The manipulation of securities prices has been illegal under federal securities law for more than 70 years. Surprisingly, however, the Securities and Exchange Commission had never brought an enforcement action alleging market manipulation through the intentional spreading of false rumors until this past April.
That’s when the SEC filed a settled case against Paul Berliner, a trader who had formerly been associated with Schottenfeld Group. The SEC alleged that last November, Berliner profited by selling short while intentionally spreading false rumors through instant messages to numerous people, including traders at brokerage firms and hedge funds, about Blackstone Group’s acquisition of Alliance Data Systems. In the SEC’s announcement of the case—which came just a few weeks after allegedly false rumors of liquidity problems supposedly helped to torpedo Bear Stearns—SEC Chairman Christopher Cox offered a statement that the message of the case was simple: The SEC would “vigorously investigate and prosecute those who manipulate markets with this witch’s brew of damaging rumors and short sales.”
