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Engadget-Apple Affair Fallout

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Calls have started to go out for the Securities and Exchange Commission to investigate yesterday’s Engadget-Apple Affair. Shares of Apple were down nearly 3% yesterday—taking something like $4 billion off the companies capitalization—after the tech blog Engadget reported product delays for the iPhone and a new Mac operating system. The blog later had to retract the story, calling it a “false alarm,” after Apple issued a definitive statement denying the delay.
“The SEC should definitely be looking into this,” a former employee of the securities regulator told DealBreaker. “There are all sorts of reasons someone might plant this story, and it looks like it could be market manipulation.”
The former SEC staffer indicated that there are a number of ways to profit by causing a temporary drop in a company’s stock. The simplest would be to buy the stock on the dip and sell it when it recovered. A more complex reason for engineering a dip would be to cover a short position in the stock, or to cover a call. May options in Apple are due to expire on Friday, raising the possibility that the panic was intentionally set-off to game the options market.
Trading volume in Apple stock was high during the brief period when the story seems to have set off a panic. At least one trader dumped ten to fifteen million worth of the stock within fifteen minutes after the phony story was posted, according to commenters at Ars Technica (via Business 2.0). Visitors to the Yahoo message board say they have asked the SEC to investigate.
Not everyone is confident that the damage to Apple is done.
“Watching the price drop like that based on one blog story might indicate a weakness in the stock,” one trader told DealBreaker. “What if it had been true? What if there’s a fire in a factory that slows production? Apple investors seem a bit prone to panic, which would make me nervous if I were long this stock.”
At AOL’s BloggingStocks, Georges Yared voices a similar concern. “One thing is for sure. If there were a delay in the iPhone's release date, the "expectations" of earnings beats and earnings raises would certainly get pushed out a quarter or two, so the urgency to be involved with the stock would lessen. Without the urgency factor and the "do I have a full position in Apple?" factor, the stock could lose a bit of its momentum and could be stuck in a trading range until definitive details and schedules are known,” Yared writes.