Daisy Chain: Legal Insights into Deceptive Trading Practices
Definition & Meaning
A daisy chain refers to a series of transactions involving the same stock, orchestrated by a small group of securities dealers. The primary aim of this activity is to artificially inflate the stock's price, making it appear attractive to potential buyers. Once these buyers invest, the dealers sell their shares for a quick profit, leaving the buyers holding overpriced stock. This practice is illegal and is considered a form of market manipulation, which authorities aim to prevent due to its fraudulent nature.
Legal Use & context
The term "daisy chain" is primarily used in the context of securities law and financial regulation. It falls under criminal law due to its nature as market manipulation. Legal practitioners may encounter this term when dealing with cases of fraud, securities violations, or money laundering. Individuals who suspect they are victims of such practices may benefit from using legal templates provided by US Legal Forms to address their situation effectively.
Real-world examples
Here are a couple of examples of abatement:
Example 1: A group of traders agrees to buy and sell shares of Company X among themselves to inflate its price. New investors, unaware of this manipulation, buy shares at the inflated price, only for the traders to sell their shares for profit, leaving the new investors with losses.
Example 2: (hypothetical example) A small firm engages in a daisy chain by repeatedly trading shares of a low-value stock between its members to create the illusion of high demand, attracting unsuspecting buyers.