SEC
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Securities Laws

Common Securities Violations

Market Manipulation

Market Manipulation is the interference with the free and fair operation of the market by engaging in conduct that creates an artificial price or maintains an artificial price for a security.

Some examples of market manipulation include:

Pump and Dump

Where owners of a security spread false information so that the price of the security will increase (the pump). When the price of the security does increase based on these false rumors, the owners who spread the false information sell off their shares, making a profit (the dump).

Bear raid

Attempt by investors to move the price of a stock opportunistically by selling large numbers of shares short. The investors pocket the difference between the initial price and the new, lower price after this maneuver. This technique is illegal under SEC rules, which stipulate that every short sale must be on an uptick.

Wash Trading

Wash trading involves the simultaneous or near-simultaneous selling and repurchase of the same security for the purpose of generating activity and increasing the price.

Matched orders

Orders to buy or sell securities that are entered with knowledge that a matching order on the opposite side has been or will be entered.

Painting the tape

Placing successive orders in small amounts at increasing or decreasing prices.

Spoofing/Layering

Tactic that has been used by high frequency traders to manipulate prices, spoofing is the placing of a bid or offer with the intent to cancel before execution. “Layering” is a form of spoofing in which the trader places multiple orders on one side of the book, in order to create a false impression of heavy buying or selling pressure.

In recent years, on average, 12.9% of all SEC whistleblower tips have involved this type of securities violation.

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