Very unlikely. Could happen. But often you need more than self-incriminating emails, if they get those before it is settled. Could maybe result in some civil fines from regulators. But criminal prosecution would be more likely if the DOJ or US attorneys already had these firms and people involved with this activity under surveillance, which seems unlikely to me. The SEC is far more likely to prosecute those discord spammers than insiders at these firms, unfortunately. Which is why I say DOJ or US atty, but I doubt they are focused on this and doubtful that a civil suit will reveal enough for real prosecutors to get involved. We know the SEC only does slaps on the wrists for these large firms. Rarely do they go far beyond civil suits and fines, which makes it the cost of doing business and it’s probably covered by insurance.
It’s frustrating. But do not presume it is or will be easy to go further than the civil case. It could, but I seriously doubt it from what I have seen before. Better yet would be stinger regulations and enforcement on these regulated parties, We Christensen used some language which I have used before the other day, which is an improvement because he is starting to use industry relevant terminology for what is going on so that there can be a more intelligent discussion of why certain practices are allowed and whether that is good or not for everyone and if there should be special rules for different kinds of securities. For instance the wide use of rehypothecation of fungible securities assets in collateral operations where brokers and banks transact with hedge funds and similar institutional trading firms.
There are reasons for banks and brokerages insisting on such terms. There is a long tradition and they are in almost every contract those firms negotiate. So knowing that reality, one can see the level of the challenge both to litigants and critics.
I have long said the fundamental issues revolve around primary dealer relationships, rehypothecation and spoofing. All of those things are long established legal concepts. But arguing to regulators that some of those concepts would best be excluded from these thinly traded outskirt companies, where such activities have the potential to create opportunities for intentional manipulation of prices and firms literally giving themselves access to more capital by such activities. Manufacturing large, in the money traded with shady practices that then allow them even more free money to trade.
I definitely think it’s a bigger problem than regulators understand. Not sure that the lawyers are all up on the industry practices and why they exist as they do. But it is interesting to see the lawyers improving their sophistication in explaining and understanding the problem, rather than speaking if “naked shorting”. Rather using the more relevant industry terms to explain their business and why it is destructive to capital formation at this end of the market.
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