Challenges in Establishing Market Manipulation Deception Unveiled Through Three Judicial Decisions

In the world of finance, market manipulation fraud remains a persistent and complex issue. A recent article in Law360, penned by partners Matthew Beville and Counsel Alexandrea Rahill, delves into three rulings that attempted to use alternative approaches for charging market manipulation fraud.

One of these rulings, the U.S. v. Coscia case, focused on the use of statistical evidence to prove market manipulation. However, the court ruled that statistical evidence alone cannot prove intent to defraud, making the case unsuccessful.

Another significant case, SEC v. ICO Box, involved the application of the "virtual currency" exception to securities laws in the context of market manipulation. The court dismissed the case, interpreting that the virtual currency exception does not apply to market manipulation charges.

The third ruling, SEC v. Kik Interactive, involved the use of a "reasonable investor" standard to determine if a reasonable investor would have been misled by the defendant's actions. The court's ruling on this case is yet to be made.

These cases highlight the ongoing importance of addressing market manipulation fraud in the financial industry. Proving market manipulation fraud is extremely difficult due to the lack of allegedly fraudulent statements and the challenges of establishing that defendants created prices not reflecting legitimate sources of supply or demand.

Challenges are more pronounced in cases of micromanipulations, where short-lived or confounded artificial price impacts can make it difficult to discern manipulation from normal market fluctuations.

The article also discusses the roadblocks specific to each method used in the three rulings. For instance, the Coscia case faced difficulties in proving intent to defraud, while the SEC v. ICO Box case was hampered by the ambiguity of securities laws in the context of virtual currencies. The SEC v. Kik Interactive case, on the other hand, faces the challenge of applying a "reasonable investor" standard to market manipulation.

The authors suggest that the SEC could potentially implement new rules or regulations to address the challenges faced in charging market manipulation fraud. As the financial industry continues to evolve, it is crucial to maintain vigilance against market manipulation fraud and strive for clearer legal guidelines and more robust evidence to successfully prosecute such cases.

Challenges in Establishing Market Manipulation Deception Unveiled Through Three Judicial Decisions