In an emergency action filed in the U.S. District Court for the District of Massachusetts, the SEC charged and obtained an asset freeze against 18 China-based traders (see here and here) for conducting a market manipulation scheme involving approximately 3,000 U.S.-listed securities.
According to the SEC, the traders artificially influenced the prices of the publicly traded securities by creating the false appearance of trading interest and activity in the stocks through the accounts of several different brokerage firms. The SEC claims that as a result of misrepresenting the trading interest and activity in certain stocks, the traders were able to gain over $31 million in illegally obtained proceeds.
In addition, the SEC claimed, the traders engaged in other deceptive acts to conceal their market manipulation scheme, such as (i) creating certain accounts under false names of individuals and entities and (ii) failing to disclose the true nature of their trading to brokerage firms.
The SEC is seeking disgorgement plus interest, penalties and injunctive relief, and a trial by jury to settle the charges against the traders.
In a parallel action, the U.S. Attorney's Office for the District of Massachusetts charged two of the eighteen traders listed in the SEC Complaint with conspiring to commit securities fraud.
Commentary
This is an impressive enforcement action by the SEC. Market manipulation cases - particularly those involving overseas traders - can be notoriously difficult to investigate. The SEC deserves credit for obtaining emergency relief and freezing upwards of $10 million in assets before all of the funds were diverted offshore.
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