Opinion ID: 1249351
Heading Depth: 3
Heading Rank: 2

Heading: Pleading Market Manipulation

Text: Market manipulation requires a plaintiff to allege (1) manipulative acts; (2) damage (3) caused by reliance on an assumption of an efficient market free of manipulation; (4) scienter; (5) in connection with the purchase or sale of securities; (6) furthered by the defendant's use of the mails or any facility of a national securities exchange. See Schnell v. Conseco, Inc., 43 F.Supp.2d 438, 448 (S.D.N.Y.1999); Cowen & Co. v. Merriam, 745 F.Supp. 925, 929 (S.D.N.Y.1990). Because a claim for market manipulation is a claim for fraud, it must be pled with particularity under Rule 9(b). See Internet Law Library, Inc. v. Southridge Capital Mgmt., 223 F.Supp.2d 474, 486 (S.D.N.Y.2002); U.S. Envtl., 82 F.Supp.2d at 239; see also Rooney Pace, Inc. v. Reid, 605 F.Supp. 158, 162-63 (S.D.N.Y.1985) (applying Rule 9(b) to a market manipulation claim). A claim of manipulation, however, can involve facts solely within the defendant's knowledge; therefore, at the early stages of litigation, the plaintiff need not plead manipulation to the same degree of specificity as a plain misrepresentation claim. See Internet Law Library, 223 F.Supp.2d at 486; U.S. Envtl., 82 F.Supp.2d at 240; cf. Rombach, 355 F.3d at 175 n. 10 (relaxing the standard where information was likely to be in the exclusive control of the defendants and analysts). Accordingly, a manipulation complaint must plead with particularity the nature, purpose, and effect of the fraudulent conduct and the roles of the defendants. See In re Blech Sec. Litig., 928 F.Supp. 1279, 1291 (S.D.N.Y.1996) (adopting this test as set forth in the unpublished decision Baxter v. A.R. Baron & Co., No. 94 Civ. 3913, 1995 WL 600720 (S.D.N.Y. Oct.12, 1995)); see also Compu-Dyne Corp. v. Shane, 453 F.Supp.2d 807, 821 (S.D.N.Y.2006); U.S. Commodity Futures Trading Comm'n v. Bradley, 408 F.Supp.2d 1214, 1222 (N.D.Okla.2005) (market manipulation under the Commodity Exchange Act); Fezzani v. Bear, Stearns & Co., 384 F.Supp.2d 618, 642 (S.D.N.Y.2004); In re Royal Ahold N.V. Sec. & ERISA Litig., 351 F.Supp.2d 334, 372 (D.Md.2004); Log On Am., Inc. v. Promethean Asset Mgmt., 223 F.Supp.2d 435, 445 (S.D.N.Y.2001); U.S. Envtl., 82 F.Supp.2d at 240; In re Blech Sec. Litig., 961 F.Supp. 569, 580 (S.D.N.Y.1997). But see Intelli-Check, 274 F.Supp.2d at 629 (articulating requirements for a less stringent pleading standard in the Third Circuit). General allegations not tied to the defendants or resting upon speculation are insufficient. This test will be satisfied if the complaint sets forth, to the extent possible, what manipulative acts were performed, which defendants performed them, when the manipulative acts were performed, and what effect the scheme had on the market for the securities at issue. Baxter, 1995 WL 600720, at ; see also Miller v. Lazard Ltd., 473 F.Supp.2d 571, 587 (S.D.N.Y.2007); In re Sterling Foster & Co. Sec. Litig., 222 F.Supp.2d 216, 270 (E.D.N.Y.2002); Blech, 961 F.Supp. at 580. This standard meets the goals of Rule 9(b) while also considering which specific facts a plaintiff alleging manipulation can realistically plead at this stage of the litigation. Because a claim for market manipulation requires a showing of scienter, the PSLRA's heightened standards for pleading scienter also apply. Therefore, the complaint must plead with particularly facts giving rise to a strong inference that the defendant intended to deceive investors by artificially affecting the market price of securities. See 15 U.S.C. § 78u-4(b)(2); Section II.A, supra. This pleading requirement is particularly important in manipulation claims because in some cases scienter is the only factor that distinguishes legitimate trading from improper manipulation.