Market Manipulation Charges and SEC Enforcement.

Last Updated on: 4th August 2026, 01:33 am

The SEC is the agency responsible for enforcing the federal securities laws. It brings civil and administrative enforcement proceedings, not criminal cases, against individuals and entities involved in alleged violations of the federal securities laws. The U.S. Department of Justice (DOJ) is responsible for filing federal criminal charges involving alleged violations of the federal securities laws. However, the SEC and the DOJ often work closely together, and it is possible to face both civil and criminal enforcement action. In some cases, you could also face state or federal regulatory enforcement or even private litigation as well.

For example, if you have received a request for documents and/or testimony from the SEC, this does not necessarily mean that the SEC has a basis to pursue enforcement action. It does not establish that misconduct has occurred; it may be the first time the SEC is inquiring into the circumstances at hand.

What is a Securities Enforcement Investigation?

A securities enforcement investigation can be focused on a company or individual (or both). It can target public and private companies, and it can target executives, directors, traders, advisors, brokers, auditors, attorneys, and other parties. It may focus on an alleged violation of federal or state securities laws, and it may be conducted in one or more venues (i.e., at the SEC, state securities agency, DOJ, etc.).

Within the area of federal securities law enforcement, the three main theories of liability are:

• Market manipulation.
• Insider trading.
• Disclosure fraud.

Market manipulation and insider trading are distinct theories. Disclosure fraud is the third, separate theory, focused on material misrepresentations and/or omissions made (or failed to be made) in connection with securities transactions, rather than specifically on manipulative trading or “insider” trading (although, of course, all three theories of liability can overlap).

What makes aggressive trading illegal market manipulation?

How Does Exchange Act Section 9(a)(1) Create Liability for Market Manipulation?

The relevant provision of Exchange Act Section 9(a)(1) states (in pertinent part):

“For the purpose of creating a false or misleading appearance of active trading in any security registered on a national securities exchange, or with respect to which a security is registered under section 12(g) of this Act,... It shall be unlawful for any person, directly or indirectly, by means of…

(i) Effecting transactions which, with respect to that security, involve no change in beneficial ownership...

(ii) Effecting transactions in which any person sells… and simultaneously or nearly simultaneously another person purchases... Substantially the same quantity of that security... Or

(iii) Effecting transactions in which any person buys and sells... Any security... And sells and buys the same security... So as to maintain the price of that security or to give the appearance that trading in the security is more active than it is...”

Exchange Act Section 9(a)(1) applies to any security registered on a national securities exchange or any security not so registered, other than a government security. The statute requires the use of “means” to engage in prohibited trading activity, and it also requires a specific purpose: “…for the purpose of creating a false or misleading appearance of active trading....” While Section 9(a)(1) addresses securities registered on a national securities exchange or subject to registration under Section 12(g), and while it appears at first glance to address only particular types of trading activity, Section 9(a)(1) actually covers all securities listed on an exchange and all securities registered with the SEC, regardless of whether they are listed on an exchange or other exchange-type market.

How Does Exchange Act Section 9(a)(2) Create Liability for Market Manipulation?

Exchange Act Section 9(a)(2) states (in pertinent part):

“For the purpose of inducing the purchase or sale of any security registered on a national securities exchange, or with respect to which a security is registered under section 12(g) of this Act,... It shall be unlawful for any person, directly or indirectly, by means of... A series of transactions... In such security... At such times and prices as to create misleading or artificial appearance... Of active trading, or, in the case of the other security, to raise or depress the price of the security to any level....”

Exchange Act Section 9(a)(2) is slightly different from Exchange Act Section 9(a)(1) in that it (i) applies to securities registered on a national securities exchange and securities not so registered, (ii) applies to “a series of transactions,” (iii) focuses on a different purpose (“for the purpose of inducing the purchase or sale” rather than creating “a false or misleading appearance of active trading”), and (iv) allows for liability not just when the misleading or artificial appearance is of “active trading,” but also when the series of transactions is conducted to “raise or depress the price of the security.”

As you can see, Exchange Act Section 9(a)(2) allows for liability even in “genuine open market trades... Conducted in the ordinary course of business... That do not involve a change in beneficial ownership (as they must if they are to be ‘genuine’ or if they are ‘open-market trades’).” As Exchange Act Section 9(a)(2) is much more specific than Exchange Act Section 10(b), its prohibition applies exclusively to “a series of transactions” (as opposed to “any transaction or series of transactions”). The relevant section of Exchange Act Section 9(a)(2) also explicitly states that “the purpose of which is to raise or depress the price of the security.”

How Does Exchange Act Section 10(b) Create Liability for Market Manipulation?

Exchange Act Section 10(b) allows for enforcement action if the misleading appearance, artificial price, or otherwise misleading transaction (or series of transactions) in a security was the result of a use of any manipulative or deceptive “device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.” However, as discussed above, Exchange Act Section 10(b) also allows for liability under two other circumstances:

• Manipulation or Deception for Fraudulent Purpose in Connection with the Sale of a Security. Section 10(b) provides for liability where “any person, by use of any manipulative or deceptive device or contrivance..., in connection with the purchase or sale of any security..... Obtained money or property by means of the purchase or sale of such security......
• Market Manipulation for Fraudulent Purpose. Section 10(b) additionally provides for liability in situations where “any person, by use of any manipulative or deceptive device or contrivance....... Intentionally or recklessly...... Created a false or misleading appearance of active trading in any security....”

How do regulators prove manipulative intent from trading evidence?

How do regulators prove manipulative intent from trading evidence?

What information do the SEC, the DOJ, and other enforcement agencies use to support allegations of market manipulation? If their investigations rely on circumstantial evidence, how do they use that evidence to prove deceptive and/or fraudulent intent, and why?

Public Statements and Private Communications

If an individual or an entity is selling a security in order to profit from a price decline, then public commentary about the security that is designed to negatively impact the price of the security may support allegations of market manipulation. Conversely, if an individual or entity is buying a security in order to profit from a price increase, then public commentary designed to increase the price of the security may support allegations of market manipulation.

If an individual or entity has released public commentary and has also made related communications, including, but not limited to, communications with a broker, trader, underwriter, or other parties who may have trading capacity, then these private communications may serve as evidence relevant to the individual’s or entity’s trading purpose. This is true whether the individual or entity is trading the security directly or has the ability to influence its trading in the market.

Trading Data and Other Records

The SEC, the DOJ, and other enforcement agencies will also increasingly rely on trading data obtained from the Consolidated Audit Trail (CAT), which contains data relating to orders, modifications, cancellations, routes, executions, allocations, reporting events, and more for all National Market System (NMS) securities. The CAT includes a timestamp for each of these events that is accurate to the microsecond. By comparing the SEC’s or DOJ’s public records of the transactions in question with CAT data showing how the transactions came to be executed, the SEC, the DOJ, or other government agency can seek to establish evidence of manipulative intent.

Brokerage and Clearing records, as well as bank records obtained via subpoena, will also be used in government market manipulation investigations. They can serve as evidence connecting nominal trading accounts to an individual or entity’s (i) beneficial ownership, (ii) funding source, (iii) purpose for trading, and/or (iv) use of multiple accounts in various countries.

In addition to obtaining brokerage records and banking records, the SEC and DOJ are also which are targeting individuals and entities in order to obtain messaging data from the following sources:

• Email Accounts, including Gmail, Microsoft Outlook, and all other email accounts and messaging apps that individuals and entities may use for correspondence related to their trading activity.
• Social Media Platforms and Applications (e.g., iMessage, WhatsApp, Slack, Discord, Signal, etc.), which are increasingly commonly used to conduct manipulative and/or deceptive communications.

Other Evidence

Finally, in addition to using Consolidated Audit Trail data, brokerage records, bank records, and other records, the SEC, the DOJ, and other enforcement agencies will look for other types of evidence that could support their allegations of market manipulation and/or securities fraud. This includes:

• Coordinated Trading. Coordinated trading by a group of people (e.g., on social media), or by multiple accounts under the control of the same individual or entity, can be used to support an inference of intent to mislead the market.
• Concealment. If an individual or entity conceals its ownership or control of a particular security, it can be a sign of manipulative intent.
• Knowledge of Market Conditions. Regulators will use information obtained from the target’s communications, as well as other sources of evidence, to infer that the individual or entity had knowledge of market conditions that would have helped it pursue its manipulative or deceptive purpose.
• Lack of Investment Purpose. Finally, a strong positive in favor of manipulative intent will be a failure to establish an apparent non-manipulative investment purpose.
• Genuine Investment Purpose. Conversely, providing evidence of a genuine, non-manipulative investment purpose can be an effective means of rebutting an inference of manipulative intent.
• Truthful Public Commentary. If a defendant’s public commentary was truthful and non-misleading, this will defeat any argument that the commentary itself was intended to mislead. However, truthful commentary does not, in itself, defeat a separate theory of deceptive trading under the federal securities laws.

Todd Spodek is the managing partner of Spodek Law Group, a second generation criminal defense firm that has been practicing since 1976.

How Can an SEC Market Manipulation Investigation Begin?

An SEC enforcement matter can begin as either:

• An informal inquiry or investigation. This is essentially the SEC staff requesting an individual’s voluntary compliance in order to conduct an informal inquiry.
• A formal investigation. This is initiated with an official investigation order issued by the SEC. In a formal investigation, the SEC staff has the authority to issue subpoenas, and a person or entity served with a subpoena is required to respond.

When Will an SEC Market Manipulation Investigation End?

An SEC market manipulation investigation will end when:

• The SEC closes the matter without filing any charges.
• The SEC pursues civil enforcement action, either administratively or in federal district court.

When is an Official Investigation Order Issued?

The SEC issues official investigation orders only in formal investigations. Issuing a formal investigation order is a key procedural step that, among others, allows the SEC staff to issue subpoenas to the individuals or entities involved. If you have received an investigation order from the SEC, your next step is to identify your potential exposure under the federal securities laws and seek advice on how to best position your defense.

What Does a “Wells Submission” Mean in a Securities Enforcement Matter?

Before the SEC staff pursues enforcement action, they typically issue a Wells notice allowing the prospective defendant to make a voluntary submission to the Division and the Commission. A Wells submission is simply a formal response to a Wells notice in which the individual or entity tries to dissuade the SEC staff from recommending enforcement action to the Commission.

How Much Time Does an Individual or Entity Have to File a Wells Submission with the SEC?

While this depends, SEC staff ordinarily allow individuals and entities four weeks to file a Wells submission. If you want to file a Wells submission, you should not hesitate to seek the advice of counsel.

Does the SEC Filing a Complaint Mean That It Has Proved Fraud?

Generally, it does not. While a complaint in a securities enforcement case can include allegations of fraud and evidence of fraudulent or manipulative intent, it does not by itself prove any wrongdoing. Filing a complaint is a necessary step in order to litigate a case and seek penalties; however, a complaint itself does not establish liability or entitle the SEC to recover damages or penalties, which require a court judgment or Commission order.

Is the SEC’s Decision to Pursue Market Manipulation Charges Dependent on a Court Finding?

No, it is not. The SEC may initiate a securities enforcement action before the DOJ obtains a court finding of a criminal offense. This is the process that initiates the federal civil enforcement action.

Does the Justice Department Need to Get Approval to Pursue Civil Market Manipulation Charges or to File a Civil Market Manipulation Complaint?

No, the Justice Department does not need to obtain approval in order to file a civil market manipulation complaint. In fact, in many cases, it may initiate a civil market manipulation lawsuit before the DOJ obtains a court finding of a criminal offense.

How Many People Can Be Liable for Market Manipulation?

The SEC and DOJ can pursue multiple individuals and entities for a single instance of market manipulation. They can pursue liability against those individuals or entities that have actively participated in the alleged market manipulation, as well as others who knowingly aided and abetted the alleged offense.

What penalties and parallel cases can market manipulation trigger?

What is the Relationship Between a Civil Market Manipulation Enforcement Action and a Private Securities Class Action?

There are several key differences between an enforcement action filed by the SEC and a private securities class action, but a civil market manipulation enforcement action filed by the SEC may have implications for a private securities class action. Private securities class action plaintiffs often wait for the SEC to file a civil enforcement complaint before filing their own complaints. The findings in an SEC enforcement action are relevant to private litigation in many cases, and the SEC and DOJ are frequently accused of “doing the work” for private plaintiffs.

Is it Possible to Face Criminal and Civil Liability for the Same Act of Market Manipulation?

Yes, it is possible to face both criminal and civil liability. The standard of proof for SEC market manipulation cases is the preponderance of the evidence, whereas criminal securities fraud cases brought by the DOJ require the government to prove its case beyond a reasonable doubt. This is how the SEC and DOJ pursue enforcement actions based on different statutory provisions. For example, Exchange Act Section 32(a) provides for criminal enforcement when an individual or entity willfully violates the provisions of the Exchange Act.

What Are the Penalties for Criminal Market Manipulation?

Criminal violations of the federal securities laws can lead to penalties including fines, disgorgement, and imprisonment. With respect to Exchange Act Section 32(a) specifically, a willful violation of the Exchange Act can lead to fines and up to 20 years’ imprisonment.

What Are the Penalties for Civil Market Manipulation?

Civil violations of the federal securities laws can lead to fines, restitution, and, in certain circumstances, disgorgement of ill-gotten gains. As with criminal market manipulation, the amount that will be imposed can vary widely, and, in certain circumstances, disgorgement of ill-gotten gains can lead to additional liability.

When Can Disgorgement Be Imposed in a Securities Fraud Case?

In the civil securities fraud context, disgorgement may be imposed in cases involving scienter (i.e., cases that involve manipulative or deceptive intent). In cases that involve non-scienter violations, the SEC may seek to impose disgorgement as well, although, in these cases, a federal court would need to determine if there is a basis for disgorgement.

What is the Statute of Limitations for an SEC Civil Penalty?

In order to impose civil penalties, the SEC must file its complaint within five years (generally) of the allegedly fraudulent act. This is provided for by 28 U.S.C. § 2462, which states:

“Except as otherwise provided by Act of Congress, an action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise, shall not be entertained unless commenced within five years from the date when the claim first accrued....”

For disgorgement of ill-gotten gains in securities fraud cases involving scienter, the statute of limitations is five years.

What is the Statute of Limitations for Disgorgement in a Scienter-Based Market Manipulation Case?

Exchange Act Section 21(d)(8) allows the SEC to pursue disgorgement of ill-gotten gains for scienter-based violations. This statute allows for the imposition of disgorgement within a ten-year statute of limitations, rather than the five-year statute of limitations for civil penalties and restitution.

Exchange Act Section 21(d)(8) also allows for the imposition of disgorgement for other, non-scienter violations as well. In this case, however, the SEC must establish that an individual or entity obtained money or property illegally, and this must be established within the five-year statute of limitations for which securities fraud cases involving scienter do not need to be established.

What is the Statute of Limitations for Injunctions, Bars, and Other Equitable Remedies in a Scienter-Based Market Manipulation Case?

For scienter-based violations involving market manipulation, Exchange Act Section 21(d)(8) allows for a ten-year statute of limitations for disgorgement and prejudgment interest. Civil fines and penalties remain subject to the five-year period under 28 U.S.C. § 2462. In the non-scienter case, however, the statute of limitations is five years.

Speak With a Federal Defense Lawyer

If you are dealing with any part of what this article describes, the next step is a conversation with a lawyer who handles these cases. Spodek Law Group is a second generation criminal defense firm practicing since 1976, representing clients nationwide from offices in New York, Brooklyn, Queens and Los Angeles. Call 212-300-5196 to speak with our team.