I guess that when some market abuse happens within the US, it is relatively easy for SEC to track down the criminals and sue them. But what makes me wonder is that what happens in case someone runs manipulation outside of the US.

To add a bit more specifics to the question, let's assume that:

  1. The abuser is not the US citizen/legal entity

  2. The abuser can be either natural or legal person

  3. The abuser uses a non-American broker (not sure how this exactly works, I guess someone just becomes a client of local (for them) broker, and it redirects trades using an American subsidiary)

  4. Type of abuse: any, from insider trading to a bear raid

  5. To complicate things a bit, let's also assume that the abuser is a resident of and performs their action from some complicated jurisdiction, e.g. from an unfriendly one (China or Russia) or from offshore or from an underdeveloped country which has no market abuse laws.

The questions are:

  1. Regarding jurisdiction: Would such actions even fall under the US jurisdiction? (e.g. what about a case when someone distributes fake information in twitter (Canadian company) regarding a Chinese company traded in the US?). Is some trading activity on the American exchange enough so that any market abuse actions regarding the instruments traded there could be considered under the US jurisdiction?
  2. Regarding tracking down: What legal instruments do the US authorities have to track down the abuser?
  3. Regarding prosecution: What legal instruments do the US authorities have to prosecute the abuser?
  4. Regarding brokers: What can the US authorities demand from a broker which runs abusive trades? (information, closing of the abuser's account, compensation?)
  • 1
    I expect you would have to specify the kind of abuse. Insider trading, what else were you thinking about?
    – o.m.
    Apr 14 at 17:34
  • @o.m. Would specifying one instead of another change an answer significantly? This is quite a theoretical question, this is why I wanted to make it not too specific. Moreover, generally speaking, I guess there are only three types of abuses (usage of insider information, distribution of false information/recommendations and destabilizing trading, such as selling too much at one to cause a fall), and this is coverable in one answer.
    – kandi
    Apr 14 at 17:45
  • Insider trading requires a trader with some sort of legal link to the US stock exchange (e.g. through a contract with a brokerage firm). Distributing false information can be done entirely outside the US.
    – o.m.
    Apr 14 at 18:37
  • @kandi "Would specifying one instead of another change an answer significantly?" Yes. The biggest distinction would be between conduct that affects the public securities markets generally (e.g. market manipulation) and those that harm particular individuals (securities fraud), with insider trading having an intermediate position between them that is a bit of both.
    – ohwilleke
    Apr 14 at 19:35
  1. Regarding jurisdiction

A crime that affects a US based market will trigger US jurisdiction (as well as that as the state in which it’s based). The US claims far less extraterritorial jurisdiction than most other nations but this is not extraterritorial- it happened in the US.

  1. Regarding tracking down

The SEC has responsibility for these types of crimes. They can call on the assistance of other Federal agencies including the State Department which would be a must.

  1. Regarding prosecution

Extradition. They would request the extradition of the accused in accordance with local law and any extradition treaty between the US and the country they are in.

If successful, the accused would be brought to the US to stand trial. If unsuccessful, the US would have to wait until they moved to a different country and try again. Or give up.

  1. Regarding brokers

The broker can be charged if they committed a crime or sanctioned if they broke the rules of the exchange irrespective of it action is taken or is successful against the principal.

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