Draft:Pool Operation

A pool operation is a form of market manipulation designed to artificially and temporarily change the price of a security’s shares in order to secure a group of individuals with a large profit at the expense of the broader public.

Pool operations may deploy overlapping, but not the same exact, tactics as other forms of market manipulation, such as boiler room operations.

Pool operations are believed to have greatly contributed to the Wall Street crash of 1929 and were the subject of multiple extensive congressional hearings and congressional investigations over the years, notably the Pujo Committee and the Pecora Commission, the latter of which outlined them in great detail over multiple hearings. In large part, the existence of pool operations led to the significant securities-related legislative and regulatory changes that arose in the 1930s, such as the Securities Exchange Act of 1934.

As a result of these changes pool operations, as they existed in the early 1900s, are often viewed as a relic of the past. However this belief is strongly disputed, as researchers and modern securities and law enforcement officials believe that pool and pool-like market manipulations continue to exist to this day in North America and Asia in somewhat different forms that can be more difficult control, monitor, and detect than they were in the early 1900s.

Basics of pool operations

In market manipulation, a pool operation refers to a pre-meditated attempt by several individuals (the “pool”) to artificially alter the price of a security towards a target price, often as quickly as possible. During the market manipulation, the pool’s initial intent is to temporarily simulate organic public demand for a security when, in fact, it is a small cadre of (often) wealthy individuals, their brokers, and other market professionals who are largely driving the price of the security. The alteration in price often occurs in the absence of any fundamental changes that would otherwise justify the change in price or the target price. When the pool operation’s price objective is reached, the pool disposes of its holdings on the unsuspecting public in relatively short order. This leads to a price decline due to a combination of selling pressure and withdrawal of the pool's own demand for the stock; possibly compounded by negative media attention related to the price decline. Ultimately, the pool operation secures the pool with large profits while leaving the public with equally large losses.

Due to numerous factors, pool operations are not always successful but, when they are, can result in immense profits in as little as several days’ worth of trading activity.

Pool participants

Relatively large sums of money are required to temporarily alter the price of a sizeable and popular security in a way that attracts public interest. Therefore, the pool’s participants are often wealthy and well-connected individuals who “pool” their money together in order to manipulate the price of a moderately or very popular security. Such a security is also often more “liquid”, which means it is easier to dispose of one’s shares at a better price. However smaller, lower-priced, and often less liquid securities can be manipulated by less-wealthy groups of individuals or by smaller sums of money, commensurately with often less public interest and a likely lower probability of quick and/or large profits.

Price and media manipulation

The two main and basic mechanisms involved in pool operations are price manipulation and media manipulation.

Most of the public is familiar with buying a stock (“going long”) in order to secure a profit once a stock’s price rises. Simultaneously, most non-professional traders are either unfamiliar or uncomfortable with selling a stock short (betting on a price decline) and, owing to regulations and other limitations, their broker may not be able to facilitate a short sale even if the trader wanted to sell short. Consequently, pool operations often focus on the long side and, therefore, seek to raise the price of a security as the public will be more willing and more comfortable with buying a rising stock in the hopes of selling it at an even higher price.

As such, the pool’s participant combine their money and, often through one or more brokers and other market means, start purchasing the stock in question in large amounts. Along with other methods that simulate demand, this creates a lot of artificial activity that ultimately raises the stock’s price. Psychologically, a rising stock price often attracts public attention and, on its own, can induce the public to buy the rising stock. The public’s desire to purchase the stock may be explained, in part, by crowd psychology, such as fear of missing out.

The mere fact that a stock’s price is rising can, by itself, also attract media attention without any sort of pre-meditated media manipulation. This natural media attention can spur more public buying of the stock.

However, investigations have shown that pool operators have manipulated the media more explicitly. The basics goal of such manipulation is to insert positive news into various information outlets in order to cajole the public into buying the stock in question. Mechanisms of media manipulation have often included paying a relevant influencer to promote the stock or, in the absence of payment, lying to the influencer with purposefully timed tips, rumors, or simply false information. The influencer could be a journalist, reporter, broker, security analyst, market researcher, public figure, or otherwise. Sometimes, the influencer would promote a stock with false positive information of material consequence. As the latter is potentially illegal, pools have resorted to having the influencer push less potentially fraudulent, yet subtly positive, information such as upbeat quotes from company executives or positive estimates about the company’s potential future from relevant experts. Such information is more difficult to disprove.

In years past, it was not unusual for pools to bribe journalists in the leading newspapers, such as the Wall Street Journal. The editors and owners of such media outlets would have little to no way of knowing that the reporter was paid to subtly hint at favorable pieces of information that were often estimates or opinions where fraudulent intent is often hard or impossible to prove.

However, as regulators and leading national media outlets became wise to pool tactics, pools switched to manipulating local media or spreading rumors through other grassroots mechanisms. The manipulation of local media would, over a longer period of time, spread helpful rumors about a stock; rumors that could eventually get picked up by regional and then national media in a more organic fashion, making it appear that no manipulation of the media ever tool place to begin with.

Notable pool operations and participants

Congressional and law-enforcement investigations uncovered many notable cases of pool-related market manipulation.

In 2013, the FBI uncovered a modern pool operation whereby 14 individuals manipulated the price of stocks using price and media manipulation, resulting in $30 million worth of losses for over 20,000 individuals.

David Sarnoff, as head of RCA, used his housewife as a proxy in a pool operation with other wealthy individuals on March 12, 1929. The intent was to manipulate the price of his company’s publicly traded stock. In 7 calendar days, the pool operation grossed a profit of over $105,000,000 (in 2025 USD).

Other prominent individuals who participated in pool operations that netted immense profits in a relatively short period of time include: William C. Durant, Walter Chrysler, and Charles M. Schwab.