Update: The Spoofing Grift on Wall St.
All Guns Blazing In 2nd Amended Complaint: Northwest Biotherapeutics, Inc v. Canaccord Genuity LLC, 1:22-cv-10185, (S.D.N.Y.)
Detailed analysis of spoofing attacks.
Spoofing episodes linked to positive posts on the social media platform iHub thereby dampening potential price increases.
Shows permanent decline in the NWBO share price and provides Nobel-prize winning economist Paul Milgrom work detailing how spoofing causes lasting harm to the defendant.
Demands a jury trial.
Asks for injunction to stop firms from continuing to spoof.
What are compliance and legal departments at these firms doing?
Is naked short so big that brokers can’t allow true price discovery?
Where is the SEC and DOJ?
As discussed in a previous post Northwest Biotherapeuctics (NWBO) has filed the above reference case accusing a number of Wall St. market makers including Citadel Securities, Virtu Financial and Canaccord Genuity of spoofing it’s stock thousands of times. As a quick refresher, spoofing is the act of entering fake orders to make it appear as if there is more stock to buy or sell then there actually is, thereby creating a false market in a security. Both Magistrate Judge Stein and Judge Wood of the SDNY have found that NWBO’s allegations of spoofing have merit. However, as NWBO had not sufficiently proved loss causation the defendants motion to dismiss was granted pending plaintiffs appeal.
Appeal they did. In a damning compliant filed on March 15th, the almost 300 page document lays out in detail the spoofing allegations:
While this table appeared in the previous complaint the new complaint provides details on 11 instances of the spoofing cited above occurring between October 12, 2020 to May 10, 2022.
During the period referenced, Cohen Millstein analyzed over 230,000 posts on popular investor forum iHub and found that spoofing increased as positive posts on NWBO increased. This shows that market makers tried to keep the price of the stock depressed and prevent any upward price movement.
Furthermore, the filing includes this graph on the long term damage of the spoofing:
The new complaint states “As Nobel prize winning economist Professor Paul Milgrom explains, this price decline persists “[b]ecause manipulative trades are viewed by market participants as potentially informed, and potentially informed trades can result in permanent price impact, [therefore]manipulative trades can lead to permanent price impact.”
These points more then adequately address the need for loss causation and provide the basis for denial of the motion to dismiss.
In addition Cohen Millstein asks for two further things:
Demands a trial by jury.
An injunction to halt what they believe is continued spoofing.
The demand for a trial by jury is an interesting tactic. In this complaint, Cohen Millstein states that by keeping the price of NWBO artificially low the defendants have impaired the company’s ability to help develop this breakthrough cancer treatment by starving it of capital to run additional trials, build out of manufacturing and delaying NWBO’s application process. The defendants will need to argue in front of a jury that this was not the case. Good luck with that.
The plaintiffs believe that despite this lawsuit and the findings of both Judges Stein & Wood that the defendants continue to engage in spoofing.
This compliant raises several questions. What are the compliance and legal departments of these firms doing? Aren’t they supposed to ensure the law is adhered to and employees of these firms are acting legally and ethically? Why do these compliance officers and in-house lawyers continue to allow spoofing? Does this not open them up to legal action - both criminal and civil?
Many think that there’s a sizable naked short position in NWBO with one lawyer familiar with the case saying that it could be as large as 2 billion shares. If so the spoofing must continue because if the market was allowed to do proper price discovery an enormous short squeeze would occur probably bankrupting the market makers and their clients. This has the potential to rival the Gamestop short squeeze.
Lastly where is the SEC & DOJ in all this? Given what Cohen Millstein has uncovered and two judges in the SDNY agreeing that spoofing has occurred why their inaction?
This case continues to get more interesting.
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