Common Types of White-Collar Crimes
When we talk about white collar crimes, we are talking about crimes that involve stealing money from a company. These crimes refer to the full range of frauds committed by business and government professionals. Examples of white-collar crimes include securities fraud, embezzlement, corporate fraud, and money laundering. The entities that investigate white collar rime include the Securities and Exchange Commission (SEC), the National Association of Securities Dealers (NASD), and state authorities.
Market manipulation is another type of white-collar crime. This crime is illegal in the United States under both securities and antitrust laws. Securities laws and related SEC rules prohibit fraud in the purchase and sale of securities. In addition, the Securities Exchange Act of 1934, Section 9, specifically makes it unlawful to manipulate security prices. In addition, 7 U.S. Code Section 13 makes it a felony punishable by a fine up to $1,000,000 and up to 10 years imprisonment to manipulate or attempt to manipulate the price of any commodity in interstate commerce.
Market manipulation, commonly referred to as a “pump and dump,” creates artificial buying pressure for a targeted security. This generates a low-trading volume issuer in the over-the-counter securities market that is controlled by the fraud perpetrators. When people manipulate the market, they artificially inflate or deflate the price of a security or otherwise influencing the behavior of the market for personal gain.
How Did Reddit Manipulate the Stock Market?
This question has come up frequently recently due to the recent events surrounding Reddit’s influence on the stock market. When members of the Reddit community banded together to buy stock options in a company, the question of its legality is a matter of intent. If the intention is to artificially distort the market for security, that is illegal. However, the Securities and Exchange Commission (SEC) has historically required some sort of deception, fraud, or false statement before charging any sort of unlawful activity.
The biggest news surrounding Reddit and stock market manipulation was with the price of GameStop, a video game retailer that has been on the decline for many years. In January of 2021, stock market followers saw something mysterious begin to unfold – the stock surged more than 50%. At one point, GameStop shares had surged up to 400% in just one week, creating massive squeezes in heavily shorted names.
Surge pricing occurs when a company raises the price of its offering if there is an increase in demand. The reason a stock price surges is simply because of an increase in individuals looking to buy that stock. It can seem quite complicated, but it actually goes back to the basic concept of supply and demand. The difference between the supply and demand of a stock causes the share price to rise until an equilibrium is reached.
Although it would be hard to convict price manipulation in a case like this Reddit thread, it does not stop those who are impacted from trying. Hedge funds were the main victims affected by the GameStop shorts because the industry was forced to slash its overall exposure to stocks, which led to an underperformance. One particular hedge fund, Melvin Capital, lost more than 50% on GameStop’s stock surge and is facing nine lawsuits from retail investors alleging conspiracy to restrict trading. On the other hand, the law firm Hagens Berman announced a class-actin lawsuit against one of the main instigators on the Reddit page, stating price manipulation. This case seeks to recover damages caused by the defendants’ alleged violations of the federal securities laws.
How to Avoid Becoming Involved in Market Manipulation and Protect Your Liquid Assets
As you can see, if you are not careful, you can get into all kinds of legal trouble when attempting to manipulate the stock market or conduct any kind of white-collar crime of this sort. The best way to protect yourself from being accused of or charged with stock market manipulation is to plan out your investments and to have a knowledgeable legal team on your side. Having some basic knowledge of how markets can be manipulated in the trading world can help you avoid falling into one of these traps. It is advantageous to avoid market manipulation just as it is to avoid investing in capital that might encounter it. Some signs that market manipulation is occurring in the market you are investing in include:
- Bear raids
A bear raid can be conducted by spreading negative rumors about the target firm, which puts downward pressure on the share price. The goal of a bear raid is to force a price to decrease quickly in order to profit from a short position. It is a form of securities fraud that you will want to watch out for if you are an active investor. Bear raids are often used as a scapegoat for stock prices that are falling for legitimate reasons, but they are not 100% effective and do not consider gapping or slippage.
- Wash trading
Wash trading, sometimes called round trip trading, is an illegal practice in which investors buy and sell the same financial instruments. The issuing company creates the instruments for the purpose of raising funds for their benefit. A telltale sign that wash trading is occurring is large volume increases with little price action.
- Fake news
Unfortunately, in modern times, the term “fake news” is quite real. It is becoming increasingly more common for deceptive articles to appear that temporarily boost stock prices for small firms. For example, the U.S. Securities and Exchange Commission (SEC) have reported that PR firms had paid writers to produce positive articles about their clients for investment websites without disclosing the compensation.
In addition to market manipulation, there are many ways to commit white collar crimes without even realizing it. If you would like to take the steps to prevent becoming involved in white collar crime, consulting with an experienced firm like The Law Office of Brian C. Andritch will serve to benefit you. Defending a case of corporate criminal charges can be more complex than other cases in the eyes of the courts. The thought of facing stressful fines or prison time can be overwhelming, but having a lawyer on your side who is familiar with these types of charges will go a long way.
To learn more about protecting yourself and your asset and how to avoid white collar crime, call The Law Office of Brian C. Andritch at (559) 484-2112 or contact us online.