Market Manipulation Prosecutions
1. United States v. Coscia (2015)
Facts:
Michael Coscia was prosecuted for “spoofing,” a practice where a trader places large orders to create false market demand, then cancels them before execution to manipulate prices.
Legal Issue:
Is spoofing a criminal violation under the Commodity Exchange Act and anti-manipulation laws?
Outcome:
Coscia was convicted of spoofing.
Sentenced to prison, marking the first criminal conviction for spoofing.
Significance:
Clarified spoofing as a criminal offense.
Sent a strong signal to traders that manipulative tactics are prosecutable.
2. SEC v. Zaslavskiy (2018)
Facts:
Zaslavskiy promoted and sold fraudulent initial coin offerings (ICOs), misrepresenting the value and regulatory status to investors.
Legal Issue:
Did Zaslavskiy violate securities laws by manipulating the market and defrauding investors?
Outcome:
SEC charged and obtained injunction against Zaslavskiy.
Highlighted the application of securities laws to cryptocurrency markets.
Significance:
Showed that digital assets fall under securities regulations.
Reinforced anti-fraud protections in emerging markets.
3. United States v. Martoma (2014)
Facts:
Mathew Martoma was charged with insider trading for using nonpublic information about clinical trial results to trade pharmaceutical stocks.
Legal Issue:
Was the insider trading based on confidential information an illegal market manipulation?
Outcome:
Martoma convicted and sentenced to prison.
One of the largest insider trading prosecutions by the DOJ.
Significance:
Reinforced strict enforcement against insider trading as a form of market manipulation.
4. SEC v. Musk and Tesla (2018)
Facts:
Elon Musk tweeted about taking Tesla private with funding secured, causing stock price volatility.
Legal Issue:
Did Musk’s statements constitute market manipulation or securities fraud?
Outcome:
SEC charged Musk with securities fraud.
Settled with Musk stepping down as chairman and paying fines.
Significance:
Highlighted corporate executives’ responsibility for truthful disclosures.
Emphasized social media’s impact on market manipulation.
5. United States v. Navinder Singh Sarao (2015)
Facts:
Sarao was accused of spoofing and layering, manipulating the 2010 “Flash Crash” in U.S. markets.
Legal Issue:
Did Sarao’s manipulative trading cause market disruptions violating securities laws?
Outcome:
Sarao pled guilty and was extradited from the UK.
Sentenced to prison in the U.S.
Significance:
Connected spoofing with large-scale market instability.
Demonstrated international cooperation in market manipulation prosecutions.
6. SEC v. Wolfson (2013)
Facts:
Wolfson was involved in a pump-and-dump scheme, artificially inflating stock prices through false statements.
Legal Issue:
Was the pump-and-dump scheme illegal market manipulation under securities laws?
Outcome:
SEC obtained permanent injunction and disgorgement.
Wolfson barred from acting as an officer or director in public companies.
Significance:
Reinforced SEC’s role in protecting investors from fraudulent schemes.
Warned against promotional manipulation.
Summary Table:
| Case | Key Holding |
|---|---|
| U.S. v. Coscia | Spoofing is criminal market manipulation. |
| SEC v. Zaslavskiy | ICO fraud falls under securities fraud. |
| U.S. v. Martoma | Insider trading is illegal market manipulation. |
| SEC v. Musk/Tesla | Executives responsible for truthful disclosures; social media statements can be fraud. |
| U.S. v. Sarao | Spoofing can cause large market crashes, prosecutable internationally. |
| SEC v. Wolfson | Pump-and-dump schemes violate securities laws. |
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