The Times/Kingsley Napley Student Advocacy Competition 2017 launched on 18 May 2017. The title this year is:

'Do we need new laws to combat fake news?'

In part one of this blog we established that fake news can have serious direct and indirect economic effects, genuinely impacting the value of shares with the potential to destabilise public markets. In part two of this blog, we look at more specific examples of how fabricated information has affected companies and the wider economy, and we seek to address the following questions:

  • Can fake news affect corporate reputation?
  • Can fake news impact a company’s value?

Great Stock Exchange Fraud 1814

The manipulation of stock prices with false information has a long and dastardly history. In a fascinating tale of greed, deceit and public humiliation, fake news was the first spark in the Great Stock Exchange Fraud 1814.

On 21 February 1814 Britain was engaged in a bloody conflict with France, which was under the leadership of Napoleon Bonaparte. Just after midnight, a striking figure could be seen in the dim light walking through the streets of Dover. He reached the Ship Inn Hotel, where he announced to the owner that he was “Colonel du Bourg, aide-de-camp to Lord Cathcart”; he had just arrived from Calais and bore important intelligence from Paris - Bonaparte had been killed in battle and the French had been defeated.

Reports of Napoleon’s death quickly spread through London and by the time the London Stock Exchange opened, the price of government bonds had soared. But in the midst of the spreading rumours, someone at the Exchange noticed £1.1m in government-based stocks was being quietly sold. The entire affair was a deliberate hoax. An investigation revealed that du Bourg was not a colonel, but was really a fraudster called Charles Random de Berenger. The government confirmed that the news was a fabrication and the affected stocks' prices immediately sank to their previous levels. De Berenger was convicted and sentenced to twelve months imprisonment.

Modern day examples

On 25 August 2000, a hoax press release was sent out claiming to be sent from Emulex Corporation, that the company's CEO was stepping down, that previously stated quarterly earnings were being revised downward, and that the company was under investigation by the U.S. Securities and Exchange Commission (SEC). The following morning Emulex' stock price dropped by over 60%, losing $2.2b in market capitalisation.

In 2013, hackers sent a fake tweet from the Associated Press’ Twitter account stating that Barack Obama had been injured in an explosion. Algorithms failed to recognise this tweet was fake and $130 billion in stock value was wiped out almost instantly. Although stock prices recovered shortly thereafter, this shows how the algorithms used in high-frequency trading rely on social media and the news to make decisions.

Acting on information faster than the rest of the pack is key to making a profit on the stock market. Using automated trading platforms, traders are instantly able to collate and analyse information, and make trades. Although these computer algorithms attempt to weed out unreliable sources, it is of course not a perfect system; just like its human counterparts, artificial intelligence (AI) still falls victim to fake news stories and can be easily duped.

Financial markets have been dealing with hoaxes, frauds and fake news since the birth of stock exchanges. The ease and exponential rate at which misinformation can spread over the internet means that investors and traders face some very interesting times ahead.

To uncover more about the economic damage fabricated news stories can cause, we’ll briefly look at two examples – PepsiCo and Lindingo Holdings LLC.


In November 2016, PepsiCo suffered the single most damaging incident to its brand as a direct result of the publication of fake news stories regarding the company’s CEO.

A number of Conservative news websites mis-quoted CEO Indra Nooyi as saying that Donald Trump supporters should "take their business elsewhere." But Nooyi had never made the statement. To the contrary, she even congratulated Donald Trump on his victory. However, the President-elect's supporters and many websites publishing the fake quote encouraged readers to stop buying Pepsi's products. People even called for a boycott on brands PepsiCo previously used to own, such as Pizza Hut, Taco Bell and KFC.

The damage to the company’s reputation was felt instantly. During the fourth quarter of 2016, PepsiCo’s brand sentiment score indicated that the company was generally perceived positively in the market. Immediately after the publication of the story, the sentiment score fell 35% below the average brand score.

Damage to the company’s value was just as immediate. Prior to the fake quote being published, PepsiCo’s share price averaged around $106.58. On the day the article was circulated, the share price fell significantly by 3.75%. As it was shared on social media over the following weekend, the share price further declined and over the course of November it had decreased by 5.21%.

Even though the quote was quickly recognised as false, PepsiCo’s share price still trailed its previous average three weeks later.

Lidingo Holdings LLC

On 12 April 2017, the SEC filed enforcement actions against Lidingo Holdings LLC for alleged stock promotion schemes that left investors with the impression they were reading independent, unbiased analyses on investing websites while Lidingo writers were being secretly compensated for touting company stocks.

Lidingo is owned and operated by Kamilla Bjorlin, an actress who performs under the stage name of Milla Bjorn. She appeared in Misconduct, a 2016 movie starring Al Pacino and Anthony Hopkins. Her company allegedly orchestrated the publication of over four hundred fake articles about eleven publicly traded companies, and received at least $1m in cash and equity for its services. In one case, the company helped pump up the stock price of Galena Biopharma, a small pharmaceutical company, by 925% by publishing fabricated articles about the company.

The trick to successful investment is distinguishing useful information from gossip, rumours and pure speculation. Fake news stories have always been used to affect stock markets, but the ease with which fake news can now be spread on a global level, together with the increased use of in AI-controlled trading software, means that fabricated stories will no doubt have an even greater effect on companies and the wider economy in times to come. Thorough analysis and due diligence is more important than ever.

With authorities such as SEC and FCA investigating fraudulent schemes, and current laws making provision for criminal liability, the economy already has a degree of protection against the effects of fake news. The protections here are seemingly more prevalent and effective than in the political and social spheres.