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Friday, May 17, 2013

How senior management criminal arrests affect stock prices

By Christopher J. McCann

Stock prices are directly connected to consumer confidence in that company. The great depression, the financial crisis of 2008 were both strongly connected to the fact that consumer confidence in key businesses failed to provide what was expected, consumer confidence fell and the crisis began.

This is a very small reason for the stock crisis, but it is an important item to remember when learning how senior management criminal arrests affect stock prices. If senior management is arrested and this news gets out in the public, this can dramatically reduce that confidence level in the company and stock holders may want to sell fast, thinking that the company is in incapable hands. This has a domino effect for other stock holders.
Combining media stock recommendations with company purchases is unethical
Bad management negatively impacts corporate PR
3 failed senior management consumer confidence examples

$616 million dollar criminal inside trading mistake

Let's examine a few examples of exactly how this happened. Recently Michael S. Steinberg of SAC was implicated in the FBI's investigation of insider trading. Although implicated and freed on a $3 million bail, the court appearance lowers consumer confidence in the SAC. Just this month SAC paid $616 million to settle two civil insider trading actions. These criminal investigations are bad for businesses like SAC. Having the higher ups of a company like SAC implicated in criminal activities will dramatically change how people view the SAC and their business practices that can take a very long time to forgive and forget.

Richest man in Russia scared off investers

In Russia, the head of the largest oil company, Yukos, was arrested in 2003. The arrest of the richest man in Russia was not only a shock to many, but let the consumer confidence and stock market of Russia into very turbulent waters. The arrest scared even the most confident investors and bankers to second guess where their money was. Mikhail B Khodorkovsky was charged with tax evasion, forgery and fraud. The arrest of this one man led to the stock dropping from 5-20% depending on which expert opinion you believe.

Jim Cramer of Mad Money was busted by the press

Looking at another prominent example of how confidence in a company can change the stock prices is the example of Jim Cramer. Cramer has been barred by CNBC from using his own personal funds to make picks and sell on his recommendations from the show Mad Money. As an editor at large for Smart Money magazine, he was accused of using his articles for unethical gains by purchasing large amounts of stocks from the companies prior to making recommendations on buys and sells from his article.

Jim Cramer wasn't necessarily doing anything illegal, but you can see just how influential one person can be in the stock prices. When the owner or senior management in a large company makes these or any other potentially illegal or similar moves and gets caught, there is an immediate affect on the confidence and stock prices of the company that they represent.

The examples above from a hedge fund manager, the head of one of the largest businesses in the world and a celebrity type investor show the impact that anything from arrests, allegations and potential unethical behavior can have on stock prices for companies large and small and shows how senior management criminal arrests affect stock prices. These are just a few examples that have happened around the world.

Which is why senior management facing arrests charges, should hire a qualified criminal defense attorney to help defend your case before the arrest goes public.  As well as a professional reputation management consultant and PR firm to help defend your side of the story publicly before it can damage your companies stock prices.

About the author: Guest post by Christopher J McCann that in no way should be giving out stock trading advice. But he does know a thing or two about DUI criminal defense in OC with his two active legal blogs.

* Image license: Guest blogging community