Incestuous Share Dealing

What do the Arr Matey Pirate Attire Co. and Happy Picnic Reusable Plates, Inc. have in common? Not much, other than the fact that they're both publicly-traded organizations who’d love to see their company stock perform a little better.

One day, the CEOs of each company get together and come up with a brilliant idea: Arr Matey will start buying and selling Happy Picnic stock, Happy Picnic will start buying and selling Arr Matey stock, and both companies will reap the resulting financial rewards that come with increased trade volume and (hopefully) higher stock prices.

This is what’s known as “incestuous share dealing,” and it might not be what most of us would consider ethical behavior. (Hence the icky name.) But it also might not be considered illegal behavior, depending on the details of the deals. After all, it’s not necessarily against the law for one firm to invest in another. It’s the quid-pro-quo-ness of it all that raises some eyebrows. If two or more companies are colluding to improve their own financial situations, is that fair to all the other investors out there? Or are they being misled by artificially manipulated trade volume and stock prices?

Sounds like it’s up to us as educated investors to figure out whether a company’s stock performance is merited, or whether it just looks good as a result of some shady, incestuous dealings.