On The Crime Of Stock Market Manipulation

The title of this article is "Research on the Crime of Stock Market Manipulation", is the research on the crime of stock market manipulation in the article 182 of Chinese criminal law "the Crime of Securities and Futures Market Manipulation". The article is according to the constitute four elements of crime, but breaks away form the traditional framework such as object, objective elements, subject and subjective elements, it analyzed the important questions about the elements of the crime, the methods to judge the crime, and punitive measures. Apart from the preface, the Article is divided into eight chapters:overview, research on object, research on behavior, research on subject, research on subjective elements, judgment and regulation, and with the appendix of " the explanation about the classical cases of stock market manipulation".Preface begins form the Madoff Froud Case in America and Wang jianzhong Stock Market Manipulation Case in China, then calls in questions that the prevention and punishment of mechanisms can not fulfill its function as supposed, then expounds the Central issue of this article-observation about the crime of stock market manipulation form crimal law theory-. The reason that we can not stop the crime of stock market manipulation is departments and agencies can not really provent and stop the crime. It exhibites in three parts. Firstly, we don’t attach importance to protect the investors really. Secondly, the illegibility about the crime in laws and bad collaborations between laws and regulations. Thirdly, missing of the financial supervision. On this basis, the article points out the four important works. Firstly, the idea about protecting investors. Secondly, the Attitude that punishs the crime severely. Thirdly, the punishment system that takes the prevention as main measure and the as minor measure. Fourthly, consummating the measure of financial supervision. So the article expands discussion about the three questions and four measures. The last section is about the motion and the significance of this article.The chapter one is the summary about the crime of stock market manipulation, it is divided into two sections. Section one is the summary about securities, it analyzes the development and extent of the securities as the target of the crime of stock market manipulation. It have passed for hundred years since the securities appeared, the initial style was martial bond as government bonds, corporation bond appeared later but developed rapidly and became the major style of securities. There are broad sense and narrow sense about the extent of securities. In the broad sense, securities can be classified into negotiable securities and priceless securities. In the narrow sense, it means capital securities. The securities in the crime of stock market manipulation are limited to the capital securities and classified into stock securities and debt securities. The capital securities in foreign countries include stock, bond and share option, In contrast, the range of securities in Chinese laws is narrow, it only includes stock and bond. But because options market will be built soon, so the laws should be revised according to this. Section two is about the crime of stock market manipulation. The behavioral pattern of the crime is the most complicated in the crime of securities, so Chinese law and foreign countries laws can not itemize all behavioral pattern of the crime, moreover, the behavioral of stock market manipulation that is illegal can constitutes the crime. On the legislative evolution, this section analyzed the legislation clause and guiding philosophy of American law, EU law, Japanese law and Chinese law in order to pave the way for the following chapters.The chapter two is research on the object of the crime of stock market manipulation and divided into two sections. Section one is summary about object. There are many theories about the object of the crime, such as the theory of only one object, the theory of double objects, and the theory of multiple objects. The theory of only one object thinks the object of the crime is the order of stock market, on specific description, it is divided into management order, competitive order and trade order. The theory of double objects thinks one object of the crime is legitimate rights and interests of investor, but can’t get agreement about the other object, on specific description, it is divided into market order and state management activities. The theory of mulriple objects thinks the objects of the crime include investor’s right, investor’s interest, trading mechanism manipulation of stock market, operations order of stock market, competition of stock market, financial management system of the state, the major idea thinks the objects are legitimate rights and interests of investor, order of stock market and regulatory activities of state. This article agrees with the theory of three objects too. In the section two "explain about the objects", the author explain the three objects detailedly. On the legitimate rights and interests of investor, the manipulation is induce to investor, is using resource superiority to pass own risk to investor, is immoral behavior. The rights and interests include not only rights but also interests, and the interests include not only positive interests but also negative lose, the negative lose mean the interest that investor should get by trading and the lose that investor got because of the stock market manipulation. The right include the right that investor and Manipulator should know equally, the right that investor can use to judge the Investment opportunities and Amount of the investment, the right that investor can use to trade publicly and equally, the right that investor can use to benefit, in addition, stock market manipulation may hurt assets, operations and credit of the company. One the order of stock market, stock market manipulation hurts the fair trade order as the cornerstone of stock market, reduces the efficiency of stock market, and results in the loss of stability of stock market. On the regulatory activities of state, because of stock market manipulation, the state can not guarantee the Legal, orderly and fair trading.The chapter three is research on the behavior of the crime of stock market manipulation and divided into two sections. Section one is summary about the behavior of the crime of stock market manipulation. The behaviors of the crime of stock market manipulation are the most complicated, so American law and EU law both provide those with generalizations, for example, American law calls it the manipulation of the stock fraud. EU law calls it market manipulation. In American law, it includes bear operation and overbuying, contra trade, continuously buy or sell, spreading rumors, providing false information, spreading information in order to manipulate market, manipulation in order to stabilize price. EU law divides the behaviors into market manipulation related to transaction, market manipulation related to information and other behaviors. Japanese law includes four behaviors: transactions without substance, trading with collusion, manipulation in order to change price, manipulation in order to stabilize price, moreover, Japanese law adds the spreading rumors in order to manipulate market to the crime, and it includes spreading rumors, using false records, using outrage and duress. Taiwan law provides transactions without substance, continuously buy or sell, providing false information and Delivery. In contrast, securities law in China only provides jointly or continuously buy or sell, trading with collusion, buying from or selling to oneself without transferring the right to own the securities, other behaviors. So the article suggests to add the behaviors of the crime according to other countries or areas securities laws. Section two is specification about the behaviors. There are eleven behaviors of the crime:jointly trading, continuously trading, conspiratorially trading, bear operation and overbuying, buying from or selling to oneself without transferring the right to own the securities, spreading rumors in order to manipulate market, providing false information in order to manipulate market, manipulation in order to stabilize price, Delivery, manipulation by power, other methods. The other methods include Illegal money lending by bank staff, manipulation with concept stock, and manipulation by changing computer system.The chapter four is research about the subject of the crime of stock market manipulation and divided into two sections. Section one is summary about subject, because if a person want to commit the crime, he must open an account at securities institutions and get the trade qualification, so some one thinks the subject of the crime is special subject. Japanese securities research community also argued about the problem. But this article thinks the subject of the crime is common subject. About the spreading rumors and providing false information in order to manipulate market, this article thinks any one can commit the crime too according to the exposition on chapter three. So we should revise the clause about the subject of the crime of spreading rumors and providing false information in order to manipulate market. The subject of the crime includes natural person and unit, the natural person includes the investor who has resource superiority and the common investor, the unit includes Listed companies, investment trust companies, insurance companies, etc. Section two is detail about the subject, discusses form employees of financial institutions, common investor, and unit. Employees of financial institutions means all the person who are working in the securities institutions, the securities institutions includes securities companies, stock exchanges, listed companies, the securities industry association, the securities regulatory commission etc. On the investor, the important exposition is about the investor who has resources, by the Zhongke events and Mojianjun manipulation events, this article reveals the important trends of the manipulation:higher secretiver and daedal skills, then the article points out if we don’t consummate the law and Governance mechanism, we can’t stop the crime really. On the subject of unit, the article analyzes the problem that natural person fabricates unit to commit the crime and unit borrows natural person’s account to commit the crime, moreover, the complex problemis how to judge the person in unit uses the name of the unit to commit the crime by two standards:the subject who decides the meaning, the proceeds of crime, the former is an essential element, and the latter is the elements of supplement.The chapter five is research about the subjective elements of the crime and divided into two sections.Section one is summary about the subjective elements and analyzes three questions:1.Can fault constitute the crime, this article thinks only intent can constitute the crime, and the crime of spreading rumors and providing false information in order to manipulate market also can be constituted by intent.2. Intent of the crime means directive intent only or directive intent and indirective intent. This article thinks the crime can be constituted by directive intent or indirective intent.3. Is the crime absichtsdelikte. Because when criminal law and securities law have deleted the objective elements of "to obtain improper benefits or shift the risk", and indirective intent can constitute the crime, so the crime is not absichtsdelikte. Section two is detail about the subjective elements of the crime and analyzes the motivation factors, the elements of understanding, will elements, the purpose of the elements, and the methods of proof. About the motivation factors, someone thinks the motivation of the crime is Artificially affecting the prices of the securities, but this article thinks the motivation is complex, such as getting Illegal profits, cutting price, and helping other persons to manipulate, etc. The elements of understanding shows as the person knows the behavior is stock market manipulation but still manipulate. The will fact shows as the person have the attitude of hope or release to the damage of the crime. The most complex element is how to judge the "knowing", this article analyzes the theory that American law used Objective element to prove it and Moerhailun Rules, and discusses the methods to use it in China. About the conspire of joint trading, the method that uses objective facts to presumpte is good. About the purpose, the elements of "to obtain improper benefits or shift the risk" are the purpose of the crime usually, but other purposes such as stabilizing price or disturbing stock market also can commit the crime.The chapter six is research on the judgment of the crime and divided into three sections. Section one is about how to judge serious circumstances of the crime, about the serious circumstances in criminal law,<Prosecution Standards> in 2001 and Supplementary Provisions> in 2008 also have problems, for example, does Illegal profits include the shifted risk, should Illegal profits cumulatively calculate, should we differentiate the Illegal profits between natural person and unit, how to judge the abnormal volatility of price and volume, how to judge the violence and coercion, etc. Section six is difference between the crime of stock market manipulation and other securities crime, such as the crime of insider trading, the crime of fabricating and disseminating false information about securities trading, the crime of luring investors to buy and sell securities. This article analyzes the difference form object, objective elements, subject, and subjective elements. Section three is about patterns of the crime and analyzes the stop form, quantity of crime and accomplice. On the stop form, prepare commit of the crime is to prepare tool or create the conditions for the crime of stock market manipulation, because the crime needs some technical conditions and has complex behaviors, so the prepare commit also needs some technical conditions and has complex behaviors. Incompleted commit, pausing condition and unaccomplished offender also like this. On the quantity of crime, because united trading and continuous trading also can use information, and the crime of insider trading will use insider information, so the two crime may coincidence and compose imaginative superposition crime, but the statutory sentence of the two crime is same, so the question is how to use those. Continuous trading may consistent the feature of imaginative joinder of offenses. When behavior gets information by theft, enticement, coercion and other misconduct, then uses the information to manipulate, it may compose implicated offense of the crime of stock market manipulation and the crime of violation of trade secrets. On the accomplice, we must make the difference between manipulation and common investor’s behavior. When finance staff gives finance to manipulator deliberately, when securities company and practitioners accept manipulator’s business deliberately, they will constitute accomplice of the crime.The chapter seven is research on the regulation of the crime of stock market manipulation and divided into two sections. Section one is analysis and reference about the regulation of foreign country law, and analyzes regulations of American law, EU law and Japanese law. The regulation includes prevention, compensation and punishment. The effects of penalty is not good to securities crime and economic crime, so the important method is to build prevention mechanisms. Such as "China wall", the timely disclosure rules, delayed disclosure rules, the system of insider’s list, the system of Insider trading report, the system of suspicious transaction report. On the compensation, although the Chinese securities law stipulates civil damages and establishs the principle that civil damages precede over fine, but the law does not stipulate statute of limitations and the coordination between statute of limitations and administrative or criminal procedures, so how to ensure investor’s right that they can know the loss facts because of manipulation, how to ensure investor’s right of class action, there are still problems. On the punishment, American law is the strictest, the penalty is to be fined not more than $5,000,000, or imprisoned not more than 20 years, or both, and sets different grades for the crime. In contrast, because the penalty in Japanese securities law is not strict, and the most perpetrators were sentenced to fine or probation in fact, so the penalty can not stop the crime. In China, there are many vulnerabilities on the prevention mechanisms, moreover, the penalty in not enough, so the cases of the crime of stock market manipulation grow rapidly these years. Section two is about the regulation. On the prevention mechanisms, this article thinks we should embark on financial institutions and practitioners, financial markets and government-led, and perfect self-regulatory mechanism of financial institutions and practitioners, Internal control mechanisms, financial market regulatory system, financial early warning mechanism managed by government, the ability of transnationally preventing securities crime and preventing transnational securities crime. On the current penalties, imprisonment is not strict enough and sentencing standards such as "the circumstances are serious" and "the circumstances are especially serious" are not clear. On the criminal fine, the law only stipulates "together with fine", so judiciary can arbitrarily decide it. This article suggests to decide the amount of fine between double and quintupling. On the administrative penalty, the problems are that Laws and regulations stipulate different penalties, so the effects are different and appliances are difficult, moreover, there are not detailed provisions about confiscation of illegal income and prohibition of entering securities market. Such problems should be resolved as soon as possible.The appendix is "the explanation about the classical cases of stock market manipulation" and divided into three parts. Part one is about cases in Europe and America and introduces Rex v. de Berenger Case, Ernst & Ernst v. Hochfelder Case, Santa Fe Industries, Inc.v. Green Case. Rex v. de Berenger Case happened in 1814, it is the first case of spreading false information to manipulate stock market, so the securities crime research community all look it as the originator of the crime of stock market manipulation. In the case, the court pointed out that the nature of the crime is hurting investor’s right that they should enjoy the nature and not effected market, then the court took it as one typle of the crime of stock market manipulation. The idea that the nature of the crime is hurting investor’s right became the basic idea of regulating the crime and continued to now, and the behavior of spreading false information to manipulate stock market also became one typle of the crime of atock market manipulation. So the case is the milestones for the crime. The focus of debate of Ernst & Ernst v. Hochfelder Case is how to comprehend "manipulative and deceptive devices" in SEC rule 10b-5, in the case, American law established the subjective standard of the crime, and in Franke v. Midwestern Okla. Dev. Auth.Case、Gental Bank Case, American law accepted the standard and put the subjective elements from fraud to serious carelessness all into the subjective elements of the crime. The significance of the case is the standard about subjective elements. In Santa Fe Industries, Inc. v. Green Case, the argument is if the unfair annexation can compose the "fraud" in SEC rule10b-5 or not. The court thinked the manipulation is to artificially effect the market in order to mislead investor, so thereafter, courts took other behaviors like this all into the manipulation, and the behaviors of manipulation effected other securities laws, it is the most far-reaching case. Part two is about cases of Japanese manipulation and analyzes kyoudo feed securities case, Nihon dankou securities case and Fujita tourist securities case. In the kyoudo feed securities case, the discussion is that the manipulation needs the subjective elements of Luring investor’s trading or not, in other words, does the crime need purpose or not. In the Nihon dankou securities case, the discussions are the performance of false trading and that the crime needs purpose of creating a false impression of prosperity deal or not. In the Fujita tourist securities case, it analyzes the difference between common executor and abettor, the question is linked with quantity of crime in chapter six. And the three cases reveals one fact:because the penalty in Japanese law is not strict, and usually resolved the case with fine or probation, so the effect of penalty did not exert completely, so the cases usually appears in Japanese scurities market. And the same problem also appears in Chinese securities market. Part three is about the cases of the crime in Chinese market and analyzes Yian technology manipulation case, Honkon "Fanhai hotel" securities manipulation and Wuhan Xinlande case. In the Yian technology manipulation case, the manipulator used the methods of buying from or selling to oneself without transferring the right, making blue chip stocks, and spreading false information, and the case has the common character about the crime in the case. Moreover, because the defendant has not enough money, the fine can not achieve really. This is the weakness of prevention and punishment mechanism in China. Honkon "Fanhai hotel" securities manipulation is the first criminal case of the crime of stock market manipulation in Honkon, the prosecution used the objective facts to prove the crime according to American law. Wuhan Xinlande case is the manipulation by using Information superiority, this article calls into question about the judgement of the case by Securities Regulatory Commission and the too relaxed punishment, then analyzes the improvements of prevention and punishment measures in Chinese securities market.