Types of SEC Whistleblower Cases: Securities Manipulation or Stock Market Manipulation
Some of the most common types of SEC whistleblower cases are those that involve Securities Manipulation or Stock Market Manipulation.
As technology continues to play a bigger and bigger role in the securities markets, transactions of larger share volumes are traded on exchanges and electronic platforms in milliseconds. This speed and volume provide a wide-spread opportunity for manipulation. With the increasing lack of human involvement in the execution of trades, it can be difficult for the SEC to spot a securities or stock market manipulation in advance unless someone tells it where to look.
Therefore, SEC whistleblowers can be extremely valuable in helping the SEC to get SEC whistleblower cases started and put a stop to securities and stock market manipulations early on.
What is Securities Manipulation or Stock Market Manipulation?
There is no universally accepted definition of securities or stock market manipulation. It is one of those strange things that everyone knows when they see it, but somehow no one has been able to provide a satisfactory definition of it.
Compounding this problem is that there are certain types of conduct that are perfectly fine if someone does them honestly and legally. But if someone else does that same thing through fraudulent means, or with the intent to deceive others as to what is really going on, then that same conduct could be “manipulative” and therefore illegal.
There are also lots of ways in which someone can manipulate a stock or a market. This is another reason why it is so hard to define “manipulation” in advance.
One of the common ways in which some people have tried to define “manipulation” in the securities context is that it involves the act of intentionally inflating or deflating a stock price or securities market through false pretenses.
Perhaps a simpler way to think about it is that “manipulation” means “cheating”.
A Few Examples of Securities or Stock Market Manipulation Schemes
A manipulation can be perpetrated by making false statements — lying — to the public. But a “manipulation” does not always require false statements or false words. It can be accomplished entirely through actions that illegally deceive the public, where not a word is ever spoken to the public.
For example, pretend that a corporate executive intentionally lies and puts out false press releases telling the public that his or her company is doing fantastic when it has really been losing money, for the purpose of getting more people to buy the company’s stock and drive the stock price up, so that the executive can then sell his or her stock at the higher price for a much larger profit. After the executive sells his or her stock at the false or artificially inflated high price, the truth comes out and the stock price crashes. That is one example of Securities Manipulation or Stock Market Manipulation, accomplished through false statements or words. (For further discussion of Public Statement Frauds click here.)
Now pretend that a stockbroker sets up separate brokerage accounts in the names of his or her relatives, without their knowledge, and then buys and sells the same security back and forth many times among those relatives’ fake accounts. People in the public may see that and be led to believe that there are lots of other people who must love that stock, which is why there is so much trading in it and why the price keeps rising. So they buy it for themselves. When the price is right, the manipulator sells the stock in all of the relatives’ fake accounts for a big profit. Now the manipulator has no more stock left, the fake buying and selling stops, the price comes crashing back down, and innocent people in the public who bought it suffer losses. This is one example of a Securities Manipulation or Stock Market Manipulation accomplished through deceitful acts, without any false words actually being spoken to the public.
A few examples of some well-known types of Securities Manipulation or Stock Market Manipulation schemes include:
- Wash Trades
- Pump and Dumps
- Painting the Tape / Marking the Close
- Bear Raiding
- Stock Bashing
Someone does not have to manipulate the same stock over and over again for it to be illegal. If a perpetrator manipulates a stock or market just one time, that is enough for the Commission to initiate an SEC whistleblower case.
Because Securities Manipulation or Stock Market Manipulation creates unfair trading environments and can disrupt the orderly flow of capital, manipulators are often vigorously pursued by the SEC.
For more information about Securities Manipulation and Stock Market Manipulation, click on the links below:
- SEC charges NY & Ukrainian firms with market manipulation through layering.
- SEC charges two stock brokers and issues an Investor Alert about churning.
- SEC fines RBC $2.5 million for misleading evaluation analysis and public statement fraud.