Together with the Federal Stock Exchange Act, of which the second part entered into force in January 1998, Article 161bis of the Swiss Criminal Code has been amended. Under this provision, any person who substantially influences the price of stock traded on the Swiss stock exchange with the intention of enriching him or herself or a third party, will be punished by imprisonment or a fine.
Article 161bis applies to all kinds of similar securities, rights and claims with similar functions traded on the Swiss Stock Exchange. Securities and options traded on the unregulated over-the-counter market are not covered by this provision, and manipulations of prices of these securities and options will only be prosecuted if constituting fraud according to Article 146 of the Criminal Code.
Simulated transactions from the right into the left pocket, where the owner of the stock never changes, fall within the scope of Article 161bis. There are different methods to illegally influence stock prices, for example wash sales and matched orders, where stock transactions take place although the buyer and seller are identical or agree to compensate sales with respective buys. Real purchases or sales from third parties are not covered by Article 161bis even when they are made with the intention of influencing market prices in a particular direction.
Article 161bis does not prohibit purchases and sales made by the issuer itself to guarantee the price of its securities. Such transactions pursue the legitimate economic goal of earning the spread between purchase and sale prices and are therefore not looked at as simulated transactions.
Article 161bis also applies to any person who spreads misleading information. It was not the intention of the legislator to sanction predictions made by an analyst which later turn out to be wrong. Only an analyst who knowingly bases his or her predictions on false or incomplete facts will be prosecuted. For example, if an analyst forecasts higher earnings for a company due to an expected merger with another company knowing that they have never entered respective negotiations. Or, if an analyst predicts the takeover of a company by another company knowing that the potential buyer is about to declare bankruptcy. Article 161bis also applies to a person withholding information if the person had an obligation to inform investors. Even true information can be misleading, for example, where it is used in a false context to lead investors in a wrong direction.
The perpetrator of Article 161bis must have committed the crime willfully and knowingly with the intention of substantially influencing the stock price. The influence is substantial if it is unusual and beyond typical daily expectations, ie a fluctuation rate for obligations of around 3-4% and for shares of around 10-20%.
However, a lot of questions on Article 161bis remain to be answered by the courts. Not only is it difficult to detect the source of false information, it will also be hard to differentiate between fake and real transactions. The courts will have to discriminate between criminal actions falling within the scope of Article 161bis and the provision on fraud in Article 146, which was used for the prosecution of stock price manipulations before Article 161bis was in force.
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