Joseph Taub, who was indicted by a grand jury in New Jersey based on allegations of tax fraud and operating a scheme to manipulate stock prices entered a plea deal where he admitted to orchestrating a market manipulation scheme and defrauding the government of taxes.
According to case documents and statements, between 2014 and 2016 Taub, with co-conspirators, set up dozens of brokerage accounts in order to manipulate the prices of publicly traded companies. These dozens of brokerage accounts were controlled by Taub because he funded the accounts and directed the trading in the accounts. The brokerage accounts controlled by Taub but in the name of someone other than Taub, is a type of account known as ‘straw accounts.’ Straw accounts were used to hide trading activity and market manipulation schemes since these accounts were not in Taub’s name. Taub wrongly believed that the government would not notice his nefarious actions.
According to the indictment, Taub used multiple accounts to carry out his market manipulation scheme. He would use one account to purchase a large number of shares of a particular publicly traded company whose share price he wanted to manipulate. In coordination with co-conspirators whose names were on various other ‘straw’ brokerage accounts, Taub would direct the placement of numerous smaller buy orders in those straw accounts. The multiple small buy orders caused upward pressure on the stock price. After the stock price had increased, Taub would sell the large number of shares he had purchased in his account, taking a profit. Next, Taub would direct that the shares in the straw accounts be sold, or, if an order had not been executed, to cancel the order. According to the indictment, the co-conspirators expected to lose on their trades in the expectation that the losses would be made up on the large trade made by Taub.
As a result of Taub’s scheme from 2014 to 2016, Taub admitted that he made illegal profits of more than $17 million from his market manipulation scheme. If the court accepts the plea deal, Taub will go to prison for 18 months instead of a potential 20 years. He will also forfeit $17.1 million and be required to pay restitution to the IRS of $394,424.
Taub’s market manipulation scheme was a violation of 15 U.S.C. §78j entitled “Manipulation and Deceptive Devices” that is aimed at preventing people from using an ‘instrumentality of interstate commerce’ or the mails, or any national securities exchange, to engage in deceptive schemes for the purchase or sale of any security registered on an national exchange.
It seems Taub convinced others, likely through bribes or other means, to open fake accounts in their name but which accounts Taub would fund and direct. An appeal to the co-conspirators’ greed must have worked, because according to the indictment, the co-conspirators profited from the market manipulation scheme, at least until they got caught. Now, they likely have either admitted their guilt or are trying to get their own plea deal.
In today’s technologically advanced world, it seems quaint that a market manipulation-schemer believes they will get away with market manipulation fraud. The regulatory agencies like the SEC and FINRA have very sophisticated surveillance systems that permit them to identify insider trading, attempts at market manipulation, and other forms of cheating in the stock market. Every trade is monitored, and detailed algorithms are used to monitor for unusual activity to alert the authorities.
It is good that this scheme was stopped, but it also seems that the fraudster got off to easy with a very short incarceration sentence. Market manipulation can hurt many investors and the punishment should reflect that fact. It may be that the regulators are looking for easy ‘win.’