Saturday, June 23, 2007

CNBC Million Dollar Portfolio Challenge - Alleged Cheating

Recently, I participated in a stock picking challenge sponsored by CNBC. While the prize money was part of the reason, I did it primarily for the fun of being in the contest.

It has recently been revealed that a number of the finalists depended on more than skill and luck to achieve their returns. A Business Week article shared that software for the contest had glitch which allowed participants to place orders after the 4PM market close. As a result, a contestant could find out about earnings news after the market close before placing his order. Thus, stocks with good earnings results could be purchased, resulting is a big gain the following day.

Based on Business Week's analysis of the results, the top five finalists are likely to be disqualified, leaving the sixth finalist, who has never invested in stocks, to take the million dollar prize. Her investment strategy, which took one hour per day, was to identify stocks with upcoming earnings announcement and purchase them prior to the day of the announcement. However, unlike some other finalists, she made all her purchases during market hours.

It will be a sad commentary on our society if it turns out the five or more finalists are disqualified for breaking the rules (i.e. no after hours trading) of the contest. It is also disappointing, but not surprising, to me that money (in this case, lots of money) will make some people "break the rules" in order to "win." On the other hand, I am glad that the discrepancies were identified and that the eventual winner will have been validated to have played according to the rules.

For more on Reflections and Musings, check back every Saturday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC


S. B. said...

Interestingly enough, this is basically the same fraud that was perpetrated by a number of mutual funds and large clients a couple of years back. On days when a number of positive earnings surprises occurred shortly after 4PM, the clients placed orders at 4:15PM or so, and were given the closing NAV at 4PM -- basically to the detriment of all the existing shareholders by dilution at an artificially lower price.

Super Saver said...


Thanks for your comment.

Eventually, they were also caught. And the list can be expanded to issues such as stock options back dating. I wonder how many of these types of activities are not uncovered. Probabaly a lot more than we'd like to believe.