SEC sues AutoChina executives for manipulative trading

See the SEC litigation release. Below is an excerpt:

According to the SEC’s complaint filed in the U.S. District Court for the District of Massachusetts, AutoChina senior executive and director Hui Kai Yan, a former AutoChina manager, and others fraudulently traded AutoChina’s stock to boost its daily trading volume. Starting in October 2010, the defendants and others deposited more than $60 million into U.S.-based brokerage accounts and engaged in hundreds of fraudulent trades over the next three months through these accounts and accounts with a Hong Kong-based broker-dealer. The fraudulent trades included matched orders, where one account sold shares to another account at the same time and for the same price, and wash trades, which resulted in no change of beneficial ownership of the shares. According to the complaint, AutoChina and the other defendants engaged in the scheme after lenders offered AutoChina unfavorable terms for a stock-backed loan due to low trading volume in its stock.

It is very rare for executives (or anyone, for that matter) to be sued by the SEC for alleged manipulative trading in a listed stock. But manipulative trading is quite common in the penny stock world and few of the people who engage in it ever get sued by the SEC. So when you see an OTCBB or pinksheet stock with little prior trading start to attract a lot of volume, there are good odds that it is manipulative wash-sale trading rather than real people buying the stock.

Disclaimer: I am not a lawyer or legal expert. I have no positions in any stocks mentioned. This blog has a terms of use that is incorporated by reference into this post; you can find all my disclaimers and disclosures there as well.

3 thoughts on “SEC sues AutoChina executives for manipulative trading”

  1. Was gonna post the link here, but not surprised you’re all over it.

    Yeah, this stuff goes on daily, and likely happens in listed names as well. Hedge funds swapping shares to manipulate price, and assorted other games and cons.

    1. With wash sales there are no net changes in beneficial ownership — the person is just selling stock back and forth between multiple brokerage accounts. It can be expensive in terms of commissions, but I assume the wash sale traders make sure to get cheap commissions. As for matched orders, yes they can generate gains, but also losses, and those should net out to very little money lost or gained.

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