Market Manipulation

"Short and distort" is a type of securities fraud in which Internet investors short sell a stock and then spread negative rumors about the company in an attempt to drive down stock prices. Cell phones and text-based messaging are the primary tools for the people committing "short and distort" as they tend to hide the source of the information.

Short-selling and distorting works on the largely negative perception of the state of the international market. It's a lot easier to start panic with rumours of a collapse than to kick off optimistic speculation with rumours of fictional growth in an era of 'Post-Enron skittishness.'
The Emulex hoax, an instance of securities fraud, was a false 2000-08-24 press release claiming to be from Emulex Corporation. The release falsely claimed that the company's CEO was stepping down, that previously stated quarterly earnings were being revised downward, and that the company was under investigation by the U.S. Securities and Exchange Commission.

The next morning, on 2000-08-25, the false release was picked up by Bloomberg Television and other news outlets. Emulex's stock price dropped from $103.94 to $43.00 (a 62% drop) in 16 minutes of morning trading, losing $2.2 billion in market capitalization, before Nasdaq halted trading on the stock.
Establishing why rumours spread is not easy but Psychology Today has had a crack with 8.5 rules for rumour spreading. (Abbreviated)
1: Successful rumors needle our anxieties and emotions.

Fear breeds rumor. The more collective anxiety a group has, the more inclined it will be to start up the rumor mill...we pass rumors around primarily as a means of deciphering scary, uncertain situations: Exchanging information, even if it's ludicrously false, relieves our unease by giving us a sense that we at least know what's happening.

2: Rumors stick if they're somewhat surprising but still fit with our existing biases.'re probably familiar with at least one notorious malapropism from President George W. Bush: "The problem with the French is that they don't have a word for 'entrepreneur.'" Or this embarrassing gem from the pop starlet Mariah Carey: "When I watch TV and see those poor starving kids all over the world, I can't help but cry. I mean, I'd love to be skinny like that, but not with all those flies and death and stuff." Can you believe they actually said these things?

Well, don't. Both quips were made up by pranksters. Even so, they enjoyed viral spread for the simple reason that both are juicy enough to be shocking—yet not so far-fetched that we doubt the two parties could have uttered them. They confirm what many already believe—that Bush is, let's say, not quite firing on all cylinders, and that Carey is a vain diva—without setting off too many common-sense alarms.

3: Easily swayed people are more important than influential people in passing on a rumor.

"It's your willingness to pass things along that matters, not necessarily how much status or respect you have," says Duncan Watts, a sociologist who researches information spread for Yahoo.

4: The more you hear a rumor, the more you'll buy it—even if you're hearing that it's false.

Even hearing that a rumor is bunk, [Mark Pezzo, psychology professor] observes, tends to plant it deeper in your mind. "No question, the more you hear something—even the same thing from the same person—the more you believe it," says Pezzo. "Politicians know all about this; the more I heard about weapons of mass destruction, the more believable they seemed to me. Even a denial can be a repetition of a rumor."

5: Rumors reflect the zeitgeist.

Rumors have the greatest chance of multiplying when the topic is something people are already pondering. As University of British Columbia psychologist Mark Schaller points out, "What matters is a match between the nature of the information and the goals of the people who are trafficking that information." So what's on our minds lately?

The election of 2008, and the thousand plausible and implausible tales swirling around the candidates. Among the best ones: As a Navy pilot, John McCain executed a "wet start" (a maneuver that involves flooding your fighter plane's engine with fuel so that starting up unleashes a huge and macho burst of flame) so reckless that he actually set an aircraft carrier on fire. Then there's the one about how Barack Obama has been endorsed by the Ku Klux Klan—they're tricky, those Klansmen.

6: Sticky rumors are simple and concrete.

The principle of concreteness also helps spread urban legends (which are rumors presented in story form, usually as something that happened to a friend's ex-girlfriend's mechanic's second cousin). Ever heard the tale of the guy who accepts a drink from a stranger at a bar, then wakes up in a tub full of ice, one kidney poorer? How about the one where the woman tries to dry out her wet lap dog by putting it in the microwave? Chances are, you remembered those tall tales because a visceral image—fingering your stitches in an ice-filled tub, watching a live dog sizzle in a microwave—got lodged in your mind.

"Urban legends survive only if they conjure up very visual or very tactile images," says Chip Heath, a Stanford business professor who studies idea spread. "Our brains are wired to remember concrete, sensory things better than abstract things." For example, if researchers give people lists of words to memorize and then recall later, the tangible ones ("apple," "pencil") will spring to mind more often than the conceptual ones ("truth," "justice").

7: Rumors that last are difficult to disprove.

Persistent rumors tend to have what Chip Heath calls a "testable credential," some element that can be misconstrued to give the story a whiff of credibility. "Rumors very often have a little truth test that people can run," he explains. "There was a rumor in the San Francisco Bay Area in the '90s that Snapple supports the KKK. You turned the label around, and you saw a capital letter K with a circle around it. People were doing that test, and then all of a sudden this seemingly preposterous rumor becomes more plausible." (For the record, Snapple bottles do bear the K—the symbol for "kosher"—as do thousands of other drinks and food products.)

8: We are eager to believe bad things about people we envy.

Once someone hits a certain level of celebrity and adulation, it seems, the mill starts to churn automatically—and the more beautiful and successful the star, the more depraved the rumors. Jamie Lee Curtis is a hermaphrodite. Cher (or Janet Jackson) had a rib removed so she'd look skinnier. Catherine the Great died trying to make love to a horse.

What is it about celebrity rumors that makes them spread so widely and stick so hard? Part of it is good old-fashioned schadenfreude. "People pass along rumors that they, on some level, tend to agree with, if there's something in the story that they identify with, that they want to be true," says Mikkelson. "We envy celebrities, and it's just human nature to pull down what has been raised so high."

The Ninth Law

We might also postulate a final law of rumor survival: Sometimes, there is no "why." Often, we tell remarkable tales to build relationships or show off our yarn-spinning prowess—not necessarily because we think they're true.
The idea of 'short and distort' presents itself as a prime elemental base for rumour spreading. The element of brevity inherent in trading mean that speed is vital to tracking a rumour before it can affect the value of its victims.