Securities and commodities exchange violations

Other Names:
Stock market fraud
Stock-exchange and bourse related crimes
Commodity exchanges related crimes
Illegal share trading
Security and commodity exchange violations vary greatly from country to country but generally are considered forms of fraud. Signatures may be forged to registration statements of stocks, unregistered stocks may be sold. Stocks may be publicized without disclosing receipt of payment for the advertisement. Stocks may be traded on the basis of illegally obtained or privileged information or the information may be sold. Ownership of stocks may be hidden through the use of middle men or dummy corporations. Stock market crimes are committed by highly sophisticated professionals who know the laws and to a large extent are self-regulating. They are tempted by hugh gains, relative easy access, difficult detection and lenient sentences. By ensuring that there are international dimensions to any securities fraud the question of which jurisdiction is responsible for controlling the transaction is obscured.
In the USA, although the effectiveness of the securities laws is not in question, the ability of government to enforce those laws is questionable. Hard evidence is rarely available and cases involving insider dealing require considerable work to prepare on the basis of multitudes of transactions. Cases involving major offenders have either resulted in minimal sentences, following plea bargaining, or have been overturned on appeal. In 1992 it was estimated that securities fraud had grown to US$40 billion for the year ending July 1991. In that year 115 legal and administrative actions had been brought by the Securities and Exchange Commission, compared to 43 three years previously. In 1998, the North American Securities Administrators Association estimated that Americans lose about $1 million a hour to securities fraud.

In the 1991 there was evidence of fraud on the bond market of the USA on the part of one of the top trading firms which involved illegal purchase of an excessive number of bonds (primary dealers are limited to 35% of any issue of government debt to prevent cornering of the market and rpice distortion), lying to federal regulators and cover-up of these infractions. This was viewed as particularly serious in undermining confidence in trade in the government bonds of the USA and thus destabilizing the financial market. It was claimed that investors were effectively robbed of US$1 billion through rigging the bond market.

In India in the 1990s, a major stock exchange scandal on the Bombay stock exchange involved £700 million worth of securities bought on bogus guarantees, some provided by state-owned banks. The Indian finance minister was held to be in breach of parliamentary privilege for endeavouring to slow down or impede the subsequent investigation. In Japan between 1987 and 1990, major and minor Japanese brokerage firms compensated favoured clients with over US$146 million for stock market losses thus undermining faith in the fairness of the market and effectively rigging it against small investors. Although such practices were supposedly common and not illegal, provided no promise was made prior to any transaction, two of the heads of top investment firms were obliged to resign because the dealings were associated with tax irregularities. One firm had allegedly provided major loans to a major crime syndicate. The minister of finance and top officials took a 10% cut in salaries as an apology for failing to guard against improprieties in the securities industry.

In China in 1994 fraud on stock markets was widespread with many cases of individuals obtaining the securities numbers of others and using them with fake identification to sell that person's stocks at bargain prices.

Problem Type:
D: Detailed problems
Date of last update
28.02.1999 – 00:00 CET