Accordingly, participants in both the securities and commodities markets, and entities otherwise subject to SEC, CFTC, or DOJ regulation, should take steps to ensure that they have proper training and systems in place to enable proper prevention and detection of conduct that these regulators may perceive as spoofing or otherwise manipulative.[1] Complaint, SEC v. Chen, No. 19-cv-12127, ECF No. 1, at ¶ 5 (D. Mass. Oct. 15, 2019) (hereinafter “Chen Complaint”) (alleging violations of Sections 17(a)(1) and 17(a)(3) of the Securities Act of 1933 (“Securities Act”), 15 U.S.C. §§ 77q(a)(1), (3), and Sections 9(a)(2) and 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. §§ 78i(a)(2), 78j(b), and Rules 10b-5(a) and (c) thereunder, 17 C.F.R. §§ 240.10b-5(a), (c)); seealso Press Release, SEC, SEC Charges 18 Traders in $31 Million Stock Manipulation Scheme, Litigation Release No. 24,648 (Oct. 21, 2019), https://www.sec.gov/litigation/litreleases/2019/lr24648.htm (hereinafter “SEC Press Release”). [2]Chen Complaint ¶¶ 1, 46; SEC Press Release.[3] Complaint, United States v. Wang, No. 19-mj-6485, ECF No. 1 (D. Mass. Oct. 14, 2019); see Affidavit in Support of Criminal Complaint, Wang, No. 19-mj-6485, ECF No. 1-4, ¶ 3 (together hereinafter “Wang Complaint”) (charging criminal conspiracy to commit securities fraud, in violation of 18 U.S.C. § 371); see also Press Release, DOJ, Two Chinese Nationals Charged with Stock Spoofing Conspiracy (Oct. 15, 2019), https://www.justice.gov/usao-ma/pr/two-chinese-nationals-charged-stock-spoofing-conspiracy. [4]Chen Complaint ¶¶ 12-15.[5] Id. ¶ 1.[6]See, e.g., id. ¶¶ 50, 61.[7] Id. ¶¶ 2, 47-48; see also id. ¶¶ 49-61.

Market ManipulationAnother possible characterization of the r/WallStreetBets users’ action is market manipulation. Federal statute 15 U.S.C. § 78i exposes violators to an enforcement action if they are found to have manipulated the price of securities. Market manipulation occurs when an individual artificially affects the supply or demand of a stock, causing the price of the stock to rise or fall dramatically.

2, 2023), https://www.justice.gov/opa/pr/man-charged-110-million-cryptocurrency-scheme.Id. Press Release, U.S. Atty’s Office S.D.N.Y., No. 23-036 (Feb. 2, 2023), https://www.justice.gov/usao-sdny/pr/alleged-perpetrator-100-million-crypto-market-manipulation-scheme-make-initial (“SDNY Press Release”).Id.Id. See U.S. v. Eisenberg, 23-cr-00010-RMB, 6:15-7:16 (S.D.N.Y. Jan. 9, 2023), ECF No. 4. SDNY Press Release.Id.Id. Press Release, CFTC, No. 8647-23 (Jan. 9, 2023), https://www.cftc.gov/PressRoom/PressReleases/8647-23 (“CFTC Press Release”).CFTC v. Eisenberg, 23-cv-00173, 12:43 (S.D.N.Y. Jan. 9, 2023), ECF No. 1 (“CFTC Compl.”).Id. at 13:44.Id. at 14:46.U.S. v. Eisenberg, supra note 6, at 2:4. Id. at 2:4-5. SDNY Press Release. CFTC Press Release; CFTC Compl. at 1:1. 7 U.S.C. § 9(1). 17 C.F.R. § 180.1(a)(1)-(3); CFTC Compl. at 15-16. 7 U.S.C. § 9(3). 7 U.S.C. § 13(a)(2). 17 C.F.R. § 180.2.Id. at 15:51.Id. at 15:52, 16:53. CFTC Press Release. 15 U.S.C. § 78j; 17 C.F.R. § 240.10b-5(a)-(c); 15 U.S.C. § 78i(a)(2). SEC Compl. at 11:66; SEC v. W.J. Howey Co., 328 U.S. 293 (1946). SEC Compl. at 8:43-44. SEC Compl. at 9:49-50.Id. at 9:54.Id. 10:58. Press Release, SEC, No. 2023-13 (Jan. 20, 2023), https://www.sec.gov/news/press-release/2023-13. CFTC Compl. at 7:23.[View source.]

The second protects “swap transactions effected by a person pursuant to a bilateral ... or ... multilateral portfolio compression exercise,” as defined by statute, so long as the transactions are “consistent with all of the terms” of the bilateral or multilateral compression exercise and “[a]ll such terms were agreed to by all participants of” the exercise before it commenced. Proposed Rule 240.9j-1(f)(2). 15 U.S.C. § 78i(j). See 15 U.S.C. § 78c(a)(13).

See, e.g., Sharette v. Credit Suisse Int’l, 127 F. Supp. 3d 60, 77 (S.D.N.Y. 2015) (quoting ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 101 (2d Cir. 2007)); see also Wilson v. Merrill Lynch & Co., Inc., 671 F.3d 120, 129-30 (2d Cir. 2011). See 15 U.S.C. § 78i(j); C.F.T.C. v. Parnon Energy Inc., 875 F. Supp. 2d 233, 250 (S.D.N.Y. 2012). See id. at 246; In the Matter of Indiana Farm Bureau Coop. Ass’n, Inc., & Louis M. Johnston., CFTC Dkt. No. 75-14, 1982 WL 30249, at *6 (Dec. 17, 1982); see also In re LIBOR-Based Fin. Instruments Antitrust Litig., 27 F. Supp. 3d 447, 468 (S.D.N.Y. 2014) (noting the requirement for artificiality in pricing for a successful CEA claim).

In addition, the court said that providing brokerage services to a market manipulator if done with requisite knowledge could be deemed to assist the manipulator in violation of federal securities laws. (Click here to access 15 U.S.C. §77o(b) and here to access 15 U.S.C. §78i(a)(2).) (Click here for background on the SEC’s enforcement action against the LEK Defendants in the article “US Broker-Dealer, Its CEO and a Non-US Client Sued by SEC for Layering and Other Manipulative Schemes” in the March 12, 2017 edition of Bridging the Week.)

DeKalb appealed, and the Second Circuit affirmed, finding that the §14(a) claims were time-barred and that the §20 claim failed to state a claim. More specifically, the Second Circuit held: (1) Sections 9(f) and 18(a) of the 1934 Act, 15 U.S.C. §§ 78i(f), 78r(a), provide “private right[s] of action that involve[ ] a claim of fraud, deceit, manipulation, or contrivance,” to which a five‐year statute of repose now applies after the passage of the Sarbanes‐Oxley Act of 2002 (“SOX”)…but that Section 14(a) does not provide such a private right of action; (2) the same three‐year statutes of repose that applied to Sections 9(f) and 18(a) before the passage of SOX…still apply to Section 14(a) today; (3) the statutes of repose applicable to Section 14(a) begin to run on the date of the defendant’s last culpable act or omission; (4) DeKalb’s lead‐plaintiff motion does not “relate back” under Rule 17(a)(3) of the Federal Rules of Civil Procedure to the filing of the original class‐action complaint; (5) the Private Securities Litigation Reform Act…does not toll the statutes of repose applicable to Section 14(a); and (6) the tolling rule that the Supreme Court described in American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), does not ext