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Five thousand shares of the brewery for the price of a beer?

Boston Beer Co. stock went down faster than a summer ale — briefly

By Beth Healy
Globe Staff / May 8, 2010

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Talk about giving someone reason to reach for a cold beer.

Boston Beer Co. executives on Thursday watched their company’s stock briefly dive to a penny, after starting the day at almost $60 a share, during the stock market’s 1,000-point aberration. The plunge into apparent oblivion lasted only a few jaw-dropping seconds, at about 2:48 p.m., before the stock snapped back. Moments later, a New York Stock Exchange official was on the phone to the beer maker’s financial chief, Bill Urich, telling him not to worry — some erroneous trades had sent the market into free fall.

“We saw it, but frankly, we didn’t panic,’’ said Boston Beer spokeswoman Michelle Sullivan. “We knew that this was not about Boston Beer and Boston Beer stock. We knew there was something larger happening in the market.’’

The Jamaica Plain-based brewer of Samuel Adams beer was one of 296 stocks, indexes, funds, and other securities issues that were mysteriously caught up in the fleeting but historic jolt. No one at the company or at the major stock exchanges is sure why Boston Beer became part of the sell-off frenzy, which is being investigated by regulators. Top executives at Boston Beer were unavailable for comment, including founder and chairman, Jim Koch. He was uncharacteristically out of touch, on a boat excursion, the company said.

According to Boston Beer, as of yesterday Koch may not have known that for a few moments his $270 million stake in the company he started 25 years ago virtually vanished in the stock slide. Boston Beer closed at $55.05 a share yesterday, down 1.4 percent.

“It was so fast your eyeball couldn’t see it,’’ said Brett Hammond, chief investment strategist at TIAA-CREF, the New York-based retirement giant for colleges and nonprofits, which owned nearly 1 percent of Boston Beer at the end of 2009, the latest public filing. He had only a hunch on how the company and a handful of other firms were ensnared in the downdraft: “You may have traders that just for the heck of it put out buy orders at 1 cent or 5 cents, in case they got lucky,’’ Hammond said.

The Nasdaq stock market said it canceled 12,466 trades made at false prices between 2:40 and 3 p.m., specifically those that were 60 percent above or below the price of the shares before the market aberration. Those trades accounted for nearly 1.9 million shares.

In a letter e-mailed to New York Stock Exchange customers yesterday afternoon, chief executive Duncan Niederauer said the exchange had “advocated for a lower cancellation threshold,’’ below the 60 percent, so that more trades would have been deemed erroneous and canceled. But it ultimately backed down, “given the need for industry-wide cooperation on the cancellation of trades.’’ A copy of the letter was obtained by the Globe.

Many of the securities were arcane indexes, of both foreign and domestic stocks, as well as some closed-end mutual funds that trade on exchanges, including several run by Boston-based Eaton Vance Corp.

Robyn Tice, a spokeswoman for Eaton Vance, said the events came as a complete surprise, and that the company is eager to hear an explanation. “We share our closed-end fund investors’ concerns, and are following with great interest the research that’s being done by the exchanges into what happened,’’ she said.

Specialists in trading procedures suspect a “fat finger’’ error started the chaos — meaning a trade was incorrectly keyed in by a broker or trader. That one mistake could have set in motion a landslide of activity.

For example, trading in consumer-products giant Procter & Gamble Co. slowed for 90 seconds on the New York Stock Exchange, signaling to investors that there was a problem with the normally stable stock. Sellers then went to alternative, electronic exchanges to try to sell their shares. Finding fewer investors dealing in the stock on those markets, they encountered wildly varying prices, adding to the confusion. Because P&G is part of the 30-stock Dow Jones industrial average, the overall value of the index was affected. Large investors that use complex trading algorithms, including Wall Street firms and some hedge funds, also had automatic sell orders triggered.

The Dow recouped much of its loss late in the trading day Thursday, but still closed down 348 points, because of worries about the debt crisis in Europe.

Regulators are looking into whether the anomalies started in stocks or in index futures, securities used to bet on the direction of markets. Late yesterday, the Securities and Exchange Commission and the Commodity Futures Trading Commission said they were reviewing trading and market data from the exchanges, self-regulatory organizations, and investors and examining whether different rules across different markets had contributed to the volatility.

“As we determine the cause and contributing factors, we will make our findings and any recommendations public,’’ the statement said.

“Thursday’s unusual trading activity included extreme volatility for a number of individual securities. This is inconsistent with the effective functioning of our capital markets and we will make whatever structural or other changes are needed.’’

Beth Healy can be reached at bhealy@globe.com.