(Apple) Stock Hacking & the power of DisInformaton

If you’re tired of the old cliché that information is power, here’s a new one: Disinformation is every bit as powerful.

That much we know from the mischievous email that was apparently sent out to Apple employees and that – naturally – quickly found its way into the tech-news cycle via the respected and highly trafficked tech site Engadget. The terse email said simply that the iPhone would be delayed to October from June and that the OS X Leopard operating software would not be released until January.

(Apple declined to offer any comment beyond reiterating that the email “wasn’t authentic” and that both the iPhone and Leopard are on track as previously announced.)

That was enough to cause Apple’s stock to tumble 5% from its morning high.

It took only seven minutes for Apple to fall to its intraday low of $103.42 from $108.83. Apple was trading below $105 for only two minutes, but in those two minutes more than 2.2 million shares were traded.

In the volatile 23 minutes of turmoil between the minute the disinformation hit the stock market at 8:55 PST and Apple’s announcement that the initial email “is fake and did not come from Apple,” nearly 15 million shares changed hands. That’s 60% of Apple’s normal volume in well under a half hour. That’s also an awful lot money lost for some investors – and gained for others – all of it because of a lie.

There are two things about this that are interesting: The practice itself, seeding the stock market with deceptive news that moves prices, is usually reserved for over-the-counter stocks, where a frantic post on a hyperactive message board can cause illiquid stocks to rise or fall five or 10 percent in less than a day.

But Apple, with an average trading volume of 25 million shares a day, is no penny stock. And yet, given all the hype that has surrounded the iPhone since January you’d have to think long and hard to come up with a piece of fake-news that would cause, in a matter of seconds, more investors (and Apple fanboys) to lose control of their anal sphincter muscles than this rumor did.**

The other notable twist is in how the fake news was spread. It seems someone figured out how to send an email to Apple employees around the world, putting the familiar “Bullet News” in the from line (for Apple’s sake, one hopes this is not as simple as sending an email to “[email protected]”).

A week ago, I noted how H-P pre-announced key earnings data after a non-employee had been emailed access to the market-moving numbers. This incident is the dark side of the same phenomenon: An email leads to investors being broadsided with surprising news, only this time the message is false.

And the fallout? Apple reacted as swiftly and judiciously as H-P did. The SEC would do right to take this as seriously as they do backdated stock options, and look into who may have profited from shorting the stock ahead of the news.

And there is also already debate about how Engadget handled the news. Some say it just ran with what an Apple employee sent in; others say it could have benefited from double-checking with Apple. But let’s not forget that only 11 days ago, the New York Post, the country’s 13th oldest newspaper, ran the rapidly discredited news of a Microsoft-Yahoo merger. That fake news drove Yahoo’s stock up 19%, and most of those gains have since eroded away. The SEC has its work cut out for it.

But what really stands out for me in this bizarre but fascinating episode is that Apple investors were taken by a technological goof that could have happened a decade ago but that in 2007 is like being sold the Eiffel Tower. If the irrational hopes surrounding the iPhone had not gotten so overheated, this would never have happened.

Hat tip to Paul Kedroksy for coming up with the phrase, Stock Hackers