I'm not a securities lawyer, but I would assume that there is little deterrence for "sending a message to the stock market" with statements about hopes, plans, or predictions for the future. As long as there's nothing definitively false as of the moment you say it...
Generally, no, there are very specific conditions which make such a statement legal.
Statements such as "you will double your money" should always be avoided. Ideally you want a closed-loop system in which people viewing your statement have read to and agreed to the fact that you will be making money from your claims and your statement is marketing material and should not be construed as investment advice. Without such statements and provisions people reading the tweets could easily mistake such statements as investment advice or guarantees in regard to returns. Also, include a safe harbor provision regarding forward looking statements.
Basically, if you're going to talk about stocks or other investments in which you have a stake, consult a lawyer, specifically one who knows the securities law in both the jurisdiction you're speaking, the jurisdictions in which the company is registered and the jurisdiction in which the exchange operates, and for good measure the jurisdictions in which the message will be received.
This is the reason you sign 50 pages of legalese just to open up a trading account. It details exactly how, where, why and when your bank will fuck you over. This is why GS doesn't tweet about their Facebook deal and why 50 will be in jail long before Blankfein.
50 should be smarter than this. 50 cent doing this is the perfect opportunity for a beleaguered SEC to 'crackdown' on securities fraud on a very public figure in a very open and shut manner.
This statement should not be construed as legal advice and you should retain counsel in order to obtain such advice :)
An official statement would run afoul of the law, yes. A concerted effort to whisper to many people in an effort to manipulate the market would be fairly easy for the SEC to uncover in an investigation.
A single false statement or two, said to a reporter as a confidential source, would be much more difficult to prosecute. The reporter might not willingly give up their source, and the company could deny everything, fire the person who "inaccurately represented our position", and claim the party acted of their own volition. Modest fine, at best.
Juries need some basis on which to make a decision. The law is ridiculous if it only turns on whether you had a lawyer ahead of time to tell you what not to say while operating the identical scam.
It's not clear why telling people you think a stock is going to go up after you've already bought it would require altruism, and more than that you would benefit by building a reputation as someone who makes accurate predictions if you turn out to be right, independent of whether anyone acts on your statement by buying the stock.
No laws against incorrectly predicting the movement of securities. There are laws to prevent pump and dump of securities for profit. If Cramer was giving price predictions that benefited him without disclosing his positions, he would be violating the law. It is necessarily illegal to provide guidance of stock movement if you hold the stock. You need to say what positions your holding. Short sellers do this all the time legally.
True, that's the actual crux of the question here; if you are inventing bad news and trading on it, then by my reading you're probably engaging in stock manipulation.
On the other hand, it seems that uncovering new true information, and then taking a short position on it, not illegal.
A lot of the comments in this thread were assuming that there was some crime just from reporting the bad news and trading on it, unconditionally on whether or not the news was true.
A whole lot of financial/securities regulation revolves around messaging. You are allowed to do many things as long as you are transparent about them, conversely you have to be extremely careful about saying anything lest it be interpreted to mean something unintended.
Right, but the method of averting the poison pill described above would likely violate securities laws around coordinated behavior between market participants.
Not legal advice but in many common jurisdictions that would not necessary be a offence since they aren’t acting on inside information but rather executing planned trades.
Though it would likely raise eyebrows and one would need to be mindful of related concerns like closed periods in the securities, which are far easier to monitor.
IANAL but I think the law is about trading - not profiteering. Trading public stocks based on material non-public information is a crime even if you don’t know _what_ will happen to the stock or you predict wrong. You literally cannot lawfully trade the stock no matter your expectation of how the news will be received. In fact I would say any large market reaction after the news breaks means the information was “material.”
“One day we had a conversation where we figured we could just try to predict the stock market. And then we decided it was illegal. So we stopped doing that.”
I doubt that - maybe they could build a reliable sentiment indicator (paired with twitter data), but even that would have a lag. How would that be illegal anyways?
Inducing other people to make trades based on fradulent, incorrect or manipulative information is a securities fraud, period. Most of what goes on on WSB dances right next to that boundary, so much so that people like you and the OP seem to have forgotten it exists. The comment above is crowing about "signal boosting", which is absolutely not the kind of thing you would say about purely neutral information.
Obviously WSB posters haven't been prosecuted in the past. But the reason for that is that WSB activity hasn't so far been responsible for large-scale distortions in the market. Clearly that's no longer true.
Are you living in a world where people are incapable of preplanning their actions in order to intentionally cause a downward correction in the stock, so that they can later sell it for a higher price and make money this way? Talk to the SEC and see if they agree with you :P
https://en.wikipedia.org/wiki/Forward-looking_statement
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