Arrests have been made in Russia due to securities manipulation. What you need to know

Administrators of three Telegram channels have been detained in Russia on suspicion of manipulating the financial market. They are suspected of encouraging the purchase of assets, which led to higher prices for them, while they themselves were engaged in their sale. Thus, they made illegal profits at the expense of other investors. What other manipulations exist on the stock market and how to recognize them are described in the Izvestia article.

Who was the subject of the criminal case

• Law enforcement agencies have suppressed the illegal activities of Russian citizens who were involved in the systemic manipulation of the Russian stock market. The operation was carried out jointly by employees of the Federal Security Service, the Investigative Committee and the Ministry of Internal Affairs of Russia. Three organizers of popular Telegram channels writing about the financial market were detained: "Marketdengivlast | RDV" (120 thousand subscribers), "Wolf from the Moscow Exchange" (27 thousand), "Signals of the Russian Securities Exchange" (121 thousand).

• It was found that from 2023 to 2024, the defendants published calls for the purchase or sale of certain securities, causing fluctuations in their quotations. They affected the value of assets and at the same time performed reverse operations themselves at artificially formed prices, thus extracting profit. In total, more than 55,000 illegal transactions with securities of 19 Russian companies were documented, which made it possible to extract criminal income on a particularly large scale.

• The IC of Russia clarified that traders of the financial company PFL Advisors were engaged in market manipulation and transactions using insider information. A criminal case has been opened against the defendants under Part 2 of Article 185.3 of the Criminal Code of the Russian Federation ("Market manipulation"). The suspects were searched, and material valuables worth 3 million rubles were seized.

• The facts of illegal trade were also confirmed by the Central Bank of Russia. The transactions were carried out on the personal accounts of individuals associated with the activities of PFL Advisors, which in turn administered three Telegram channels. The Bank of Russia qualified the actions of individuals as market manipulation and restricted operations on their trading accounts.

What is market manipulation?

• Russian legislation defines market manipulation as those actions that result in the price, demand, supply, or trading volume of financial instruments, currencies, or commodities deviating significantly from the level they would have been at without active intervention. The Bank of Russia determines by which criteria it is possible to judge that the parameters of the financial market have changed significantly. Illegal actions that artificially influence the market include making transactions, submitting bids and distributing information that led to the commission of manipulative operations.

• The criminal offense also includes the misuse of insider information in financial transactions. For example, it includes information about the intentions of a legal entity to participate in the auction, about the inspections it has carried out, about the decision to obtain or revoke a license, and about the intention to hold another person accountable.

Market manipulation schemes

• There are several most common market manipulation schemes. The one that the organizers of the Telegram channels are accused of is called Pump & Dump ("Pumping and dumping"). Its essence lies in the fact that a group of individuals buys cheap and low-liquid assets in advance, and then encourages them to buy them as well, advertising them as a profitable investment. If these are securities of a little-known company, then its value on the stock exchange will grow rapidly. Then the organizers sell their shares at an inflated price and collapse their value. As a result, they make a profit, and the savings of other investors are burned out. The plot of the movie "The Wolf of Wall Street" is based on the use of this scheme.

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• Attackers can also carry out fictitious transactions and resell the same asset to each other, increasing its value. When other investors pay attention to it, the securities are sold at an inflated price. Another manipulation scheme is the issuance of large bids without the intention to commit it. This creates a false impression of high demand for the asset and attracts other traders. At a certain point, the unrealistic bid is withdrawn, and the organizers make deals in the opposite direction.

• You can also manipulate the market to create attractive reporting. For example, a portfolio manager can buy shares at the end of a trading session, fix the closing price, and thus show the investor an increase in asset value. Sometimes, at auctions, you can see the opposite picture, when sales create a sharp drop in price, causing stop losses - automatic sale in the event of a collapse. This increases the drop, which attackers can take advantage of and purchase the asset at a low price.

How to recognize manipulation

• Experienced investors usually manage to recognize market manipulation and avoid financial losses on risky transactions. As a rule, losses are incurred by low-skilled retail investors who do not devote enough time to market analysis and reporting to make trading decisions on their own, not based on the opinion of fraudsters.

• Manipulation can be recognized by a number of signs that suspicious transactions most often have. In the case of Pump & Dump, it is worth paying attention to the defiant promises of fast and high profits of tens of percent. Such claims require careful verification, which usually shows that they are unfounded. As a rule, "pumping" occurs with low-liquid securities or currencies that are traded in extremely small amounts.

• To combat information manipulation, the Bank of Russia maintains a unified register of investment advisors. It includes individuals and legal entities that have passed the regulatory review. Advisors have the right to make individual recommendations to their clients within the framework of the risky strategy that was agreed in advance, and are responsible in case of violation of the terms. The Central Bank's register includes only 275 advisers, while 121 persons were excluded from it.

• At the same time, the absence of investment advisers in the register does not make a financial expert who runs his blog for a wide audience a manipulator. Bona fide authors differ from possible fraudsters in that they do not give guarantees or call for financial transactions, participate in discussions with subscribers, disclose information about themselves and their investment portfolios, admit mistakes, and publish opinions without reference to the work of the exchange and trading hours.