BROWSE

Daisy Chain

What is 'Daisy Chain'

Daisy chain is a term used to describe a group of unscrupulous investors who, when practicing a kind of fictitious trading or wash selling, artificially inflate the price of a security they own so it can be sold at a profit. Small-cap stocks with low liquidity are highly susceptible to daisy chains because price manipulation is typically harder for stocks with high trading volumes.

Explaining 'Daisy Chain'

Daisy chain is a financial scam conducted by a group of investors in the public equities market. These investors team up to increase the value of an equity security, and then flip their ownership of that equity to unsuspecting investors who are chasing an upward trend.

How a Daisy Chain Scam Works

A group of investors team up to create a daisy chain by purchasing long positions in a low-priced and thinly traded small-cap stock. The group of investors, who normally have significant influence on the public markets, publicly disseminate faulty information that leads other investors to believe the stock is a good investment. Investors take the information presented and use it in an investment decision to purchase shares of the small-cap stock. This increases its trading volume and demand above normal levels and increases its price.

Punishments for Conducting a Daisy Chain

Daisy chains have become more prevalent in recent years due to the rise of marketing on the Internet. The Securities and Exchange Commission (SEC) is therefore tasked with the increased enforcement of punishment for any daisy chains. All daisy chain scams are considered an illegal practice in the public markets, and anyone found guilty of participation can face heavy fines and penalties.


Further Reading


“Control frauds” as financial super-predators: How “pathogens” make financial markets inefficient
www.sciencedirect.com [PDF]
… of the top tier firm and the claims by neo-classical law and economics scholars that … Daisy chains require more people to be engaged in the fraud, which increases the danger that one of the … a felon, Herman K. Beebe, who was at the center of a very large “daisy chain” of control …

The savings and loan debacle, financial crime, and the stateThe savings and loan debacle, financial crime, and the state
www.annualreviews.org [PDF]
… of the top tier firm and the claims by neo-classical law and economics scholars that … Daisy chains require more people to be engaged in the fraud, which increases the danger that one of the … a felon, Herman K. Beebe, who was at the center of a very large “daisy chain” of control …

Seven Triggers of the US Financial CrisisSeven Triggers of the US Financial Crisis
www.jstor.org [PDF]
… of the top tier firm and the claims by neo-classical law and economics scholars that … Daisy chains require more people to be engaged in the fraud, which increases the danger that one of the … a felon, Herman K. Beebe, who was at the center of a very large “daisy chain” of control …

Partnership building as an approach to addressing corporate social responsibility in the agriculture sector in MalawiPartnership building as an approach to addressing corporate social responsibility in the agriculture sector in Malawi
www.tandfonline.com [PDF]
… of the top tier firm and the claims by neo-classical law and economics scholars that … Daisy chains require more people to be engaged in the fraud, which increases the danger that one of the … a felon, Herman K. Beebe, who was at the center of a very large “daisy chain” of control …

Personal Ethics & the US Financial Collapse of 2007-08Personal Ethics & the US Financial Collapse of 2007-08
papers.ssrn.com [PDF]
… of the top tier firm and the claims by neo-classical law and economics scholars that … Daisy chains require more people to be engaged in the fraud, which increases the danger that one of the … a felon, Herman K. Beebe, who was at the center of a very large “daisy chain” of control …

Validating the veracity: narrative voice and the construction of authentic histories in joan o'neill's daisy Validating the veracity: narrative voice and the construction of authentic histories in joan o'neill's daisy
www.tandfonline.com [PDF]
… of the top tier firm and the claims by neo-classical law and economics scholars that … Daisy chains require more people to be engaged in the fraud, which increases the danger that one of the … a felon, Herman K. Beebe, who was at the center of a very large “daisy chain” of control …

Explaining settlement failsExplaining settlement fails
papers.ssrn.com [PDF]
… of the top tier firm and the claims by neo-classical law and economics scholars that … Daisy chains require more people to be engaged in the fraud, which increases the danger that one of the … a felon, Herman K. Beebe, who was at the center of a very large “daisy chain” of control …



Q&A About Daisy Chain


Where does this happen most often?

This happens most often on Internet marketing sites where there is little oversight from regulatory agencies like the SEC (Securities Exchange Commission).

What is a daisy chain?

A daisy chain is a group of unscrupulous investors who artificially inflate the price of a security they own so it can be sold at a profit.

How do you manipulate prices for small caps?

You manipulate prices by creating false information about an investment opportunity and then selling your position when other investors buy into it. This increases demand for the stock above normal levels and increases its price.

Why should we care about these scams?

We should care because these scams hurt real businesses and their shareholders while lining the pockets of those perpetrating them. These schemes also hurt our economy by wasting investor money that could otherwise be used to fund new business ventures or create jobs."

What does "small cap" mean?

Small cap refers to stocks that have low market capitalization, which means they have less than $250 million in value.

Who are the people involved in the scam?

The people involved in this scam include small-cap stocks with low liquidity and unsuspecting investors.