Private action as a remedy against market manipulation in the USA

Abstract

Purpose

The purpose of this paper is to examine the appropriateness and effectiveness of using the right of private action against perpetrators of market manipulation.

Design/methodology/approach

The author examines legislation in the USA, which gives victims the right to pursue private legal action against market manipulators, and discusses the eligibility criteria that plaintiffs have to meet before they are allowed to pursue private proceedings.

Findings

In spite of the importance placed on private claims by courts, regulators and legal firms in the USA, research has shown that relying on this type of redress alone, is fraught with difficulties as it may not be appropriate in a modern day economic climate, because the doctrines of the law of tort, such as reliance and causation, are ill‐suited to the impersonal nature of financial market trading. Common law tort has placed obstacles in the way of effective private civil action, making it inconvenient for those wishing to pursue this route to do so.

Practical implications

The study concludes that private action can work as a secondary or tool against market manipulation, but it cannot replace or reduce the power of public enforcement.

Originality/value

The study examines in detail the experience of the USA in using private action as a remedy against perpetrators of market manipulation. It discusses the eligibility criteria that plaintiffs have to meet before they are allowed to pursue private proceedings. It addresses the question of whether other countries such as the UK should use private enforcement against market manipulation.

Citation

Alkhamees, A. (2012), "Private action as a remedy against market manipulation in the USA", Journal of Financial Regulation and Compliance, Vol. 20 No. 1, pp. 41-55. https://doi.org/10.1108/13581981211199416