Stock Manipulation (1 jan 1853 ano – 31 dez 1867 ano)

Descrição:

Thomas Durant's stock manipulations with the M&M and the UP involved several financial maneuvers designed to maximize his control and profit from the railroad enterprise. Both project required substantial capital investment, which Durant sought to control and profit from through stock manipulations.

Stock Issuance and Control:
Durant ensured he had substantial control over the M&M and UP by strategically managing the issuance of stock. He worked closely with the company's board of directors to influence decisions about when and how much stock to issue. By timing these issuances to coincide with favorable market conditions or significant company milestones, Durant maximized the perceived value of the stock. Additionally, he would purchase large quantities of stock himself or through intermediaries to consolidate his control, ensuring he held significant voting power within the company. This control allowed him to make decisions that would further inflate the stock’s value.

Artificial Inflation of Stock Prices:
Durant engaged in practices to artificially inflate stock prices. This could involve publicizing optimistic projections about the railroad’s future, such as anticipated profitability, strategic partnerships, or expansions. He hired public relations experts or utilized media outlets to spread these positive rumors. Furthermore, Durant manipulated company financial reports to present a more favorable financial situation than actually existed. These practices would increase investor confidence, driving up the stock price as more people sought to invest.

Strategic Buying and Selling:
Durant was adept at timing his buying and selling activities to manipulate stock prices. He would purchase large amounts of stock when prices were low, often during periods of reduced investor confidence or when the company was facing challenges. Once he had accumulated significant stock, he would then implement strategies to boost the stock price, such as announcing new projects or successes. As the stock price increased due to heightened demand, Durant would sell portions of his holdings at a profit. This process could be repeated multiple times, with Durant profiting from the fluctuations he orchestrated.

Durant proclaimed that the Union Pacific would link with his M&M line, leading to a sharp increase in M&M stock prices. He discreetly sold his shares and invested in the competition. Subsequently, a new announcement stated that the connection would be with the Cedar Rapids & Missouri line. Investors quickly moved their investments to that company and sold off M&M stock, which Durant repurchased at a lower price. Grenville Dodge's brother Nathan wrote, "In other words, he gets back home and makes in the roundtrip for him and his friends $5,000,000... It is the smartest operation ever done in stocks and could never be done again."

Leveraging Government Subsidies:
The M&M and UP Railroad, like many railroads, benefited from government land grants and subsidies. Durant used these grants to enhance both companies' asset base, making the railroads appear more valuable and stable. These subsidies could be used as collateral to secure additional financing or to attract more investors. By publicizing the receipt of these grants and the land acquisitions, Durant could drive up stock prices by presenting the companies as well-supported by the government and possessing substantial land assets that could be sold or developed in the future.

Collusion and Speculation:
Durant colluded with other investors, financiers, and speculators to manipulate stock prices. This collusion involved agreements to simultaneously buy large amounts of stock to drive up prices or to spread positive rumors and inside information selectively. These coordinated actions would create a false sense of high demand and robust market interest. Durant also colluded with brokers to manipulate trading volumes and prices, ensuring that his stock sales occurred at peak prices.

Issuing Convertible Bonds and Subscriptions:
"Subscriptions" refer to the commitment of individuals and institutions to purchase stock or bonds in the railroad company. This process involved pledging to buy a certain amount of securities at a specified price, providing the company with the capital needed for construction and operation. Durant targeted both wealthy individuals and institutional investors, including banks and investment firms. Durant and his associates conducted aggressive promotional campaigns to highlight the potential profitability and national importance of the transcontinental railroad. They used public meetings, newspaper advertisements, and personal appeals to attract subscribers.

Interested parties signed subscription agreements, committing to purchase a specified number of shares or bonds. These agreements outlined the terms of payment and the schedule for installments. Payments were typically made in installments, allowing subscribers to spread out their investment over time. This made it more manageable for investors to commit substantial sums of money.

Durant often issued convertible bonds, which could later be converted into shares of Union Pacific stock. This provided an additional incentive for investors, as they could potentially benefit from the increase in stock value once the railroad became profitable. The terms of conversion were usually favorable, giving bondholders the right to convert their bonds at a set price, often lower than the anticipated future market value of the stock.

Convertible bonds issued by M&M provided a mechanism for Durant to raise funds while maintaining flexibility. These bonds offered investors the option to convert their bonds into company stock at a later date, often at a predetermined price. Durant could set the conversion price favorably, ensuring that if the stock price increased significantly, investors would be incentivized to convert their bonds to stock. This not only provided immediate capital for the railroad’s construction and operations but also helped stabilize the stock price, as the potential for future conversion added to the stock’s perceived value. Additionally, the promise of conversion often made these bonds more attractive to investors, ensuring steady demand and a continual influx of funds.

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