Penalties for Market Manipulation
Understanding the consequences reinforces why these activities are prohibited. The penalties are severe enough to end careers and result in prison time.
Three Levels of Penalties
Market manipulation can trigger civil, criminal, and regulatory penalties, often simultaneously.
| Penalty Type | Who Imposes It | Consequences |
|---|---|---|
| Civil penalties | SEC | Disgorgement of profits, injunctions (court orders to stop), civil monetary penalties |
| Criminal penalties | Department of Justice (DOJ) | Up to 20 years imprisonment and up to $5 million in fines for individuals; up to $25 million for entities |
| FINRA sanctions | FINRA | Fines, suspension, bar from the industry, censure, expulsion of the firm |
Exam Tip: Gotchas
- The $5 million criminal fine is for individuals; entities face up to $25 million.
- Criminal and civil penalties can be imposed at the same time. They are not mutually exclusive.
- FINRA can bar a person even if no criminal charges are filed. FINRA acts independently of the DOJ.
Key Details
- Disgorgement means the violator must give back all profits earned from the manipulation
- Injunctions are court orders that prevent the person from engaging in the prohibited conduct going forward
- A bar from the industry is permanent. The person can never work in securities again
- Censure is a formal reprimand that goes on the person's permanent regulatory record
- Expulsion removes a firm's FINRA membership entirely, effectively shutting down the firm
Think of it this way: The SEC takes your money (civil penalties), the DOJ takes your freedom (criminal penalties), and FINRA takes your career (industry bar). All three can act at the same time based on the same violation.
Exam Tip: Gotchas
- Criminal penalties require "beyond a reasonable doubt" (the highest legal standard). Civil penalties require only a "preponderance of evidence" (more likely than not). The SEC often pursues civil cases because they are easier to win.
- A FINRA bar is permanent, not a suspension. A barred person can never work in securities again.