Nearly two years ago, I wrote about a Securities and Exchange Commission enforcement action against a penny stock promoter in San Diego.    There's nothing particularly unusual about the SEC targeting penny stock fraud.  What made this case interesting was the fact that the investigation appeared to involve the government in criminal stock manipulation.  See Did The FBI Violate The CSL?

I brought the case to the attention of Professor Elizabeth E. Joh at the U.C. Davis School of Law.  The case inspired a forthcoming article in which Professor Joh and co-author Professor Thomas W. Joo explore the problem of third-party victims of government sting operations.  The two professors note that little attention has been paid to the collateral effects of aggressive enforcement tactics against financial crimes:

Third-party harms have been undeservedly ignored.  In the case of stock manipulation stings, innocent third parties can suffer direct financial harms as a result of the government’s choice to rely upon this particular investigative approach.  Such harms should not occur unless they are outweighed by the benefits of engaging in a sting.

The entire article is available here.