Market Manipulation

Market manipulation araise when a pool of investors holding securities in a particular stock accomplish real and sham transactions to create the appearance of rising price in that stock. When investors enticed by the price movement began to buy at the inflated price, the pool would sell. Eventually, the emptiness of the price rise would be exposed and the price would be collapse. The pool would obtain handsome profit (buy low, sell high), while the investors would bear loss (buy high, sell low). 


The Exchange Act addresses market manipulation in a variety of ways:

Specific prohibitions
Exchange Act §9(a)
The Exchane Act prohibits creating misleading appearances of active trading in all securities, and OTC securities amended by Dodd-Frank to include

Express private action
Exchange Act §9(e)
The Exchange Act authorizes a private cation for persons injured by market manipulation prohibited by Exchange Act §9. The plaintiff must prove that the defendant acted willfully and that the price of the stock was affected  by the prohibited manipulative acts.

General antifraud prohibition
Rule 10b-5
Courts have read Rule 10b-5's broad prohibition against securities fraud to market manipulation in the OTC market. Furthermore, courts have interpreted Rule 10b-5 to cover a broader range of manipulative activities, such as trading in securities aimed at raising the price for the benefit of a specific seller.



Issuer Repurchases

The SEC has promulgated  safe harbor Rule 10b-18 to distinguish between evil-hearted and good-hearted issuer repurchases.

An issuer can repurchase its common stocks in trickle in process through the flollowing circumstances:

• the issuer uses only one broker-dealer;
• their purchases must be part of regular midday trading, neither the opening trade of a day nor a trade in the last half hour of trading;
• the price may not exceed the lowest  contemporaneous market bid or market price; and 
• the stock must be repurchased on an exchange or NASDAQ