Tag Archives: Market manipulation

Norwegian Day Traders Convicted Of Market Manipulation

The two Norwegian day traders, charged with market manipulation for having outsmarted the Timber Hill trading robot, was Wednesday morning convicted in Oslo District Court. Svend Egil Larsen and Peder Veiby received a suspended sentence of, respectively, 90 and 120  days in jail. In addition, the profits made on the trading is being revoked. However, this story is far from over.

“It kinda sucks to be convicted of something the whole industry believes should be allowed.”

Svend Egil Larsen

Svend Egil Larsen and Peder Veiby were both found guilty in the Oslo District Court, Wednesday, of having manipulated the stock market. The Norwegian authorities believe that the  two day traderne violates acceptable market behavior, and that their trades caused the Timber Hill trading robot to move the share prices without a legitimate reason. The so-called robot case is likely to end up in the Supreme Court of Norway.

According to the court ruling, the two have deliberately manipulated the stock market.

Svend Egil Larsen is sentenced to 90 days in jail (suspended sentence) and confiscation of NOK 105.000 kroner.

Peder Veiby got a 120 days suspended prison sentence and confiscation of NOK 165,000.

Both traders have been given a probation period of two years, according to the court documents.

No Man Against Machine


Christian Stenberg


Police Attorney Christian Stenberg made clear during his procedure  that this is not a matter of “man against machine”.

The authorities believe the behavior of the two day traders violates acceptable market behavior, and that the trades that caused the Timber Hill robot to move the prices did not have a legitimate reason.

“The court have found it proven that defendants intermediate trade orders, the order was entered after the initial purchase/sale, and before they reversed their positions and started the trading strategy over again, was added with a purpose to make the TMB raise or lower its prices,” the verdict says.


Manipulated The Whole Market

The judges believe the two gave false and misleading signals about supply and demand,  as well as the price of the shares involved.

“The defendants did not buy or sell on these intermediate transactions. The purpose was solely to provoke a reaction in the TMB system, so that the accused could buy or sell at more favorable prices,” the court ruling says

The three judges have also found it proven that the two day traders deliberately  manipulated the whole stock market.

“The defendants did not only try to profit from price volatility in the market, which is normal in day trading, they also sought to profit from price reductions in a market they created themselves. By influencing another party – Timber Hill – it had an impacted on the whole market.”

Going To Appeal


Anders Brosveet and Halldor Christer Tjoflaat


“I believe that the court is interpreting the law incorrectly, and also interprets the purpose of the law wrong,” says defence lawyer Anders Brosveet to the website DN.no.

He says he is very surprised by today’s ruling at the Oslo District Court.

“The main issue is that there were in fact real transactions completed, transactions that in my opinion will never meet the statutory criteria of being false, inaccurate or misleading,” says Brosveet with reference to the Norwegian Securities Act,  paragraph 17-3.

The now-named “robot case” has caused debate amongst both Norwegian and international financial market participants.

“We have seen that this is an issue of such fundamental principles that it probably will end up in the Supreme Court,” Brosveet says.

“Of course, we’re gonna appeal this,” he says, hurrying to reach another case in the Norwegian Supreme Court. “I’m sure this case will end up there, too,” he concludes.


Here’s a copy of the verdict by the Oslo District Court (In Norwegian only).


It Sucks!

“I’m very surprised,” the convicted day trader Svend Egil Larsen says, according to  stocklink.no.

Larsen will now to go through the verdict with his attorneys before making a final decision. However, he does not hide the fact that they are already considering an appeal.


Svend Egil Larsen


“My lawyer is going to read the verdict more closely to understand what the court’s intentions really is. Based on what we have read so far, we are going to appeal,” Larsen says.

Adding: “It kinda sucks to be convicted of something the whole industry believes should be allowed.”

Completely Incomprehensible

Meanwhile, Mr. Larsen and Mr. Veiby seems to have the full support of everyone, besides the Oslo District Court and the Oslo Stock Exchange.

Editor at DN.no, Ole-Morten Fadnes, writes in a commentary:


The Oslo District Court



“The court believes that the two defendants acted deliberately. Undoubtedly. The court also believes that the two accused had knowledge of how the Timber Hills machine acted. Undoubtedly. The two found a weakness and exploited it. It is also true that their trades moved the price of these illiquid stocks. But it is almost completely incomprehensible how this could be illegal.”


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Filed under International Econnomic Politics, National Economic Politics

In Defence Of A Robot

This must be one of the weirdest lawsuit we have seen in long time: Starting this week, the two Norwegian day traders who are charged with fraud and violation against an automatic trading robot will appear in Oslo District Court to defend their actions. However, the poor robot,  being called a stupid, cheating liar, have the best representatives any offended robot can have; a hard-hitting police attorney, backed by an army of experts from the Oslo Stock Exchange. The robots owner, Timber Hill, has not been seen, nor heard from since the news story broke in August this year.

“Either the robot is very, very stupid, or the person who programmed the robot is very, very stupid.”

Sven-Egil Larsen

The case against the two traders in the so-called “robot-case,” where alleged manipulation of a the stock market trading machine is essential, started Monday. The Norwegian police believe that the day traders,  Sven-Egil Larsen and Peder Veiby, has conducted a number of unlawful acts against the brokerage firm Timber Hill and its stock trading robot, and have charged them on grounds of market manipulation.

“This case should never have come up before the court. It is the Oslo Stock Exchange who has initiated proceedings against the accused and the court will lead the crusade. None of the authorities that have looked at the case, neither the Financial Authority or the police, seems to be able to look at it with competent and critical eyes. For this reason, we now have a case that hardly anyone in the market can understand,” says Mr. Larsen’s lawyer, Halldor Christen Tjoflaat, according to the website Stocklink.no.

“Timber Hill appeared in 2008 as a poor investor in selected papers and on selected days. Rather than do something about the obviously poor investor who moved prices randomly when there only was a small trade in  papers they were active in, the Oslo Stock Exchange have turned against them who has a different trading strategy than Timber Hill and made money off it,” he adds.

The two Norwegians are accused of price manipulation of shares listed at the Oslo Stock Exchange, during the period November 2007 to March 2008.

Oslo Stock Exchange is in a strategic alliance with London Stock Exchange where Timber Hill is a member.

Price Manipulation

According to the charges, the day traders placed over 2,200 orders, and managed to give the market a false picture of supply and demand.

Christian Stenberg

Christian Stenberg

“We believe the two are guilty of a numerous cases of price manipulation. They have added buy and sell orders that was not real, they have had another motive; namely to move the price,” prosecutor Chris Stenberg of the Norwegian National Authority for Investigation and Prosecution of Economic and Environmental Crime (Økokrim) told the newspaper Dagens Næringsliv, when the lawsuit was filed.

“It’s not about fooling anyone, but to be smarter than someone,” one of the traders says.

Sven-Egil Larsen and Peder Veiby was among the most active equity traders on the Oslo Stock Exchange in 2007 and 2008.

According to the allegations, they manged to make a pre-programmed trading robot at the brokerage firm Timber Hill offer better prices than it was supposed to do.

Stupid Robot

Both Mr. Larsen and Mr. Veiby deny any accusations of any wrongdoings, and believe that they only found a weakness in a system.
They emphasize that non other than the electronic player has been harmed.
They admit, however, that they have exploited the weakness, but denies the accusation of  manipulating the market.

Larsen believes that either the robot is very, very stupid, “or the person who programmed the robot is very, very stupid,” he says.

Larsen was the one that first found the weakness in the Timber Hill system when he was doing arbitrage trading in low liquidity stocks at OSE. Peder Veiby was long in Hafslund and had followed the stock over a longer period. This made Mr. Veiby able to form a picture of automated systems trade patterns over time and found that Timber Hill had its special way of behavior. He observed how the Timber Hill system changed the level of price and orders,  and decided to try to make money on this behavior.

It all began in November 2007 and lasted until March 2008.

Mr. Veiby considers it likely that he would have made money on the deals.

Both traders purchased a large chunk of stocks at a specific  price, followed by series of smaller purchases at a higher price. All within a short periode of time.

The Timber Hill robot reacted by raising the price on the shares, and Larsen and Veiby did what every skilled trader would do; they dumped their holdings and secured the profit.

They also did the same exercise by shorting shares, but then making the profit by selling to the ever lower price.

According to the two traders statement in court, it was not every time the strategy succeed.

Occasionally, the robot did not react as they had anticipated, usually caused by other players preventing the trade pattern to repeat itself, they explained in court.

200 Trades A Day

In their statement they also says that they was surprised every time it was possible to get the robot to repeat the same pattern.

Sven-Egil Larsen

Veiby is charged with 42 cases of violations of the Securities Act’s, while Larsen is charged with 30, involving a total of 2.200 transactions.Larsen estimates that during 2008, he made about 20.000 trades, which indicates between 100 and 150 trades per day, on average.

Veiby estimates that he performed about 60 to 70 trades per day during the period.

Asked by the judge, Larsen and Veiby said that they did not knew each other before this case, and that they had not been cooperating.

On the contrary, they had by several occasions destroyed each other’s plans.

Quote Stuffing

Police attorney Christian Stenberg will only make general comments, and not go into details.

He believes the two defendants placed orders with the purpose of moving the price, and since the market relates to the quotes provided by the exchange (the robot) it would be a form of manipulation.

The District Court in Oslo has to the decide on the rather interesting question whether this is illegal, or not.

“The question is whether the orders that was entered is legitimate. That’s for the court to decide,” the police attorney says.

No Sign Of The Robot Owner

During questioning, the police was interested to know what would be a “natural behavior,” and what perception the two traders had of the Timber Hill trading platform.

However,  the public prosecutor did not offer any explanation as to why representatives of the Timber Hill was not summoned as a witness.

Peder Veiby’s lawyer, Anders Brosveet, said in his procedure that it was not the two defendants who moved prices,  and claimed it was Timber Hill since they deleted their own orders and then raised the price.

The problem is that the brokerage firm’s robot was so poorly programmed that it failed to pick up signals that any rational market participant would do, he argued.

We might expect a ruling by the court at the end of the week.

Related by The Swapper:

Update: Day Traders Crack The Timber Hill Trading System

Oslo Stock Exchange Comments On Market Manipulation

Illegal To Outsmart A Trading Robot, Expert Says


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Espen G. Haug: Algorithms Should Be Monitored On A Daily Basis

Leading derivative expert, author and regular contributor at the Econotwist’s, Espen Gaarder Haug, says algorithms have many weaknesses and should be monitored on a daily basis by people with extensive market knowledge and experience. The former Norwegian Wall Street trader  have a thing or two to say in relation to the ongoing circus at Oslo District Court – also known as the “robot case.”

“Should the major players be allowed to carry on trading algorithm with no monitoring, without people with broad market experience monitoring them?”

Espen Gaarder Haug

The day traders in the so-called “robot case”  – now appearing before the Oslo District Court accused of market manipulation – run their scheme undisturbed for nearly six months. First, when the Oslo Stock Exchange contacted the brokerage and investment firm that owned the shares that the robot was trading, the alarm was raised and  the possibility to manipulate the trading program was removed.

“A rational investor would have plugged these holes quickly,” Dr. Espen Gaarder Haug comments.

“If you choose to outsource market making to a computer and you lose money.. I mean, you just have to accept it,” he adds.

Espen Gaarder Haug holds a  Ph.D. from NTNU and is regarded as one of the worlds leading experts on derivatives and option pricing models.

His book “The Complete Guide To Option Pricing Formulas” is seen as “The Bible” by many fund managers and derivative traders.

He has worked almost 17 years as a trader on Wall Street, among others, at JP Morgan and Chase Manhattan Bank.

He has also worked as an active manager of multi-billion dollar hedge funds, like Amaranth and Paloma.

Dr. Haug underlines that he don’t know anything about robot manipulation other than what’s been written in media, but says he recognize similar issues from his experience in the international financial industry.

He believes that the trading algorithm requires good internal monitoring y individuals with broad market experience.

“I know many who run algorithm trading, and they’re always following the trades with several well-qualified employees – and often by the one who created the algorithm,” he says.

There’s Always A Risk

“Robot trading always involves a risk of weakness in the algorithm,” Haug points out.

“It is therefore important to monitor whether such risks pops up, so that these algorithms can be adjusted, or turn off. If you choose to let the robot run without supervision, you take an unnecessary, additional risk,” says Haug.

The ongoing court case in Oslo have revealed that the two charged day traders was able to exploit the same weakness over and over again.

Timber Hill (who is a part of the Interactive Broker Group) was not aware of this before the Oslo Stock Exchange contacted them on March 14th this year.

Testifying before the court on Tuesday, Thomas Borchgrevink, manager of market surveillance at the Oslo Stock Exchange, said:  “I felt that they were not aware of this. They were not on the ball.”

Timber Hill closed down, temporarily,  the robot in question when the Oslo Stock Exchange made them aware of the error, and has since modified the algorithms.

Chill, Timber Hill

Espen Gaarder Haug assumes that the Timber Hills algorithm was not only used to make trading in stock (so-called market making) in the  Hafslund (B shares), Wilh. Wilhelmsen and Odfjell (B shares), which is relevant for this trial.

“In a way, Timber Hill, should be glad that someone intervened in these low liquidity stocks, and that no other big caps suffered even greater losses,” Haug points out.

There may be several reasons why a brokerage firm choose to let a robot trade without supervision, he says.

“They can, for example, have too much faith in their algorithm, so they do not fear failure. It may also be that they trade many shares in as many markets as possible, so that each share has little importance. And they choose to take a risk that in some cases leads to losses”.

“Around-the-clock monitoring is costly, but the algorithms have many weaknesses and should be monitored on a daily basis by people with extensive market knowledge and experience,” he notes.

Mandatory Monitoring?

Haug believes it is reason to ask whether monitoring should be mandatory:


“Should the major players be allowed to carry on trading algorithm with no monitoring, without people with broad market experience monitoring them?” Dr. Haug asks.

He believes naive algorithm trading, could not only harm itself, but at worst, damage the entire economy by reinforce large price movements.

Espen Gaarder Haug predicted in detail the financial crisis by the end of 2006, beginning of 2007, in a series of interviews and articles published by the Norwegian-The-Economist-peer – Økonomisk Rapport in 2007 and 2008.


“Although it is difficult to prove, there are good indications that the US stock market crash in 1987 was reinforced by the naive algorithm trading. The algorithms were based on a number of imaginative assumptions that broke completely with the crash. Some major players followed their naive algorithms slavic and sold more and more the more as the market dropped based on signals from the algorithms they slavishly followed,” Dr. Haug says.



Related by the Econotwist’s:

In Defence Of A Robot

Update: Day Traders Crack The Timber Hill Trading System

Oslo Stock Exchange Comments On Market Manipulation

Illegal To Outsmart A Trading Robot, Expert Says



Filed under International Econnomic Politics, National Economic Politics