Activist Short Seller Convicted in $21 Million Stock Manipulation Scheme
A federal jury in Los Angeles convicted an activist short seller of securities fraud yesterday for a market manipulation scheme that generated more than $21 million in profits. The conviction triggers mandatory sentencing proceedings and stands as the latest DOJ enforcement action against short-and-distort tactics that distort prices for public company shareholders.
A federal jury in Los Angeles convicted an activist short seller of securities fraud on June 1 for a long-running market manipulation scheme that produced profits exceeding $21 million, the Justice Department announced.
The defendant faces sentencing after the verdict on one count of securities fraud. The scheme involved coordinated trading and public statements designed to drive down targeted stock prices, allowing the short seller to cover positions at artificially depressed levels.
The $21 million figure represents the total gains directly attributable to the manipulation, according to the department's release.
The conviction changes the legal status of the defendant from accused to convicted felon. Sentencing will now occur under federal guidelines that treat securities fraud as a serious economic crime carrying potential imprisonment and forfeiture of ill-gotten gains. The exact date has not been set.
Downstream, the U.S. Attorney's Office for the Central District of California must prepare a presentence investigation report and recommend a term of incarceration, fines, and restitution. The Securities and Exchange Commission can now pursue parallel civil penalties or industry bars without waiting for criminal resolution.
Public companies that were targeted may use the conviction record in any separate civil litigation seeking damages for artificial price depression. The verdict also supplies the DOJ with a precedent for future activist short-seller cases involving similar patterns of trading and publicity.
This marks the latest federal prosecution of an activist short seller using the securities laws to police short-and-distort activity. The Justice Department has brought similar cases in recent years alleging the combination of concentrated short positions with misleading public attacks on company fundamentals.
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