Suspicious trading in MoneyGram: Markets really rigged?
WASHINGTON, April 30, 2014 − Markets are adhering to their usual pattern this week, including an up Tuesday and, thus far at least, a wobbly Wednesday. Looking at trade numbers underneath the surface, it’s clear that professional traders have been relentlessly lightening up on positions since at least eight weeks ago.
As for the Maven, he remains cautious and is also feeling a bit gored by additional suspicious trading in some stocks, something we mentioned in today’s companion article about the Pepco-Exelon transaction. But another of our recent concerns is the behavior of MoneyGram International (MGI), an international payment services company that operates much like its better-known competitor, Western Union (WU).
The Maven got in on an attractive secondary offering of MGI’s shares in late March at a price set at $16.50 per share, significantly below its previous closing price. The stock wobbled a bit after the offering, but then, based on excellent fundamentals, began its march upward again.
The problem with this rosy scenario unfolded just over a week ago when Wal-Mart, MGI’s biggest customer, announced it was about to commence a competing, in-house money transfer service of its own. When the news hit the street, MGI was hammered mercilessly, plunging some 25 percent before leveling off and stabilizing a bit.
Again, as with EXC-POM, one must ask: what did MGI insiders know and when did they know it? Contrary to popular belief, most B2B transactions are on the up and up. You don’t hit a customer, partner, or even a friendly competitor with major adverse news without at least a bit of a heads-up. This allows that individuals or entities to prepare in advance for major changes rather than wake up one morning and find themselves gobsmacked and unprepared for the consequences.
It’s a virtual certainty that MGI management knew of Wal-Mart’s (WMT’s) intentions fairly well in advance of MGI’s secondary offering. So why didn’t that possibility appear in the offering prospectus? Or why didn’t it appear more explicitly, above and beyond the standard boilerplate warnings that routinely appear in such documents?
The ambulance chasers have already launched at least one investigation into this question, and others are likely to follow. And the timing of the whole transaction is certainly suspicious.
It’s particularly galling to the Maven because, as long-time readers know, the Maven’s discount brokerage firm, for various understandable reasons, generally requires purchasers of IPOs and secondary issues to hold these issues for 30 days after the transaction takes place. As such, neither the Maven nor anyone else holding MGI shares purchased on the secondary, could get rid of them until after April 27, after the damage had been done, of course.
The company’s finances still looked reasonably good even a couple of days ago, leading at least one Wells Fargo analyst to call the stock an outright buy at its current level.
But yesterday, even as the company reported excellent earnings for its first quarter, it also issued dire warnings about the potential impact of the Wal-Mart move. This promptly caused another wave of heavy selling, which persists this morning.
Much has been written in the last month questioning whether American stock markets are rigged. This type of stock action and other trading like it is increasingly turning a question like this into something of a joke. At this point, based on transactions like the MGI secondary and many other seemingly normal stock market transactions, the Maven can only conclude that markets are indeed rigged, and particularly against smaller traders–the type of people the Maven’s columns are designed to help.
In any event, the current trading in MGI raises yet another caution flag when it comes to the individual investor attempting to at least stay reasonably close to the performance stats of America’s politicos and oligarchs. We’ll be putting even more rigorous due diligence efforts into our future picks and pans here.
And with regard to those picks and pans, the market still remains highly treacherous and likely overpriced as we head into “sell in May” territory. We’ve begun to reduce positions little by little, although we intend to hold income-oriented positions like utilities, MLPs, and a few select REITs into the storm to avoid zero returns during the summer, even at risk of temporary capital losses.
After all, there’s no point in allowing ourselves to be stampeded into nearly zero-return CDs and Treasury bills like most of America’s Boomers who are limping into retirement age with far less than they’d hoped to accumulate.
We still keep a bit of underperforming gold in our portfolios via the Swiss bullion-owning ETF, SGOL, mainly because it’s the Swiss and because our brokerage firm lets us trade it without a commission. But gold right now is insurance against Russia’s inevitable takeover of the Ukraine. Otherwise, it’s likely on its way down.
Have a good one. We’re still trying to find good stocks and ETFs to acquire mainly for income after “sell in May” festivities bottom out sometime in the summer. But let’s pare back positions right now and get ready for a bargain basement sale on stocks later in the summer.