MALICIOUS MANEUVERS
There are plenty of ways to get ahead in business, but few as effective (or illegal) as manipulating the market to create artificial demand and inflate the price of products. Though all companies want consumers to pay as much as possible for their goods, the following brands are ones that went especially far and suffered consequences for manipulating markets for their own gain with deceptive or monopolistic practices.
DE BEERS
The discovery of plentiful diamond mines throughout South Africa in the 19th century should have driven their prices down permanently. Instead, the English-owned De Beers Mining Company acquired virtually all the nation's diamond mines. They then used their monopoly to limit supply and keep prices high through the 20th century, along with the help of an advertising campaign that made diamonds synonymous with love and marriage.
ENRON
Before being outed as one of the biggest scams in U.S. history, Enron was a politically influential Houston-based marketing and financial services firm once ranked as the sixth largest energy company in the world. That is, before a sudden single quarter-loss of $618 million in 2001 sparked an SEC investigation into Enron's transactions. Most of their top executives were tried with fraud for using a practice called mark-to-market accounting that claimed projected profits as actual ones, inflating share values (which low-level employees were forbade from selling) to a peak of $90.75 before they plummeted to $0.26 in December 2001.
ATHENA
In 2009, the SEC took on its first high-frequency trading manipulation case by sanctioning Athena Capital Research. The company's form of financial fraud involved making large stock sales or purchases in the final two seconds before NASDAQ's 4:00 p.m. close to manipulate prices to their benefit. Despite an email paper trail of employees using laughable codenames for the fraud, the SEC fined Athena only $1 million.
TY
In the echelon of now-worthless collectibles, Beanie Babies inspired a peculiar economic bubble in the 1990s that made Ty Inc. the first billion-dollar plush company ever, as even adults paid big bucks for the collectible toys believing their values would skyrocket over time. This was largely thanks to founder Ty Warner's refusal to supply them to retailers in large quantities or for under $5 apiece, and a policy of quickly retiring new Beanie Babies. Today, most original Beanie Babies sell for about 50 cents apiece.
H&M
In 2010, a university student discovered unworn clothing shredded in the dumpster outside a Manhattan location of the international clothing retailer H&M, as well as a nearby Walmart. Rather than donating to charity, both stores were likely destroying unsold merchandise to prevent it from flooding discount channels and undercutting what they could charge in-store. An H&M spokeswoman insisted this was not company policy and it would not happen again.
JP MORGAN CHASE/HSBC
Together, JP Morgan Chase and HSBC controlled so much of the silver market - over 85 percent - that it became easy to manipulate. They came under scrutiny in 2008 for allegedly earning billions through tactics like manufacturing rumors that silver prices would depress, so they could cash in when they did. The suit was dismissed in 2013.
"THE CARTEL"
Four US and UK-based banking giants collectively known as "The Cartel" pled guilty in 2015 to collusion and antitrust violations, which allowed them to manipulate dollar-to-Euro exchange rates from 2007 to 2012. Traders colluded using coded language and instant message chats to influence rates in their favor, and the banks were fined a collective $3 billion by the Department of Justice as a result.
WORLDCOM
In another notorious case of stock manipulation, telecommunications giant WorldCom inflated the company's own value by exaggerating profits in 2001 and recording operating expenses as investments to hide $3.8 billion in costs for simple office supplies. In 2002, an internal audit uncovered the fraud and reported it to the SEC. WorldCom's stock price plummeted from $60 per share to less than 20 cents, and its CFO and CEO were sentenced to prison terms of five and twenty-five years respectively.
STRATTON OAKMONT
Penny stocks are frequently subject to market manipulation by brokerage firms like Stratton Oakmont, a defunct Long Island trading company whose frauds were colorfully depicted in The Wolf of Wall Street. In 1999, the company's chairman and president both pleaded guilty to 10 counts of securities fraud and money laundering, rendering worthless the risky shares they'd sold to the public with promises of quick and easy payoff.
LEBED BIZ
For proof of how easy it is to manipulate the price of penny stocks, look no further than Jonathan Lebed, who was only 15 when the SEC prosecuted him for the practice in 2000. From his bedroom in New Jersey, Lebed made hundreds of thousands posting to online chat rooms encouraging strangers to buy stocks he already owned, driving up their price. In 2001, he and the SEC negotiated an out-of-court settlement by which he paid $285,000 and admitted no wrongdoing.
SKECHERS
Skechers enticed consumers to buy this line of footwear on false pretenses, claiming without proof that the shoes would help wearers lose weight and quoting a chiropractor married to a Skechers marketing executive. The company paid the FTC $40 million to settle charges of false advertising, making consumers who bought the "muscle-toning" shoes eligible for refund.
EVERSOURCE
In October 2017, a paper published by the Environmental Defense Fund alleged that energy companies Avangrid and Eversource had artificially limited pipeline capacity to increase electricity costs for customers throughout New England. The companies reportedly pocketed an extra $3.6 billion through these practices, which also caused scarce pipeline capacity to go unused during the region's "Polar Vortex" in 2013-14. Eversource called the report "a complete fabrication."
DISNEY
The "Disney Vault" refers to Walt Disney Pictures' policy of suspending home video sales for their most beloved films at random, imposing an artificial scarcity of their animated classics that drives up consumer demand. Disney controls their own market by making movies available only on a "limited time" basis, prompting fans to buy for fear their favorite films will be once again locked in the vault.
STANDARD OIL
Once the world's largest oil refinery, Standard Oil went defunct in 1911 when the Supreme Court ruled the company was an illegal monopoly. Founder John D. Rockefeller bought out competitors to consolidate power and undercut refineries that wouldn't sell with tactics like buying up barrels to create shortages, orchestrating price wars between his own subsidiaries, and even limiting trains available for shipments through his relationship with railroad companies.
THE HUNT BROTHERS
Billionaire brothers Herbert and Nelson Hunt launched a scheme to corner the commodities market on silver in 1974. They stockpiled silver and silver futures to control more than two-thirds of the market, causing demand and prices to rise to more than $50 per ounce. The US government eventually intervened by introducing and suspending rules in the commodity market, in 1980 causing silver prices to slide from their high of $48.70 to under $11.
MCDONALD'S
The McRib is an ever-elusive pork sandwich that was first introduced to the McDonald's menu in 1981 and scrapped in 1985. Since then, the sandwich has become famous as a limited-time offering with multiple "farewell tours" and tracking sites devoted to it, inspiring a theory that its return is precipitated by falling pork prices. More likely, however, McDonald's is imposing scarcity to generate publicity and demand for a product not popular enough to remain on the menu full-time.
TULIP BULB CRAZE
Tulips newly imported to the Netherlands from Turkey in the early 17th century became subject to a flurry of speculation causing prices to soar, so at one point people could trade a single tulip for an entire estate. Though the market was believed limitless, bulb buyers depleted supplies, furthering scarcity and demand, until finally prices collapsed as once-proud tulip owners panicked and sold at a loss.
THE PHOEBUS CARTEL
In one famous case of planned obsolescence, a group of major light bulb manufacturers like Philips and General Electric founded the Phoebus cartel in 1924 to carve up their global market into regions with specified manufacturers and production quotas for each. They also engineered bulbs to cost more with shorter life spans, of 1,000 hours rather than 1,500 to 2,000. The anti-competitive cartel was intended to expire in 1955, but dissolved instead due to World War II.
APPLE
Another more recent case of planned obsolescence came to light when Apple admitted to deliberately slowing down older phones through software updates, pushing customers to buy their pricey newer phone models. Though the tech company pledged to be more transparent in the future, they're still being investigated for the practice by the US, Israel, and France.
THE SOUTH SEA COMPANY
With a debt to the British government worth 10 million pounds, the South Sea Company in 1711 purchased a monopoly on all trade with the Spanish colonies of South America. Investors convinced by the poorly-managed company's affluence and projected dominance in international trade paid large sums for re-issued stocks that did not reflect the SSC's actual value. When management sold their stocks, the bubble burst, banks nearly folded, and the government outlawed the issuing of stock certificates until 1825.
LG DISPLAY
LG Display and two other major electronics manufacturers pleaded guilty in 2008 and agreed to pay $585 million in criminal fines for conspiracy to fix the prices of LCD display panels worldwide. LG paid $400 million, the second highest fine ever imposed for price-fixing, for selling panels at artificially-inflated prices from 2001 to 2006.
CD PRICE FIXING
In 2000, an FTC antitrust case revealed the nation's five largest music companies had made illegal marketing agreements starting in 1995 to end a price war, hike up the costs of compact discs, and restrict retailers from offering discounts. The settlement forbade further such marketing agreements but levied no fines against the companies, which then controlled 85 percent of the $15 billion CD market.
SAMSUNG
Samsung was one of five manufacturers participating in another international price-fixing scheme, this one to inflate the price of DRAM, or dynamic random access memory. The conspiracy fixed prices for sales to only certain computer manufacturers, and resulted in more than $646 million in fines, including $300 million for Samsung alone.
CHANEL AND OTHER PERFUME BRANDS
Chanel, Dior, and Yves Saint Laurent were among 13 cosmetics brands fined by France's antitrust authority in 2006 for fixing prices in the country from 1997 to 2000. brands colluded to determine prices and limit discounts at certain retailers like Sephora, and were issued fines up to $17.32 million for LVMH (Louis Vuitton), the world's largest luxury-goods group.
LUFTHANSA AND OTHER AIRLINES
Yet another price-fixing scheme involved 21 primarily international airlines, who from 2000 to 2006, sought to protect their profit margins post-9/11 with artificially-inflated passenger and cargo fuel surcharges. Lufthansa and Virgin Atlantic came forward in late 2005 to admit their involvement, prompting a Justice Department investigation leading to four prison-sentences for executives and more than $1.7 billion in fines.
CALIFORNIA ELECTRICITY CRISIS
One of the major factors that caused California's electricity shortage and rolling blackouts from 2000 to 2001 was market manipulation on the part of major players in the state energy market, like Enron. Traders took advantage of the state's financial incentives and partially-deregulated market with codenamed manipulation techniques that laundered electricity from out-of-state and "overscheduled" congested power lines to create artificial shortages.
GENERIC DRUG COMPANIES
Last October, the attorney generals of 45 states and the District of Columbia accused 18 prominent generic drug companies of fixing prices for at least 15 medicines, while also dividing customers and portioning up shares of the market in secret, contributing to soaring drug prices. Two former executives for Emcure, one of the companies accused, already pleaded guilty in January to price-fixing and dividing the market for doxycycline and the diabetes drug glyburide.
