Prof. Jayanth R. Varma’s Financial Markets Blog

A blog on financial markets and their regulation

SEC Admits that it Rigged Share Prices!

I find it hard to believe this, but the SEC press release
explicitly says that as part of its sting operation, it and the FBI
did actually manipulate the share market – the SEC/FBI
“bought the stock defendants were promoting. Every buy
transaction had a material effect on the stock trading volume of the
companies in question”. Will the SEC/FBI compensate genuine
investors who traded on the basis of the false volumes or prices? The
SEC says “Our office worked closely with the criminal
authorities and provided information and technical assistance
throughout the FBI sting operation in order to minimize harm to
innocent investors.” But minimize is not the same as prevent.

Another puzzling thing in the press release is that after saying
that “In fact, there was no hedge fund”, it goes on to say
that “the hedge fund bought the stock”. Perhaps, it was a
drafting error in the press release.


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