Ethics Helper: Standard 2: Integrity of Capital Markets

Question 1

What is Standard 2A?

Answer 1

INTEGRITY OF CAPITAL MARKETS -
MATERIAL NONPUBLIC INFORMATION

Question 2

What is the language of Standard 2A?

Answer 2

Members and Candidates who possess material nonpublic information that could affect the value of an investment must not act or cause others to act on the information.

Question 3

Why does insider trading affect the integrity of capital markets?

Answer 3

erodes confidence in capital markets, institutions, and investment professionals by supporting the idea that those with inside information and special access can take unfair advantage of the general investing public

Question 4

What is “material” information?

Answer 4

Information is “material” if its disclosure would probably have an impact on the price of a security or if reasonable investors would want to know the information before making an investment decision.

Question 5

What are key factors in determining the materiality of information?

Answer 5

1. Specificity
2. Extent of difference from current public information
3. Reliability of the Source Information

Question 6

What is “nonpublic” information?

Answer 6

Information is “nonpublic” until it has been disseminated or is available to the marketplace in general (as opposed to a select group of investors).

Question 7

True or False:

Analysts should also be alert to the possibility that they are selectively receiving material nonpublic information when a company provides them with guidance or interpretation of such publicly available information as financial statements or regulatory filings.

Answer 7

True

Question 8

What is “Mosaic Theory”?

Answer 8

The mosaic theory is an approach to financial security analysis that involves the analysis of a variety of resources, including public and non-public material and non-material information, to determine the underlying value of a security.

Question 9

Is an analyst in violation of Section 2A when he/she uses material public and non-material non-public information to come up with unique trading insights?

Answer 9

No. Since he/she did not use material non-public information, he/she is fine.

Question 10

Is information shared on social media considered public information?

Answer 10

It depends.

Members and candidates participating in groups with membership limitations should verify that material information obtained from these
sources can also be accessed from a source that would be considered available to the public (e.g., company filings, webpages, and press releases).

Question 11

Can analysts confer with outside experts?

Answer 11

Yes.

Members and candidates may provide compensation to individuals for their insights without violating this standard.

However, members and candidates are ultimately responsible for ensuring that they are not requesting or acting on confidential information received from external experts, which is in violation of security regulations and laws or duties to others.

Question 12

If an analysts research report could be market-moving, does it necessarily need to be made public?

Answer 12

No, not if the conclusions were drawn without material non-public information.

Question 13

What must an analyst do if he/she has access to material non-public information?

Answer 13

1. If a member or candidate determines that information is material, the member or candidate should make reasonable efforts to achieve public dissemination of the information such as encouraging the issuing company to make the information public.
2. If public dissemination is not possible, the member or candidate
   must communicate the information only to the designated supervisory and compliance personnel within the member’s or candidate’s firm and must not take investment action or alter current investment recommendations on the basis of the information.
3. Moreover, members and candidates must not knowingly engage in any conduct that may induce company insiders to privately disclose material nonpublic information.

Question 14

What should a company do if material non-public information is released during an analysts call?

Answer 14

If material nonpublic information is disclosed for the first time in an analyst meeting or call, the company should promptly issue a
press release or otherwise make the information publicly available.

Question 15

What is a “firewall”?

Answer 15

An information barrier used to prevent the communication of material nonpublic information within firms.

Question 16

What are the key elements to a firewall?

Answer 16

1. substantial control of relevant interdepartmental communications
2. review of employee trading
3. documentation of the procedures designed to limit the flow of information between departments and of the actions taken to enforce those procedures
4. heightened review or restriction of proprietary trading while a firm is in possession of material nonpublic information
5. physical separation of departments
6. No personell overlap

Question 17

Has Frank Barnes done anything wrong?

Frank Barnes, the president and controlling shareholder of the SmartTown clothing chain, decides to accept a tender offer and sell the family business at a price almost double the market price of its shares.

He describes this decision to his sister (SmartTown’s treasurer), who conveys it to her daughter (who owns no stock in the family company at present), who tells her husband, Staple. Staple, however, tells his stockbroker, Alex Halsey, who immediately buys SmartTown stock for himself.

Answer 17

Yes.

The information regarding the pending sale is both material and
nonpublic. Staple has violated Standard II(A) by communicating the inside information to his broker. Halsey also has violated the standard by buying the shares on the basis of material nonpublic information.

Question 18

Has Peter done anything wrong?

Samuel Peter, an analyst with Scotland and Pierce Incorporated, is assisting his firm with a secondary offering for Bright Ideas Lamp Company.

Peter participates, via telephone conference call, in a meeting with Scotland and Pierce investment banking employees and Bright Ideas’ CEO.

Peter is advised that the company’s earnings projections for the next year have significantly dropped. Throughout the telephone conference call, several Scotland and Pierce salespeople and portfolio managers walk in and out of Peter’s office, where the telephone call is taking place.

As a result, they are aware of the drop in projected earnings for Bright Ideas. Before the conference call is concluded, the salespeople trade the stock of the company on behalf of the firm’s clients and other firm personnel trade the stock in a firm proprietary account and in employees’ personal accounts.

Answer 18

Peter has violated Standard II(A) because he failed to prevent the transfer and misuse of material nonpublic information to others in his
firm.

Peter’s firm should have adopted information barriers to prevent the
communication of nonpublic information between departments of the firm.

The salespeople and portfolio managers who traded on the information have also violated Standard II(A) by trading on inside information.

Question 19

Elizabeth Levenson is based in Hanoi and covers the Vietnamese market for her firm, which is based in Singapore. She is invited, together with the other 10 largest shareholders of a manufacturing company, to meet the finance director of that company.

During the meeting, the finance director states that the company expects its workforce to strike next Friday, which will cripple productivity and distribution.

Can Levenson use this information as a basis to change her rating on the company from “buy” to “sell”?

Answer 19

Levenson must first determine whether the material information
is public. According to Standard II(A), if the company has not made this
information public (a small group forum does not qualify as a method of
public dissemination), she cannot use the information.

Question 20

Can Fechtman act on this information?

Leah Fechtman is trying to decide whether to hold or sell shares of an oil-and-gas exploration company that she owns in several of the funds she manages.

Although the company has underperformed the index for some time already, the trends in the industry sector signal that companies of this type might become takeover targets.

While she is considering her decision, her doctor, who casually follows the markets, mentions that she thinks that the company in question will soon be bought out by a large multinational conglomerate and that it would be a good idea to buy the stock right now.

After talking to various investment professionals and checking their opinions on the company as well as checking industry trends, Fechtman decides the next day to accumulate more stock in the oil-and-gas exploration company.

Answer 20

Although information on an expected takeover bid may be of
the type that is generally material and nonpublic, in this case, the source of information is unreliable, so the information cannot be considered material.

Therefore, Fechtman is not prohibited from trading the stock on the basis of this information.

Question 21

Are Teja’s actions permissible on Section 2A?

Jagdish Teja is a buy-side analyst covering the furniture industry.

Looking for an attractive company to recommend as a buy, he analyzes several furniture makers by studying their financial reports and visiting their operations. He also talks to some designers and retailers to find out which furniture styles are trendy and popular. Although none of the companies that he analyzes are a clear buy, he discovers that one of them, Swan Furniture Company (SFC), may be in financial trouble.

SFC’s extravagant new designs have been introduced at substantial cost. Even though these designs initially attracted attention, the public is now buying more conservative furniture from other makers.

Based on this information and on a profit-and-loss analysis, Teja believes that SFC’s next quarter earnings will drop substantially. He issues a sell recommendation for SFC. Immediately after receiving that recommendation, investment managers start reducing the SFC stock in their portfolios.

Answer 21

Information on quarterly earnings data is material and nonpublic.

Teja arrived at his conclusion about the earnings drop on the basis of
public information and on pieces of nonmaterial nonpublic information
(such as opinions of designers and retailers). Therefore, trading based on Teja’s correct conclusion is not prohibited by Standard II(A).

Question 22

Analyze the following situation:

Roger Clement is a senior financial analyst who specializes in the European automobile sector at Rivoli Capital.

Because he has been repeatedly nominated by many leading industry magazines and newsletters as a “best analyst” for the automobile industry, he is widely regarded as an authority on the sector.

After speaking with representatives of Turgot Chariots—a European auto manufacturer with sales primarily in South Korea—and after conducting interviews with salespeople, labor leaders, his firm’s Korean currency analysts, and banking officials, Clement analyzed Turgot Chariots and concluded that:

(1) its newly introduced model will probably not meet sales expectations;

(2) its corporate restructuring strategy may well face serious opposition from unions;

(3) the depreciation of the Korean won should lead to pressure on margins for the industry in general and Turgot’s market segment in particular;

(4) banks could take a tougher-than-expected stance in the upcoming round of credit renegotiations with the company.

For these reasons, he changes his conclusion about the company from “market outperform” to “market underperform.” Clement retains the support material used to reach his conclusion in case questions later arise.

Answer 22

To reach a conclusion about the value of the company, Clement
has pieced together a number of nonmaterial or public bits of information that affect Turgot Chariots.

Therefore, under the mosaic theory, Clement has not violated Standard II(A) in drafting the report.

Question 23

Analyze the following situation:

Roger Clement is a senior financial analyst who specializes in the European automobile sector at Rivoli Capital.

Clement is preparing to be interviewed on a global financial news television program where he will discuss his changed recommendation on Turgot Chariots for the first time in public.

While preparing for the program, he mentions to the show’s producers and Mary Zito, the journalist who will be interviewing him, the information he will be discussing.

Just prior to going on the air, Zito sells her holdings in Turgot Chariots.

She also phones her father with the information because she knows that he and other family members have investments in Turgot Chariots.

Answer 23

When Zito receives advance notice of Clement’s change of opinion, she knows it will have a material impact on the stock price, even if she
is not totally aware of Clement’s underlying reasoning. She is not a client
of Clement but obtains early access to the material nonpublic information prior to publication.

Her trades are thus based on material nonpublic information and violate Standard II(A).

Zito further violates the Standard by relaying the information to her
father. It would not matter if he or any other family member traded; the
act of providing the information violates Standard II(A). The fact that the
information is provided to a family member does not absolve someone of the prohibition of using or communicating material nonpublic information.

Question 24

Analyze the following situation:

Ashton Kellogg is a retired investment professional who manages his own portfolio.

He owns shares in National Savings, a large local bank. A close friend and golfing buddy, John Mayfield, is a senior executive at National.

National has seen its stock price drop considerably, and the news and outlook are not good. In a conversation about the economy and the banking industry on the golf course, Mayfield relays the information that National will surprise the investment community in a few days when it announces excellent earnings for the quarter.

Kellogg is pleasantly surprised by this information, and thinking that Mayfield, as a senior executive, knows the law and would not disclose inside information, he doubles his position in the bank. Subsequently, National announces that it had good operating earnings but had to set aside reserves for anticipated significant losses on its loan portfolio.

The combined news causes the stock to go down 60%.

Answer 24

Even though Kellogg believes that Mayfield would not break the law by disclosing inside information and money was lost on the purchase, Kellogg should not have purchased additional shares of National. It is the member’s or candidate’s responsibility to make sure, before executing investment actions, that comments about earnings are not material nonpublic information. Kellogg has violated Standard II(A).

Question 25

Analyze the following situation:

John Doll is a research analyst for a hedge fund that also sells its research to a select group of paying client investment firms.

Doll’s focus is medical technology companies and products, and he has been in the business long enough and has been successful enough to build up a very credible network of friends and experts in the business. Doll has been working on a major research report recommending Boyce Health, a medical device manufacturer.

He recently ran into an old acquaintance at a wedding who is a senior executive at Boyce, and Doll asked about the business. Doll was drawn to a statement that the executive, who has responsibilities in the new products area, made about a product: “I would not get too excited about the medium-term prospects; we have a lot of work to do first.”

Doll incorporated this and other information about the new Boyce product in his long-term recommendation of Boyce.

Answer 25

Doll’s conversation with the senior executive is part of the mosaic of information used in recommending Boyce. When holding discussions with a firm executive, Doll would need to guard against soliciting or obtaining material nonpublic information. Before issuing the report, the executive’s statement about the continuing development of the product would need to be weighed against the other known public facts to determine whether it would be considered material.

Question 26

Analyze the following situation:

Larry Nadler, a trader for a mutual fund, gets a text message from another firm’s trader, whom he has known for years.

The message indicates a software company is going to report strong earnings when the firm publicly announces in two days.

Nadler has a buy order from a portfolio manager within his firm to purchase several hundred thousand shares of the stock. Nadler is aggressive in placing the portfolio manager’s order and completes the purchases by the following morning, a day ahead of the firm’s planned earnings announcement.

Answer 26

There are often rumors and whisper numbers before a release of any kind. The text message from the other trader would most likely be considered market noise. Unless Nadler knew that the trader had an ongoing business relationship with the public firm, he had no reason to suspect he was receiving material nonpublic information that would prevent him from completing the trading request of the portfolio manager.

Question 27

Analyze the following situation:

Mary McCoy is the senior drug analyst at a mutual fund. Her firm hires a service that connects her to experts in the treatment of cancer. Through various phone conversations, McCoy enhances her understanding of the latest therapies for successful treatment. This information is critical to Mary making informed recommendations of the companies producing these drugs.

Answer 27

McCoy is appropriately using the expert networks to enhance her evaluation process. She has neither asked for nor received information that may be considered material and nonpublic, such as preliminary trial results. McCoy is allowed to seek advice from professionals within the industry that she follows.

Question 28

Analyze the following situation:

Tom Watson is a research analyst working for a hedge fund.

To stay informed, Watson relies on outside experts for information on such industries as technology and pharmaceuticals, where new advancements occur frequently.

The meetings with the industry experts often are arranged through networks or placement agents that have specific policies and procedures in place to deter the exchange of material nonpublic information.

Watson arranges a call to discuss future prospects for one of the fund’s existing technology company holdings, a company that was testing a new semiconductor product.

The scientist leading the tests indicates his disappointment with the performance of the new semiconductor. Following the call, Watson relays the insights he received to others at the fund.

The fund sells its current position in the company and buys many put options because the market is anticipating the success of the new semiconductor and the share price reflects the market’s optimism.

Answer 28

Watson has violated Standard II(A) by passing along material nonpublic information concerning the ongoing product tests, which the fund used to trade in the securities and options of the related company.

Watson cannot simply rely on the agreements signed by individuals who participate in expert networks that state that he has not received information that would prohibit his trading activity.

He must make his own determination whether information he received through these arrangements reaches a materiality threshold that would affect his trading abilities.

Question 29

What is Section 2B?

Answer 29

INTEGRITY OF CAPITAL MARKETS - MARKET MANIPULATION

Question 30

What is the language of Section 2B?

Answer 30

Members and Candidates must not engage in practices that distort prices or artificially inflate trading volume with the intent to mislead market participants.

Question 31

Is the following considered market manipulation?

The dissemination of false or misleading information

Answer 31

Yes.

Question 32

Is the following considered market manipulation?

transactions that deceive or would be likely to mislead market participants by distorting the price-setting mechanism of financial instruments.

Answer 32

Yes.

Question 33

Is the following considered market manipulation?

Information-based manipulation includes, but is not limited to, spreading false rumors to induce trading by others.

Answer 33

Yes.

Question 34

Is the following considered market manipulation?

transactions that artificially affect prices or volume to give the impression of activity or price movement in a financial instrument, which represent a diversion from the expectations of a fair and efficient market

Answer 34

Yes.

Question 35

Is the following considered market manipulation?

securing a controlling, dominant position in a financial instrument to
exploit and manipulate the price of a related derivative and/or the underlying asset.

Answer 35

Yes.

Question 36

Is the following permissible?

The principal owner of Financial Information Services (FIS) entered into an agreement with two micro-cap companies to promote the companies’ stock in exchange for stock and cash compensation.

The principal owner caused FIS to disseminate e-mails, design and maintain several websites, and distribute an online investment newsletter—all of which recommended investment in the two companies.

The systematic publication of purportedly independent analyses and recommendations containing inaccurate and highly promotional and speculative statements increased public investment in the companies and led to dramatically higher stock prices.

Answer 36

The principal owner of FIS violated Standard II(B) by using inaccurate reporting and misleading information under the guise of independent analysis to artificially increase the stock price of the companies. Furthermore, the principal owner violated Standard V(A)–Diligence and Reasonable Basis by not having a reasonable and adequate basis for recommending the two companies and violated Standard VI(A)–Disclosure of Conflicts by not disclosing to investors the compensation agreements (which constituted a conflict of interest).

Question 37

Is the following permissible?

John Gray is a private investor in Belgium who bought a large position several years ago in Fame Pharmaceuticals, a German small-cap security with limited average trading volume.

He has now decided to significantly reduce his holdings owing to the poor price performance. Gray is worried that the low trading volume for the stock may cause the price to decline further as he attempts to sell his large position.

Gray devises a plan to divide his holdings into multiple accounts in different brokerage firms and private banks in the names of family members, friends, and even a private religious institution. He then creates a rumor campaign on various blogs and social media outlets promoting the company.

Gray begins to buy and sell the stock using the accounts in hopes of raising the trading volume and the price. He conducts the trades through multiple brokers, selling slightly larger positions than he bought on a tactical schedule, and over time, he is able to reduce his holding as desired without negatively affecting the sale price.

Answer 37

John violated Standard II(B) by fraudulently creating the appearance that there was a greater investor interest in the stock through the online rumors. Additionally, through his trading strategy, he created the appearance that there was greater liquidity in the stock than actually existed. He was able to manipulate the price through both misinformation and trading practices.

Question 38

Is the following permissible?

Matthew Murphy is an analyst at Divisadero Securities & Co., which has a significant number of hedge funds among its most important brokerage clients. Some of the hedge funds hold short positions on Wirewolf Semiconductor. Two trading days before the publication of a quarter-end report, Murphy alerts his sales force that he is about to issue a research report on Wirewolf that will include the following opinions:

■ quarterly revenues are likely to fall short of management’s guidance,

■ earnings will be as much as 5 cents per share (or more than 10%) below consensus, and

■ Wirewolf’s highly respected chief financial officer may be about to join another company.

Knowing that Wirewolf has already entered its declared quarter-end “quiet period” before reporting earnings (and thus would be reluctant to respond to rumors), Murphy times the release of his research report specifically to sensationalize the negative aspects of the message in order to create significant downward pressure on Wirewolf’s stock—to the distinct advantage of Divisadero’s hedge fund clients.

The report’s conclusions are based on speculation, not on fact. The next day, the research report is broadcast to all of Divisadero’s clients and to the usual newswire services. Before Wirewolf’s investor-relations department can assess the damage on the final trading day of the quarter and refute Murphy’s report, its stock opens trading sharply lower, allowing Divisadero’s clients to cover their short positions at substantial gains.

Answer 38

Murphy violated Standard II(B) by aiming to create artificial price
volatility designed to have a material impact on the price of an issuer’s stock.

Moreover, by lacking an adequate basis for the recommendation, Murphy also violated Standard V(A)–Diligence and Reasonable Basis.

Question 39

Is the following permissible?

Rajesh Sekar manages two funds—an equity fund and a balanced fund—whose equity components are supposed to be managed in accordance with the same model.

According to that model, the funds’ holdings in stock of Digital Design Inc. (DD) are excessive. Reduction of the DD holdings would not be easy, however, because the stock has low liquidity in the stock market.

Sekar decides to start trading larger portions of DD stock back and forth between his two funds to slowly increase the price; he believes market participants will see growing volume and increasing price and become interested in the stock.

If other investors are willing to buy the DD stock because of such interest, then Sekar will be able to get rid of at least some of his overweight position without inducing price decreases.

In this way, the whole transaction will be for the benefit of fund participants, even if additional brokers’ commissions are incurred.

Answer 39

Sekar’s plan would be beneficial for his funds’ participants but
is based on artificial distortion of both trading volume and the price of the DD stock and thus constitutes a violation of Standard II(B).

Question 40

Is the following permissible?

ACME Futures Exchange is launching a new bond futures contract. To convince investors, traders, arbitrageurs, hedgers, and so on, to use its contract, the exchange attempts to demonstrate that it has the best liquidity. To do so, it enters into agreements with members in which they commit to a substantial minimum trading volume on the new contract over a specific period in exchange for substantial reductions of their regular commissions.

Answer 40

The formal liquidity of a market is determined by the obligations set on market makers, but the actual liquidity of a market is better estimated by the actual trading volume and bid–ask spreads. Attempts to mislead participants about the actual liquidity of the market constitute a violation of Standard II(B). In this example, investors have been intentionally misled to believe they chose the most liquid instrument for some specific purpose, but they could eventually see the actual liquidity of the contract significantly reduced after the term of the agreement expires. If the ACME Futures Exchange fully discloses its agreement with members to boost transactions over some initial launch period, it will not violate Standard II(B). ACME’s intent is not to harm investors but, on the contrary, to give them a better service. For that purpose, it may engage in a liquidity-pumping strategy, but the strategy must be disclosed.

Question 41

Is the following permissible?

Emily Gordon, an analyst of household products companies, is employed by a research boutique, Picador & Co. Based on information that she has gathered during a trip through Latin America, she believes that Hygene, Inc., a major marketer of personal care products, has generated better-than-expected sales from its new product initiatives in South America.

After modestly boosting her projections for revenue and for gross profit margin in her worksheet models for Hygene, Gordon estimates that her earnings projection of US$2.00 per diluted share for the current year may be as much as 5% too low.

She contacts the chief financial officer (CFO) of Hygene to try to gain confirmation of her findings from her trip and to get some feedback regarding her revised models. The CFO declines to comment and reiterates management’s most recent guidance of US$1.95–US$2.05 for the year.

Gordon decides to try to force a comment from the company by telling Picador & Co. clients who follow a momentum investment style that consensus earnings projections for Hygene are much too low; she explains that she is considering raising her published estimate by an ambitious US$0.15 to US$2.15 per share.

She believes that when word of an unrealistically high earnings projection filters back to Hygene’s investor-relations department, the company will feel compelled to update its earnings guidance. Meanwhile, Gordon hopes that she is at least correct with respect to the earnings direction and that she will help clients who act on her insights to profit from a quick gain by trading on her advice.

Answer 41

By exaggerating her earnings projections in order to try to fuel a quick gain in Hygene’s stock price, Gordon is in violation of Standard II(B). Furthermore, by virtue of previewing her intentions of revising upward her earnings projections to only a select group of clients, she is in violation of Standard III(B)–Fair Dealing. However, it would have been acceptable for Gordon to write a report that

Question 42

Is the following permissible?

In an effort to pump up the price of his holdings in Moosehead & Belfast Railroad Company, Steve Weinberg logs on to several investor chat rooms on the internet to start rumors that the company is about to expand its rail network in anticipation of receiving a large contract for shipping lumber.

Answer 42

Weinberg has violated Standard II(B) by disseminating false information about Moosehead & Belfast with the intent to mislead market participants.

Question 43

Is the following permissible?

Bill Mandeville supervises a structured financing team for Superior Investment Bank. His responsibilities include packaging new structured investment products and managing Superior’s relationship with relevant rating agencies. To achieve the best rating possible, Mandeville uses mostly positive scenarios as model inputs—scenarios that reflect minimal downside risk in the assets underlying the structured products. The resulting output statistics in the rating request and underwriting prospectus support the idea that the new structured products have minimal potential downside risk.

Additionally, Mandeville’s compensation from Superior is partially based on both the level of the rating assigned and the successful sale of new structured investment products but does not have a link to the long-term performance of the instruments. Mandeville is extremely successful and leads Superior as the top originator of structured investment products for the next two years. In the third year, the economy experiences difficulties and the values of the assets underlying structured products significantly decline. The subsequent defaults lead to major turmoil in the capital markets, the demise of Superior Investment Bank, and the loss of Mandeville’s employment.

Answer 43

Mandeville manipulates the inputs of a model to minimize associated risk to achieve higher ratings. His understanding of structured products allows him to skillfully decide which inputs to include in support of the desired rating and price. This information manipulation for short-term gain, which is in violation of Standard II(B), ultimately causes significant damage to many parties and the capital markets as a whole. Mandeville should have realized that promoting a rating and price with inaccurate information could cause not only a loss of price confidence in the particular structured product but also a loss of investor trust in the system. Such loss of confidence affects the ability of the capital markets to operate efficiently.

Question 44

Is the following permissible?

Allen King is a performance analyst for Torrey Investment Funds. King believes that the portfolio manager for the firm’s small- and microcap equity fund dislikes him because the manager never offers him tickets to the local baseball team’s games but does offer tickets to other employees.

To incite a potential regulatory review of the manager, King creates user profiles on several online forums under the portfolio manager’s name and starts rumors about potential mergers for several of the smaller companies in the portfolio. As the prices of these companies’ stocks increase, the portfolio manager sells the position, which leads to an investigation by the regulator as King desired.

Answer 44

King has violated Standard II(B) even though he did not personally profit from the market’s reaction to the rumor. In posting the false information, King misleads others into believing the companies were likely to be acquired. Although his intent was to create trouble for the portfolio manager, his actions clearly manipulated the factual information that was available to the market