Market Manipulation Cases Struggles Highlighted by Dropped Fraud Accusations
In the world of finance, the line between legal and illegal trading practices can often be blurred, especially when it comes to market manipulation. Recent court decisions and regulatory guidance have highlighted the complexities involved in prosecuting such cases, particularly those involving micro manipulations and open-market manipulations.
Take the case of Mark Johnson, the former head of foreign exchange trading at a large international bank. Convicted of wire fraud and conspiracy to commit wire fraud in 2017 for allegedly manipulating the 3 p.m. fix price for British pounds, Johnson's conviction was overturned by the U.S. Court of Appeals for the Second Circuit in 2023. The court ruled that the "pricing information that went to the core of the deal" was not a traditional property interest[1].
Similarly, in a separate case, trader Avraham Eisenberg was charged with commodities fraud, commodities manipulation, and wire fraud in 2023. The district court granted Eisenberg's Rule 29 motion, overturning the jury verdict and acquitting him of the wire fraud charge and vacating his commodities fraud and commodities manipulation convictions. The court found that the government had not established a material misrepresentation for the wire fraud charge, as the platform did not have "rules, instructions, or prohibitions about borrowing," no prohibition against manipulation, no formal requirement that a borrower repay, and no requirement to maintain sufficient collateral[1].
These cases underscore several challenges in prosecuting criminal market manipulation:
- Material misrepresentation is hard to prove when platform rules or functionalities allow certain conduct or when intent is ambiguous.
- Impact on broader markets versus isolated platform activity complicates the legal framework.
- Linking manipulation to criminal intent and resulting harm requires extensive evidence, often involving complex cross-market effects.
- Agencies may hesitate to escalate minor or novel manipulations to criminal prosecution, preferring civil enforcement when impact or intent is less clear.
In light of these challenges, regulatory bodies such as the Commodity Futures Trading Commission (CFTC), the Federal Energy Regulatory Commission (FERC), and the Securities and Exchange Commission (SEC) have issued guidance to clarify criteria for referring criminal market manipulation cases to the Department of Justice. The advisory suggests that criminal referrals depend heavily on factors like the market impact of the offense and the defendant’s prior conduct and expertise. This may reduce DOJ referrals for minor or technical infractions and favors civil enforcement instead, illustrating regulatory caution in criminal prosecution of market conduct[5].
These challenges emphasize why many market manipulation prosecutions struggle to succeed, especially involving micro or open-market manipulations where market dynamics and technological platforms blur the lines of wrongdoing and criminal liability. It is a reminder for both regulators and traders to navigate these complexities with care and precision.
References:
[1] "Courts Overturn Convictions in Market Manipulation Cases", The Wall Street Journal, 2023. [2] "CFTC, FERC, and SEC Issue Joint Advisory on Criminal Market Manipulation", CFTC, 2025. [3] "The Challenges in Prosecuting Market Manipulation: A Closer Look", Financial Times, 2025. [4] "Market Manipulation: The Gray Areas of Financial Regulation", Harvard Law School Forum on Corporate Governance and Financial Regulation, 2025. [5] "Regulatory Guidance on Criminal Market Manipulation: Implications for Enforcement", The National Law Review, 2025.
- In the realm of business, the intricacies of technology and its integration with finance and investing make it difficult to prosecute cases of market manipulation, especially when dealing with modern trading platforms that allow certain conduct or have ambiguous intent.
- As technology continues to transform the landscape of finance and investing, regulatory bodies like the SEC, CFTC, and FERC are issuing guidance to clarify the criteria for criminal market manipulation, emphasizing the importance of market impact and a defendant's prior conduct and expertise, with a tendency to favor civil enforcement over criminal prosecution in minor or technical infractions.
