Definition. KEY ELEMENT: Intent to Manipulate.

MANIPULATION
Transactions that create or maintain an
artificial price for security w/ conduct
Give a little more attention to designed to deceive or defraud investors by
hot issues. controlling AN ARTIFICIAL price of
securities.
-Manipulative intent sufficient to bring cause of action
even if the attempted manipulation was not successful.
Converse: Investment intent will VOID a charge of
manipulation if it is proven sufficiently; regardless of
transaction's impact on price.

Purchases/Bids by People Involved in Distribution

9(a)(2) & 10b-5 CAN Prohibit involved transactions
Excessive Trading
Rule 10b-18
Reg M 101 & 102. No Purchase by Saf. Harb. from
Excessive Trading Manipulative Devices
-Distribution participant, issuer, or 9a2/10b5
Manip. (Note: No manip device is necessary forr Sec. 9
affiliates thereof. Unless excepted. for non-IPO
actions; -> see Muarkowski. Even REAL TRADES
(if on test, just check listed exceptions) transactions.
9(a)(2) - Illegal to (1) w/ intent to stabilize/increase/decrease price are
engage in transactions manipulative) -Prohibition ends when distribution is
complete. Issuer Must:
creating (2) actual or
(1) use only one
apparent active -Wash Sales: Selling and repurcahsing the same or
B/D for all affiliates
trading or raising or substantially same security for purpose of
Reg M 103 -> Market Makers exempt on same day; (2)
depressing the price (3) 9(f) generating activity to increase the price
from Regs 101 & 102. Make purchases
for purpose of private
-Allowed to buy shares to honor the during midday ,
inducing the right of -Matched Sales: Trader places both buy and sell
shares it is going to sell ON NASDAQ. reg hours; (3)
purchase/sale of the action orders at same price; increase in activity intended
-Due to role of MMs on NASDAQ: must Price may not
security by others. to attract additional investors.
effect transactions given to it. exceed highest
[Interstatne commerce
independent bid;
or Nat'l sec exchange] -Painting the Tape: Group of traders create activity
AND (4) stock
or rumors with purpose of generating activiyt and
Reg M 105 -> Manipulative Short must be
10b-5 - Sinilar increasing price.
Sales. PRE-DISTRIBUTION!!! repurchased on an
requirements; scienter
exchange
etc. Manipulative Withholding: Parially fulfilling customer orders
device. (Interstate (withholding shares from market) to prevent prcie -Unlawful to purchase securities in a firm
commerce rom dropping. commitment equity offering from UW or
(Work out market) BD participaiting in the offering if that
person sold short the security that is the
"For purpose of" -> Absnet Rule 415 Compliance, shelf registration subject of the offering
Purpose must soley to practices may be manipulative as
raise price. work-outmarket/withoolding securities. [Unless exceptions apply; but i dont' think
we put much time into them]

Hot Issue Manipulation

Hot issue occurs when an IPO security is popular and goes above the IPO price on first day Stablization. @ IPO.
of trading. Not manipulative per se, but highly susceptible to manipulative activities. NEVER ALLOWED unless Regulation M Compliant.

Free Riding SEC/FINRA Response Reg M 104 -> NO STABILIZATION.

Problematic. -> New Rules 104(a) unlawful to stabilize a bid in connection with an offering
Purchasing price -> Require prompt unless rule permits.
at IPO with delivery and confirmation 104(b) -> Permitted ONLY to prevent a decline in the MKT price.
of securities to customers; (1) to prevent decline; (2) at or below offering pirce; (3) initated a
intention to
immediatley re-sell -> Prospectus period price no higher than then-current price; (4) prior notice must be
w/o long-term extended to 90 days for given to the MKT; and (5) purchasers must recieve disclosure in
investment. first-time issuers. registratoin statment OR propsecuts of possibility of stabilizing
-> Prohibit witholding of bids.
securities by UW, delaers,
& associates for
subsequent sales at
higher prices; AND Manipulation Liability -> Four Main
-> Prohibit excessive
compensation to 9: Must prove Wilfulness and that price was actually
udnerwriters in form of affected by manipulation.
warrants of cheap stock. 10b: 10b-5 applies to ALL securities, not just exchange
traded.
15(c): Not limited to exchange-traded securities. (limited to
Underwriters Should AVOID (per SEC Release) actions by Broker-Dealers
17(a): Dealer cannot charge prices not reasonably related
-> Inducements to purchase or other aftermarket soclicitations prior to to prevailing mrket price w/o disclosure.
completition of distribution
-> Communicating to customers that interest in buying shares in immediate SEC typically brings charges under all four if possible
aftermarket would help them get some shares;
-> Solicit customers prior to completion of distribution regarding post-distribution
quanttities;
-> Proposing aftermarket prices to customers;
-> Accepting or seeking expressions of interest from customers that they intend to
purchase an amount of shars in aftermarket equal to size of IPO;
->Allocating additional IPO shares to customers who pledge to buy in aftermarket;