Stock Manipulators To Get Prison Time

The Presidium on Monday approved a bill that would criminalize the manipulation of stock prices, a lucrative past-time of the well-connected and a major hurdle in Moscow's drive to become a global financial center.

Vladimir Milovidov, head of the Federal Service for Financial Markets, said the bill would hold the media responsible for spreading misleading information that could influence stock prices.

The bill amends the Criminal Code to punish manipulation of the financial markets by up to seven years in prison, according to a summary on the Cabinet's web site. It would also become criminal to tamper with shareholder registries or deny shareholder rights.

Such offenses are now only punishable by fines, Milovidov said.

"We have long talked about this," Prime Minister Vladimir Putin said. "Such provisions exist in many developed economies, and I consider it timely to introduce a corresponding law."

Investors have long suggested that the government take a stronger stance against insider trading and stock price manipulation, particularly after authorities began regularly touting the idea of creating an international financial powerhouse last summer.

In December, the Cabinet introduced a separate bill that spells out what would be considered insider information, but it does not mention punishments. That bill protects media from sanction for spreading insider information and misleading information.

Price manipulation and insider trading generate "fabulous" profits in Russia, said Vladimir Rozhankovsky, chief of research at investment firm CiG. Such offenses scare off private investors because they realize that good connections are needed to succeed. "A private investor ... often gets fleeced," he said.

James Beadle, chief investment strategist at Pilgrim Asset Management, said it was an "important step" but that enforcement would be the key. "Investors' experience with the government is that they are very good at saying the right things, but execution is another question," he said.

Alexei Timofeyev, head of the National Association of Securities Market Participants, a nongovernmental group including hundreds of stockbrokers, said prosecutors would be responsible for sniffing out the culprits.

Calls to the markets service, which sponsored the bill, went unanswered Monday.

A spokeswoman for the Prosecutor General's Office referred inquiries to its Investigative Committee, which had no immediate comment.

Brokers with inside knowledge appeared to have been at work before Deputy Prime Minister Igor Sechin ordered an investigation of fertilizer maker Uralkali last year, causing the firm's stock to tank.

Around the time of the meeting in October, there was a sharp rise in sales of the potash maker's London-traded stock, which suggested that some traders expected it to fall, The New York Times reported, citing an analysis it requested from Data Explorers.