Officials of Manufacturers National Bank were a little curious one summer day in 1985, when they saw a television news crew interviewing a young man outside their Detroit headquarters. Curiosity turned to chagrin when they learned that the WKBD-TV reporter was talking to 18-year-old Mark D. Anderson about his just-announced plan to take over the bank’s holding company, the third-largest in the state with about $6 billion in assets.

For five days, as the bank officials tried to learn more about the young would-be raider, the bank’s stock edged higher and trading in it churned along at three times the usual volume. By the sixth day, the Securities and Exchange Commission had decided the takeover offer was bogus, and it got a court injunction to halt the bid.

Second ‘Offer’ Hinted

The story does not end there. Two weeks later, Manufacturers National got a call from a man who identified himself as an executive of “Middle East Associates.” The man said he wanted to talk about buying the company.

Michael Maurer, a bank vice president, advised him of the stiff penalties for false takeover offers and the caller hung up, never to resurface. Yet, Maurer said, “it makes you wonder how many people out there are thinking about something like that.”

It seems a lot of people have thought about trying to manipulate the price of some stock by making a phony announcement. In the last three years there have been three major hoaxes, and unsuccessful attempts to manipulate stocks via bogus reports occur every few months.

The most recent major case took place last July 28, when a manipulator ignited the price of General Cinema Corp. shares by mailing the SEC a phony document indicating that a fictitious London investor had been accumulating the stock.

A Costly Vulnerability

These incidents, which can inflict millions of dollars in losses on investors, demonstrate the vulnerability of even the most heavily traded stocks. Indeed, while classic stock manipulations are the elaborate schemes of market insiders, these cases show how even an amateur can unhinge the market in a matter of minutes.

Such episodes also underscore the broader problem that market regulators face because of the daily traffic in bogus reports and rumors, which some experts say has become more widespread as the continuing boom in mergers has stimulated speculation in take-over-related stocks.

The stock market is particularly vulnerable to false reports about real or potential corporate takeovers.

“Even two or three years ago, the market wasn’t this sensitive to news about changes of corporate control,” Lawrence Iason, the SEC’s regional administrator in New York, said. Increased takeover speculation in stocks has brought increased volatility to the market, he said, and “more vulnerability to phony information.”

The market’s explosive reaction even to fabricated takeover announcements is in part a result of the habits of takeover-stock speculators, whose trading on some days accounts for one-sixth of the market volume. They search for any sign that a stock is caught up in the takeover whirl, often relying on special information services that tell them instantaneously of regulatory disclosures, takeover rumors, even of trips taken and conversations held between corporate executives who might be involved in deals.

When they smell a takeover, the speculators jump to buy–often without verifying the report. Spending time to check out rumors may mean losing profits as the stock price rises, they figure.

“A lot of people just want to get ahead of the curve, and sometimes that means acting on the flimsiest sort of talk,” said Peter J. Romatowski, a securities lawyer in Washington and former federal prosecutor.

The market’s vulnerability was evident in the Manufacturers National episode. The holding company’s stock was trading at $64 a share the day before Anderson announced, in a 2-inch-square newspaper ad, that he wanted to buy 70% of the company’s stock at $66 a share.

Information Scarce

For several days, it was difficult to find out anything about Anderson or Eastern Exchange Group, which he named as his company. Even with the absence of hard information, the stock had risen 14%, to $72.75 a share, within a week of the advertisement. The run-up increased the total value of the company’s stock by more than $200 million.

The stock stayed far above its usual trading price long after many who were close to the drama had grown skeptical of Anderson’s offer. That suggests that many of the buyers–many who got burned by the hoax–were small investors far from the flow of market news.

Despite news reports that the offer was real, bank officials had their suspicions from the start. Before his ad appeared, Anderson called the company’s chief financial officer to ask, among other things, whether the bank would be interested in helping to finance its own takeover.

The bankers could not find much to suggest that there was money behind Eastern Exchange or Valdosta Ltd., a firm Anderson said was associated with him in the deal. “The joke around here was that Valdosta was the planet these people were from,” Maurer recalled.

When the facts were assembled, Anderson turned out to be a young man with a great interest in high finance and assets of less than $10,000. “He seemed to just want to make the stock take off, and it did,” said one observer who was knowledgeable about the investigation.

‘Offer’ Talk Cut Off

The SEC did not prosecute Anderson, but it got him to sign an agreement barring him from further public discussion of the offer.

The Manufacturers National case could hardly be more different from a classic stock manipulation.

Such cases usually involve shadowy operators who try to lure investors into buying the stock of a small company by creating an appearance of heavy demand for it. Often, the manipulator will buy the rights to a defunct company, give it a high-tech name for added investor appeal, and begin phony buying and selling through accounts across the country to give an impression of widespread demand.

Such phony trading is often timed for the beginning or end of a day, to generate trading activity that investors are most likely to notice. Once enough outsiders have bought the stock to lift its value by several dollars a share, the manipulators often sell their holdings–leaving the stock to collapse.

One of the most sophisticated manipulations came to light with the prosecution of Edward Gilbert, a New Yorker convicted in 1980 of tampering with the stock of a legitimate company, Conrac Corp. Using phony sales between some 90 accounts in this country and overseas, Gilbert stoked trading volume to 40,000 shares a day from a previous 10,000 shares daily, securities lawyer Romatowski said.

Trading Looked Real

Part of Gilbert’s secret was his knack for coordinating the phony trading so it would appear legitimate to investors who followed the stock market tape, Romatowski said.

But while Gilbert’s scheme gestated over months, the counterfeit report that jolted General Cinema’s stock was effective in minutes.

That report said a London investor named Kile Johnasen had purchased 6.1% of the stock of General Cinema, a theater, bottling and retailing company based in Chestnut Hill, Mass. The document, known as a Schedule 13D, was mailed to the SEC’s document room in a plain envelope with a New Jersey postmark.

Such disclosures often come before a takeover offer. As word of the filing reached investors, General Cinema jumped to $23.25 a share from $20.875. After General Cinema officials challenged the authenticity of the filing, the stock fell back abruptly and closed at $21.75.

An investigation found there was no Kile Johnasen and that the London address given was also non-existent.

Notice Raised Suspicion

General Cinema officials were immediately suspicious, in part because, several months earlier, they had received a letter from a Texas insurance company notifying them that the insurer had acquired a large block of General Cinema stock. When they checked, they discovered that the letter was a phony one written on the insurance company’s stationery.

While questions about that filing quickly brought the stock price back to earth, the episode again demonstrates the heedless haste of investors.

If investors had done a bit more checking, they might not have bought the stock at all, since a takeover of General Cinema could not be consummated without gaining control of its Class B shares, nearly all of which are held by the family of the chairman, Richard Smith.

The SEC would not comment on the progress of the General Cinema case, but one person familiar with the investigation said that, six weeks after the hoax, authorities are not close to bringing charges.