Market manipulation
This article is based on UK law as at 1st April 2007, unless
otherwise stated.
The civil regime of market abuse described above runs in
parallel not only with the criminal offence of insider dealing but
also with that of market manipulation (FSMA, s.397(3)).
A person will be guilty of market manipulation if they commit
any act or engage in any conduct that creates a false or misleading
impression as to the market in any investments, or their price or
value, and they do it with the intention of:
- creating such a false and misleading impression; and
- inducing another person to deal (or not deal) in those
investments.
The “classic case” is that of the share ramping operation,
whereby a party drives up a company’s share price by buying heavily
and so creating a false impression of the demand for the shares –
perhaps to influence a takeover where the shares are being used to
settle part of the offer price.
Market manipulation can mean an unlimited fine, a prison
sentence of up to seven years, or both.
It should be emphasised, though, that there has to be a clear
intention on the part of the accused to mislead and for others to
rely on the misleading impression. It is a defence to show that you
reasonably believed that you would not create a false impression;
evidence of full public disclosure of what was being done and by
whom will greatly assist your case.
Other defences apply where the action was taken in accordance
with rules to control the issue of information (such as the Listing
Rules) or in connection with a buyback of shares.
