‘Pump and Dump’ through Media Tone: The Role of Cross-Blockholders in Corporate Litigation

Abstract

Institutional investors often own equity blocks of both media and industrial firms. When industrial firms become defendants of corporate litigation, institutions influence media companies that they simultaneously blockhold to provide favorable coverage of the defendants. Doing so boosts investor sentiment, mitigates negative price impact, and allows institutions extra time to exit positions in troubled defendants – a de facto “pump-and-dump” strategy. “Dumped” shares are largely absorbed by retail investors. Media boost sentiment by either playing down legal ramifications in question or playing up other positive matters. The strategy is especially prominent among activists, and likely involves institutions’ deliberate and active participation.

Keywords: pump and dump, media tone, market sentiment, corporate litigation, institutional blockholders