High Close

Al B. D’Vious holds a lot of shares in Musical Fruit, Inc., a company that makes musical instruments out of perishables. Al is not at all pleased with the way that stock has performed so far today. He decides to take matters into his own hands. Minutes before the closing bell sounds, he calls up several of his broker buddies and places a bunch of simultaneous buy and sell orders for Musical Fruit stock. This increase in trading volume artificially inflates the price and results in what’s known as a “high close": a closing stock price that is higher than it should be as a result of shareholder manipulation.

Mr. D’Vious is thrilled. Since most reports and news outlets tend to focus on a stock’s closing price, and not its price fluctuations throughout the day, the high close he engineered makes it look like Musical Fruit, Inc. is doing a lot better than it actually is. This good press will hopefully lead others to invest, which means those shares of his will become even more valuable. And all he had to do was artificially inflate the closing price.

If this sounds like it should be illegal, we’ve got good news: it is. But that doesn’t mean it doesn’t happen, and it can be really hard to detect and prosecute. That’s why those in the know say we shouldn’t just look at a stock’s closing price to figure out if it’s a good investment or not.