsophisticated retail traders play into the hands of criminals such as Mr. Palihapitiya – who ironically believes he is in the right because he plans to donate his illegal proceeds to small business.

When I founded CEORater several years ago I did so because I believed quality public company CEOs were few and far between and that crowdsourced intel could help shed light on which CEOs were superior to others. Never did I imagine that a pandemic-driven, Fed-enabled bubble would raise the profiles of carnival barker, snake oil salesmen such as Messrs. Palihapitiya and Musk – who position themselves as modern day Robin Hoods – to a level where they could move markets. They need to be called out just as any unqualified operating CEO needs to be called out. Here’s hoping adults enter the room sooner rather than later.

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