Investigations

In 2016, BaFin investigated a total of 272 (previous year: 256) new cases of suspected market manipulation (see Table 19 “Market manipulation investigations”). Again, more than half of the formal investigations launched – 178 (previous year: 135) analyses in total – were based on referrals by the trading surveillance units at the German stock exchanges. Public prosecutors' offices and police authorities initiated a total of 11 (previous year: 17) investigations by BaFin.

Cooperation with foreign supervisory authorities again played an important role in 2016. BaFin cooperated with the supervisory authorities of a total of 23 different countries (previous year: 24) in 113 cases (previous year: 107). Foreign authorities from 14 countries (previous year: 17) requested assistance from BaFin in 42 cases (previous year: 55).

BaFin found evidence of market manipulation in 106 cases completed in 2016 (previous year: 160). It filed complaints against 275 suspects with the relevant public prosecutor's office (previous year: 290).

In 7 other cases (previous year: 10) involving a total of 9 persons (previous year: 14), there was evidence that an administrative offence had been committed. In 40 cases, the investigation did not find any evidence of violations (previous year: 44). The number of investigations still pending at the end of 2016 was 398 (previous year: 279).

Table 19 Market manipulation investigations

Market manipulation investigations

* The difference between the number of referrals to the BaFin Administrative Fines Division and the number of administrative fine proceedings initiated by BaFin (see 7.1) is attributable to the use of different processes. Source: BaFin

Sanctions

In 2016, 10 individuals were sentenced for market manipulation following a full public trial (previous year: 6), 3 individuals were acquitted (previous year: 1; see Table 20 "Completed market manipulation proceedings"). The judges passed sentences against 13 other persons (previous year: 10).

The public prosecutors' offices discontinued a total of 310 investigations (previous year: 228). In 166 of these cases (previous year: 97), a conviction was not sufficiently probable to bring a charge in accordance with section 170 (2) of the German Code of Criminal Procedure (Strafprozessordnung). Another 17 investigations (previous year: 37) were provisionally discontinued in accordance with section 154 (f) of the Code of Criminal Procedure because the defendant's place of abode was unknown. In addition, the public prosecutors' offices discontinued 49 cases (previous year: 29) in accordance with section 153 of the Code of Criminal Procedure, because they considered the perpetrator's degree of fault minor and there was no public interest in criminal prosecution. Another 50 investigations (previous year: 49) were discontinued in accordance with section 153a of the Code of Criminal Procedure, after the defendants had paid an administrative fine.

In a further 28 proceedings (previous year: 16), the public prosecutors' offices concentrated on substantively more serious allegations and discontinued the market manipulation proceedings in accordance with section 154 or section 154a of the Code of Criminal Procedure.

Table 20 Completed market manipulation proceedings

Completed market manipulation proceedings

* The figures relate to decisions from previous years, but BaFin only came to know about them in the years specified in the left table column. Source: BaFin

Selected cases

Swiss FE Group AG and others

In a leading decision of 25 February 2016¹, the Federal Court of Justice (Bundesgerichtshof) confirmed a criminal conviction of the Regional Court (Landgericht) of Kleve of 7 November 2014. The Regional Court of Kleve had sentenced the former member of the management board of a securities trading bank in North Rhine-Westphalia, which has since been wound up, to a prison term of three years and three months, because this individual had violated the ban on market manipulation by using scalping. In 2006 to 2008, he had recommended the shares of Swiss FE Group AG, Metriopharm AG and Prime Beteiligungen AG without disclosing his own shareholdings. This is the first court ruling on scalping that relates not only to recommending shares through e-mailed market letters and an Internet portal, but also through telemarketing by a call centre. The public prosecutor's proceedings had been prompted by a complaint filed by BaFin in 2010.

The Federal Court of Justice ruled that the definition of "other acts of deception" as a criminal act within the meaning of section 20a (1) sentence 1 no. 3 of the Securities Trading Act, old version, was in accordance with the principle of legal clarity in the German Basic Law (Grundgesetz). With regard to the effect on the share price within the meaning of section 38 (2) no. 1 of the Securities Trading Act, old version, the Federal Court of Justice determined in principle that the necessary extent of factual findings depended on the circumstances of the individual case. Sufficient evidence can be provided by making comparisons of the share price performance and trading volume to date, the share price performance and changes in trading volumes for the security in question on the day the act constituting the offence was committed, as well as the order size. If, therefore, there is only a short interval between sending out recommendations for relatively unknown shares and a rapid increase in trading volume and buyer numbers, it is very likely that there is a link between the recommendation and price fixing. This conclusion manifests itself if no other causes can be identified to which the performance could be attributed.

The Federal Court of Justice rescinded the judgement of the Regional Court of Kleve relating to issue of forfeiting compensation and referred the case back to a different criminal division of the Regional Court of Kleve for a new trial and decision.

Various funds

A judgement of the Regional Court of Frankfurt of 6 May 2016² became final on 14 May 2016. In this judgment, a securities trader operating in Frankfurt am Main at the time of the crime was given a suspended prison sentence of one year and eight months for 365 cases of market manipulation in coincidence with breach of fiduciary duty.

The trader worked as lead broker and specialist at the Frankfurt Stock Exchange. He engaged in wash trading to the disadvantage of his employer, a securities trading bank. First, he placed sell orders on the exchange in the name of the bank in order to subsequently accept them through private buy orders with a corresponding volume and price. He instructed these buy orders by using his wife's securities account. He then initiated private sell orders on the exchange and accepted them in the name of the bank when issuing corresponding offsetting buy orders.

He caused losses for the bank through these pre-arranged trades, because the bank bought the securities back at higher prices, thus generating a corresponding profit for the private securities account. The loss incurred by the bank amounted to approximately €105,000.

He continued to practice this crime model even after his business unit, and thus his employment contract, had been transferred from one securities trading bank to another, with the result that the second bank incurred a (further) loss of approximately €107,000.

BaFin had filed a complaint with the public prosecutor's office in Frankfurt in September 2010.

JK Wohnbau AG (now ISARIA Wohnbau AG)

On 13 January 2016, the Local Court (Amtsgericht) of Munich imposed a final administrative fine of €55,000³ on ISARIA Wohnbau AG in accordance with section 30 of the German Act on Breaches of Administrative Regulations (Ordnungswidrigkeitengesetz) for market manipulation, among other offences. The property developer had provided false information and failed to meet the deadline for publishing three financial reports for 2011.

The company's CEO at the time had already been sentenced to a prison term of three years and six months in 2013 by the Regional Court of Munich I for fraud and breach of fiduciary duty in connection with the IPO of JK Wohnbau AG. The court dealt with simultaneous violations of the ban on market manipulation in accordance with section 154 (1) and (2) of the Code of Criminal Procedure.

The Munich I public prosecutor's office discontinued the investigations into four other individuals because of suspected market manipulation and other offences in return for payments of €35,000, two amounts of €25,000 and €7,500 as part of out-of-court settlements in accordance with section 153a of the Code of Criminal Procedure. The individuals included a former CFO at JK Wohnbau AG, a management board member of a private bank domiciled in Berlin and the CEO of a media company for financial information in Kulmbach.

BaFin had filed a complaint with the public prosecutor's office in Munich I in January 2012.

Pfleiderer AG

In another court case about market manipulation in response to a criminal complaint filed by BaFin, the Local Court of Chemnitz convicted the defendant and handed down a suspended prison term of eight months in a final judgement in July 2015.⁴

Under a false identity, the convicted individual had disseminated incorrect positive information about Pfleiderer AG on specialised financial online portals in September 2012. A few days before this information was published, the convicted individual had acquired a considerable number of shares of the company. As intended, the share price rose sharply on the two exchange trading days following publication – by an accumulated total of almost 200% at its peak. The convicted individual took advantage of the rise in demand by reselling his shares through several securities accounts within a single trading day, generating a profit totalling approximately €16,000. The short time span between the transactions and the profit generated as a result had drawn BaFin's attention to the convicted individual.

BaFin had filed a complaint with the public prosecutor's office in Chemnitz in May 2014.

Diskus Werke AG

A sentence handed down by the Local Court of Frankfurt am Main became final on 29 July 2016, imposing a total fine of 120 daily units on the convicted individual for six separate acts of market manipulation in trading in shares of Diskus Werke AG.⁵ The daily units amounted to €230, resulting in a total of €27,600.

Between November 2009 and February 2010, the convicted individual used various securities accounts in Germany and abroad to place orders for shares of Diskus Werke AG, which he arranged in such a way that they could be offset against each other. During the period the crime was committed, the defendant was the chairman of the company's supervisory board and also in other respects traded through various securities account which belonged to Diskus Werke AG as a company and to its employees. Not only did he cause a rise in the share price, he alone was at times also responsible for the entire Xetra trading volume, thus having a significant influence on trading.

The public prosecutor's proceedings had been prompted by a complaint filed by BaFin in 2014.

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