AFM imposes an administrative fine for market manipulation



On 19 April 2013, the Netherlands Authority for the Financial Markets (AFM) imposed an administrative fine on Mr K.J. Hoogeveen because he regularly manipulated the price of a share. This constitutes a violation of Article 5:58, first paragraph, of the Financial Supervision Act (Wft).

State of affairs of legal proceedings
Fine imposed Objection Appeal Further appeal
Initiated Decision taken Initiated Judgment given Initiated Judgment given
19-04-2013    17-12-2013 (1) 23-04-2015 (2) 04-06-2015 22-02-2017 (3)

(1) The AFM declared the objection was unfounded.
(2) The District Court of Rotterdam found the imposed fine was justified and the appeal was unfounded.
(3) The CBb declared the appeal unfounded, as a result of which the administrative fine has become irreversible by law. 

Mr Hoogeveen held an investment account with a bank, whereby the value of the investment portfolio was used as collateral for a loan provided by this bank. The share portfolio of the investor mainly consisted of one specific equities fund. The bank determined the value of the share portfolio each day on the basis of the closing prices, whereafter he was granted 70% of said value as a loan. If the value of the share portfolio dropped, he would have to repay (part of) his loan. If the value of the share portfolio increased, he was able to borrow more.

In the period of 1 August 2011 to 21 September 2011, Mr Hoogeveen managed to realise a higher share price by means of a specific manner of placing orders. In this equities fund it was possible to trade by means of an auction on the stock exchange in the morning and during the afternoon. As a general rule, the price of a share is formed by determining the price for which most shares can be traded. In order to determine the price, the parties that sell shares and the parties that buy shares are classified into various price levels.

For example, one hundred shares may be offered for a price of €1.50 and one hundred shares for a price of €1.65. If a buyer is willing to purchase 100 shares for €1.65, a price of €1.50 will have been formed. After all, 100 shares are also offered for €1.50. However, if the buyer wants to buy a few more shares, for example 105, at a price of €1.65, a price of €1.65 will have been formed for these 105 shares, because not enough shares are available at the lower price level. 

The investor regularly placed his purchase orders right before the closing of the market, and each time in such a way that the demand exceeded supply at a lower price level with a limited number of shares. This meant that the entire order, and consequently the price at auction, was carried out a higher price level. The above conduct meant that on average he was able to realise a price increase of 9.9% per transaction.

It is the opinion of the AFM that the transactions of this investor were exclusively intended to raise the price of the equities fund. This means that the price of the share was formed in an artificial manner and that he manipulated the price.

Manipulating the price of a share is considered to be a very serious violation that is subject to a basic penalty amount of €2,000,000. This amount may be increased or reduced if the seriousness, duration and the degree to which a person is culpable (culpability) give reason to do so. In addition, when determining the amount of the fine, the AFM is also required take the financial capacity of the offender into account. The person involved failed to provide insight into the above, despite having been given the opportunity to do so by the AFM on several occasions. The AFM was consequently unable to take his financial capacity into account.

The AFM considers the conduct of Mr Hoogeveen to be very serious. The conduct of this investor meant that he was able to realise major price increases in an artificial manner on a regular basis. The AFM also took into consideration the fact that Mr Hoogeveen acted as a private investor.

On the basis of these circumstances, the AFM set the amount of the fine imposed at €100,000.

As it is no longer possible to file an objection or appeal, the administrative fine has become final.

If you have any questions or comments you can contact the Financial Markets Information Line on: 0900-5400 540 (5 euro cents per minute).

The AFM is committed to promoting fair and transparent financial markets.

As an independent market conduct authority, we contribute to a sustainable financial system and prosperity in the Netherlands.

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