by T. GormanPosted on Posted in SECActions

Trading securities depends in part on obtaining pertinent, accurate information about the investment in a timely fashion. In contrast, having false or incomplete information can cause a misjudgment to be made. If such information becomes part of the mix of information in the marketplace, the false information can distort pricing. Indeed, deliberately injecting false information into the market is a tactic employed in market manipulation actions.

While incomplete information and materially false information can distort trading in any market, it can be a larger issue in thinly traded and opaque markets. In markets where securities such as residential mortgage-backed securities or RMBS or housing asset-backed securities or MHABS are traded full, complete and accurate information is crucial because the markets are thin and largely illiquid. The point is illustrated by a case involving a Nomura Securities International, Inc. broker and trading in RMBS and MHABS. SEC v. Shapiro, Civil Action No. 1:15-cv-07045 (S.D.N.Y.).

Named as defendants in the action are Ross Shapiro, Michael Gramins and Tyler Peters. The three defendants were hired by the firm in August 2009. Each was responsible for arranging trades between customers involving RMBS and MHABS. Mr. Shapiro was the head trader.

The traders began in 2010 to engage in misconduct. Specifically, they coached traders to lie during negotiations regarding a transaction. At times Defendants instructed traders as to the precise lies to tell customers to extract extra, concealed profits for Nomura traders.

The markets for these securities are illiquid. Accordingly, customers and traders must rely on information available in the markets. If customers knew that more profit was available, they could have paid less fees or received more for the securities involved in the transactions.

Defendant traders engaged in this misconduct to earn more revenue for Nomura when trading RMBS and MHABS. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The matter was resolved by Defendant Gramins. He consented to the entry of a permanent injunction based on the Sections cited in the complaint. See Lit. Rel. No. 26246 (Feb. 13, 2025).

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by T. GormanPosted on Posted in SECActions

Manipulation is one of the Commission’s long time focal points for enforcement. The reason is obvious – manipulation distorts the price and the market. Despite this focus by the agency and a multitude of cases, manipulation continues to be a focus for those trying to “make a quick buck” without regard to the risk of getting caught and punished by the Commission and the DOJ. The Commission’s latest case in this area is SEC v. Chen, Civil Action No. 19-CV-12127 (D. Mass. Amened complaint filed Dec. 15, 2019).

The complaint names as defendants: Jiali Wang, a resident of China and Weymouth Massachusetts; Jing Guan, also a resident of China who at one time shared a residence with Jiali Wang in Massachusetts; Vicky Liu, a resident of Weymouth Massachusetts, who lives next door to Jiali Wang and who was an officer of WV Forrest Investments, LC, a company formed and funded by Jiali Wang; and Xiaosong Wang, also a resident of China who owns a resident in Upton, Massachusetts. The complaint lists 15 other individuals with Chinese names that have connections to this action. There are 14 relief defendants (12 individuals and 2 companies).

The complaint is straight forward. Beginning in August 2013 Defendants engaged in a market manipulation scheme. Dozens of accounts at various brokerage firms were involved. The focus was to artificially influence the prices of many publicly traded securities.

Typically, Defendants used at least two brokerage accounts to manipulate a stock. The first was used to put pressure on the stock price to move either up or down. Once the share price reached the desired level, the second account became involved. It was used to purchase or sell large amounts of the stock. Frequently the accounts involved were at different brokerage firms.

At times Defendants also engaged in deceptive conduct to try and avoid detection. For example Xiaosong Wang and Jiahi Wang used nominee accounts held in names of individuals and entities other than themselves. They also used entities rather than their account to implement the trading. Overall Defendants traded in 3,900 publicly traded securities.

During the relevant period Defendants collectively generated millions in illegally obtained proceeds. The complaint alleges violations of Securities Act Section 17(a)(1) and 17(a)(3) and Exchange Act Sections 9(a)(2) and 10(b).

The action has been concluded. The court entered judgment against Ziaosong Wang. He was enjoined from future violations of the Sections cited in the complaint. Mr. Wang was also directed to pay disgorgement of $1,041,084 plus prejudgment interest of $80,428.35. That amount will be deemed satisfied by an order of forfeiture in the parallel criminal case and monies previously collected in the action. Earlier the court entered a final judgment against Wannian Investment Inc., representing the net profits from the scheme. The court ordered the payment of $4,121,754.65. Mr. Jiali Wang was also enjoined from violating the Sections cited in the amended complaint in March 2023. He was directed to pay disgorgement of $7,750,000. The amount will be satisfied by an order of forfeiture in the parallel criminal case. Default judgments were also order as to 15 other individuals and one entity. The judgments were based on the Sections cited in the amended complaint. The payment of $35,603,447 was ordered as disgorgement along with a civil penalty of $2 million. In June 2022 the court also entered default judgments against a series of relief defendants and directed that they each pay disgorgement in an amount ranging from $3,505 to $533,713 individually. The judgments also ordered the payment of prejudgment interest for a total of $1,512,333. See Lit. Rel. No. 26245 (Feb. 11, 2025).

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