Poop and Scoop (Business)

The technique of disseminating rumors or false information about security in order to cause the security’s price to decrease is known as “poop and scoop” in the business sector (poop). It happens when a small number of well-informed people try to drive down the price of a stock by distributing false information, rumors, and other potentially harmful material (“poop”) in order to acquire the stock at a cheaper price (“scoop”). Then, at that point, with the recently emptied cost set up, the security is purchased (scoop) with the assumption that its cost will ascend back up once financial backers understand the negative data spread about the security was not legitimate.

If they succeed, they will be able to buy the shares at a discount since the general market will have sold off the security, causing the price to plummet. Pooping and scooping is, at last, a kind of market control, where the data is spread vindictively fully intent on making a security’s value fall to purchase the protections at a much lower cost. The practice of “poop and scoop” is frowned upon by stock exchange authorities and is punishable by the SEC.

The poop and scoop method employs misleading information to intentionally lower stock prices. When share prices rise again, the low-cost equities can be picked up and resold for a profit. Due to the proliferation of online forums, platforms, and finance-related discussion groups, such schemes may now be carried out with minimum cost and with simplicity.

Example of the Poop and Scoop Strategy:

In the year 2000, a young guy published a series of disparaging news releases against Emulex Corporation, a firm that makes and sells internet connectivity technology. The guy, who was just 23 years old at the time, sold 3,000 shares of the company’s stock short, hoping to profit from the company’s rapid per-share price drop after spreading false, bad information.

The young guy employed an ex-employee of a press release distribution business to fabricate and distribute fake reports claiming Emulex’s CEO was leaving the company and that its quarterly profits forecast would be changed from profit to loss. Of course, the individual’s actions caused share values to plummet as shareholders, investors, and the market as a whole worried about the “news.”

He was able to benefit by covering all of his short positions and utilizing a large portion of his gains to purchase shares of Emulex at an artificially reduced price. When the press releases were discovered to be fraudulent, trading in the stock was finally suspended on NASDAQ.

An intentional technique to try to affect the market price of a security by publishing or spreading false, unfavorable information about a company or an asset is known as “poop and scoop.” Because of the extensive use of the internet nowadays, the poop and scoop method is much more dangerous. The members in the “poop and scoop” expect to purchase the designated security at a rebate, realizing that the briefly discouraged market cost doesn’t mirror the security’s actual worth and the cost will once the remainder of the market finds this.

A bad word or notion about a firm may be widely spread in a short period of time by traders with even the slightest amount of voice. The internet was relatively new at the time of the case above, and it was not a feasible alternative for the young guy to use. However, the case and its ramifications could have been even worse today. Under the 1934 Securities Exchange Act, this type of behavior is classified as market manipulation and securities fraud by the SEC.

Specialists have shown that market control to impact costs is both conceivable and possibly beneficial for controllers however hurts society by decreasing the viability of exchange at finding the genuine valuation of protections and consequently lessening the effectiveness of the market at distributing useful assets in the economy. Spreading false rumors about a firm might result in catastrophic price reductions for its shares for a trader or even an angry ex-employee. A “poop and scoop” is the polar opposite of a “pump and dump,” in which one or more people distribute false information about security in the aim of artificially inflating the market and selling their stake at a much higher price.

Pumping and dumping is the deliberate purchase, promotion, and marketing of security with the purpose of selling shares at an inflated price as investors rush to acquire the pumped-up stock. Like pooping and scooping, the practice is highly illegal. Because the potential benefits from inflating up and then selling a low-value stock are larger than those from pooping on and then selling a well-known, higher-priced stock, “poop and scoop” is a less typical strategy.

Information Sources:

  1. corporatefinanceinstitute.com
  2. investopedia.com