What he does not consider is the fact that he is dealing with a fictitious market, where the seller simply makes up his mind how much he will advance the stock in question and then, when the time comes, marks it up and makes the announcement of the "sharp advance." This trick is turned not only for the purpose of getting a larger price per share, but mainly to tickle the cupidity of hesitating investors and making sales which otherwise could not have been made.
In order to understand how these companies operate, the actual experience of one victim will serve to explain the whole system.
A country manufacturer, rated at $50,000, read an advertisement in a financial journal about as follows:
"Capital Supplied—We have the means of furnishing any amount of capital for any meritorious industrial proposition. Address Lock Box XX, Chicago."
The manufacturer wrote he wanted to raise $100,000 to increase his business, and offered to put in all his effects, stock and good will. He received a letter asking him to come to Chicago and visit the firm, which, for convenience, shall be described as "Cold Cash & Co." He did so. Cash received him in an elegant office with open arms. The manufacturer there re-stated his necessities. The affable broker informed him his proposition was a fine one, and said he could have the desired $100,000 within thirty days.
"What would be the broker's fee?" he inquired. Only 5 per cent when $100,000 was in the hands of the manufacturer. Certainly an alluring prospect. But how was the money to be raised? The manufacturer was to incorporate his business for $200,000, and the broker would sell half of its capital stock at par.
As the delighted "sucker" was about to leave the broker's office the latter, in the most off-hand manner, said: "Oh, by the way, Mr. Manufacturer, what arrangements have you made to guarantee your capital stock?" "Guarantee it? I don't understand you," replied the victim.
"Bless you!" said the broker, "modern methods demand that all stock be guaranteed—quite the new order of things. We couldn't sell a share of stock nowadays unless it was guaranteed."
"Explain!"