Market Cornering Explained: 2025 Insights & Legal Overview

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Understanding Market Cornering in 2024

Market cornering occurs when an individual or group gains dominant control over a stock, commodity, or business, enabling them to influence or manipulate its price significantly. This practice, often referred to as market manipulation, can target specific securities or entire market segments. While some cases arise unintentionally and remain lawful, many involve deliberate and illegal schemes designed to deceive investors and distort market prices.

Key Points to Know

• Market cornering involves acquiring enough control over an asset to manipulate its price.
• Legal cornering can happen accidentally, but most intentional attempts are fraudulent.
• Common tactics include pump-and-dump schemes, where prices are artificially inflated before selling off shares.
• Conversely, poop-and-scoop schemes spread false negative information to depress prices before buying cheaply.
• Regulatory bodies like the SEC and CFTC actively monitor and prosecute these manipulative actions.

How Market Cornering Functions

When an entity corners the market, they control a disproportionate share of the supply compared to outstanding futures contracts or market demand. This imbalance allows them to set prices artificially. For instance, if a natural disaster leaves only one supplier of a commodity, that supplier effectively corners the market, gaining the power to dictate prices. Although such scenarios may lack malicious intent, they have significant impacts on futures and spot markets.

Common Market Cornering Strategies

Pump and Dump

This scheme involves boosting a stock’s price through misleading or exaggerated claims, often targeting small-cap stocks. Once the price peaks, manipulators sell their shares at a profit, leaving other investors with losses.

Poop and Scoop

Less common but equally deceptive, this tactic spreads false negative information to drive prices down. After the decline, manipulators buy shares at undervalued prices, capitalizing on the company’s true value.

Additional methods include:

• Restricting the availability of publicly traded shares.
• Executing trades to create a false impression of demand.
• Engaging in price rigging to inflate stock values artificially.

Beware of Painting the Tape

This manipulation technique involves coordinated buying and selling among a group to simulate heavy trading activity, misleading other investors about a stock’s true demand.

Regulatory Measures Against Market Cornering

The Commodity Exchange Act (CEA) of 1936 governs futures trading in the U.S., aiming to foster competitive and transparent markets by curbing fraudulent practices. The SEC and CFTC oversee securities and commodity markets, enforcing laws to prevent manipulative cornering activities. Penalties for violations range from fines and sanctions to trading bans and disgorgement of ill-gotten gains.

Notable Market Cornering Cases

In May 2018, the SEC charged four individuals involved in a fraudulent scheme manipulating Biozoom, Inc.’s stock. The scheme generated nearly $34 million through illicit sales and harmed retail investors. The perpetrators used offshore accounts and fake documents to conceal their actions.

In August 2017, the SEC settled with an international manipulator behind a pump-and-dump operation targeting a small oil and gas firm. The individual was permanently barred from trading penny stocks and paid close to $800,000 in penalties.

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