To: hedgefundman who wrote (1811 ) 1/8/2005 8:45:13 PM From: Jeffrey S. Mitchell Respond to Let's try this one more time. You wrote:front runnin' may not be a crime, manipulation may not be a crime... may only be civil violations, with penalties, including foreitures criminal court-- precisely because the government is contending that Elgindy's market manipulation was criminal , which, in your own words, you say it is not! Note that the indictment says only that the information was “sometimes false.” While it may appear odd that the release of truthful information can be a crime, market manipulation cases brought under Section 10(b) and Rule 10b-5 do not require that false information be released, only that there be an omission of material information. The government’s claim is that Elgindy did not disclose his trading in the stock when he released the information, so that he engaged in “scalping.” The two main scalping cases are SEC v. Capital Gains Research Bureau, 375 U.S. 180 (1963), which involved a violation of § 206 of the Investment Advisers Act of 1940, and Zweig v. Hearst Corp., 594 F.2d 1261 (9th Cir. 1979). Neither case involved a criminal prosecution, and it will be interesting to see if the U.S. Attorney can establish a market manipulation case based on use of truthful information. The government also alleges that Elgindy and the other defendants engaged in insider trading based on the nonpublic information received from Royer, and that may be a stronger case of securities fraud. Insider trading only really works with truthful information. (ph) lawprofessors.typepad.com
