Market manipulation occurs when a group of people disseminate information about a certain company to the general public in order to influence the value of that company’s stock either in a positive or negative manner. The purpose of sharing this information is ultimately so that the group who shared the information can profit.
Is Market Manipulation Always Illegal?
Market manipulation is not necessarily a securities violation. In fact many groups and organizations, including the federal government, engage in market manipulation. What separates legal manipulation activities from illegal manipulation activities such as spoofing is the quality of the information disseminated by the groups who are engaging in the manipulation.
As long as the information made available to the general public by these groups is truthful and accurate, there is generally nothing wrong with the activity. For instance, a group of investors may decide to buy many shares of a company that shows potential for growth and has a fairly cheap price for its stock. After buying up the stock, the group may actively advertise the company to other investors to encourage them to buy the stock. As long as the advertising uses truthful information about the company, there is no violation of the law.
Once the price of the stock has significantly increased due to interest in the company by other investors, the group will sell its shares of stock in the company and pull in a profit. After the stock value has hit a peak that cannot be sustained for long, the stock will naturally decrease in value as the investors’ interest in the company recedes to normal levels. This is not only all legal, it is essentially how bull and bear markets function.
Even the federal government engages in market manipulation (referred to as "intervention" when it involves the government) by influencing the value of the U.S. dollar and efforts to keep interest rates low.
When Is Market Manipulation Illegal?
Market manipulation becomes illegal when an investor or group of investors disseminate untruthful information about a company or falsely misrepresent a company in an effort to drive the company’s stock value up or down for that investor’s own financial gain. This type of market manipulation is a form of securities fraud.
What Should I Do if I Have Been Accused of Illegal Market Manipulation?
You should immediately contact a criminal defense attorney who has experience in securities fraud. Your lawyer can advise you of your rights and let you know of possible defenses you may have to fight the charges against you, as well as help you navigate the complex criminal legal system.