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Let's say a company thinks their stock is undervalued. So they start a share buyback program. Before they actually start buying, they tell the world that the company is in trouble and going to lose revenue etc, so the share price drops, and they get to buy back more shares.

Is this legal? Presumably one cannot fiddle with the financial report because it's audited, but it might be possible to give weaker guidance.

If it is legal, has it actually been done in the past?

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  • Usually, the goal of share buyback is to distribute earnings to shareholders without using dividends, but instead indirectly via rising value per share due to reducing the number of shares. Why? Tax reasons, or bad management incentives. Reducing the value of the company would go against this goal of increasing the value per share. Shareholders would be unhappy. A maneuver as you describe would only make sense if someone wants to cheaply take over the company, but that would be super illegal. – amon Aug 20 '20 at 8:43
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Remember the market isn't just a statistic on a computer. The market is people.

Yes, that would violate securities laws in a big way. That is exactly why companies watch their financial statements very carefully.

All the people who sold in that time would experience a financial loss. Whoever published false data to induce that loss would be liable to them for their losses.

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  • Does this also include guidance? More pessimistic guidance wouldn't be false data, since it's not actually data. – Allure Aug 20 '20 at 5:18
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    @Allure If the guidance was knowingly (by those giving it) more pessimistic than the "real situation", then yes, it would likely be illegal. The key would be whether you could prove they knew such guidance was a distortion (as opposed to them claiming it was an honest mistake). – TripeHound Aug 20 '20 at 9:15

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