A New York District Court has denied a defendant’s motion for summary judgment and held that a showing of an investor’s intent to manipulate the market in violation of Section 10(b) of the Securities Exchange Act of 1934 could be enough to prove market manipulation without any additional deceptive or fraudulent conduct.
The Securities and Exchange Commission brought an action against defendant for market manipulation related to a single-day purchase of 200,000 shares of stock traded on the New York Stock Exchange near the close of the market. This purchase represented 75% of the trading in the stock for the day and brought the closing price of the stock over the level needed for defendant to avoid being required to purchase 860,000 shares of stock.
The Court first noted that other Circuits were split regarding whether an investor’s manipulative intent alone could prove market manipulation without any fraudulent or deceptive conduct. Although the Court noted that liability based solely on the intent of the actor alone is rarely imposed, it held that if an investor conducts an open-market transaction with the intent of artificially affecting the price of the security, and not for any legitimate economic reason, it can constitute market manipulation. It further stated that “the only definition [of market manipulation] that makes any sense is subjective – it focuses entirely on the intent of the trader.” Therefore, because the SEC had raised a material issue of fact with respect to defendant’s intent, the Court denied defendants’ summary judgment motion. (S.E.C. v. Masri, 2007 WL 4126773 (S.D.N.Y. Nov. 20, 2007))