What are the Points to Note When Disseminating Investment Information on SNS? Explaining the Requirements for Spreading Rumors, Defamation, and Market Manipulation

Nowadays, it has become commonplace to disseminate and collect information through social media. This is particularly true in the investment field, where the immediacy of social media is often advantageous and frequently used. While anyone can easily disseminate information on social media, it is important to be careful when sharing investment information to ensure that it does not constitute spreading rumors, defamation, or market manipulation.

In this article, we will explain in detail the legal issues that need to be considered when disseminating investment information.

Legal Issues When Sharing Investment Information on Social Media

Sharing investment information on social media can have various impacts.

For instance, individual investors make investment decisions based on the information shared on social media. Incorrect information or rumors can potentially lead to losses for these investors. Additionally, the spread of investment-related information on social media can influence a company’s stock price and reputation.

Therefore, it is necessary to be cautious not to violate the regulations of the Penal Code, the Japanese Financial Instruments and Exchange Act, and the Japanese Unfair Competition Prevention Act when disseminating investment information. In particular, when using social media to share investment information, due to the ease of disseminating information and the power of social media to spread information rapidly, there is a possibility that investment information could quickly reach a large number of people, so caution is required.

Cases Where Investment Information Shared on Social Media Can Lead to Defamation and Credit Damage

When investment information is shared on social media, depending on the content, it could potentially harm the reputation of a specific company or lower its evaluation. In such cases, it may fall under the crime of defamation (Article 230, Paragraph 1 of the Japanese Penal Code) or credit damage (Article 233 of the Japanese Penal Code).

Related article: Is it possible for corporations to claim damages? Explaining based on defamation precedents[ja]

Criteria for Defamation

Defamation is defined in Article 230, Paragraph 1 of the Japanese Penal Code as follows:

(Defamation)
Article 230: Anyone who publicly states a fact and damages a person’s reputation, regardless of the truth of the fact, shall be punished by imprisonment for up to three years or a fine of up to 500,000 yen.

e-GOV Law Search｜Penal Code[ja]

In other words, the criteria for defamation are as follows:

• Publicly
• Stating a fact
• Damaging a person’s reputation

However, according to Article 230-2, Paragraph 1 of the Penal Code, if the content of the fact has public nature, public interest, and truthfulness, the illegality will be negated.

If defamation is established, you may be sentenced to imprisonment for up to three years or a fine of up to 500,000 yen.

Criteria for Credit Damage

Credit damage is defined in Article 233 of the Japanese Penal Code as follows:

(Credit Damage and Business Interference)
Article 233: Anyone who spreads false rumors or uses deception to damage a person’s credit or interfere with their business shall be punished by imprisonment for up to three years or a fine of up to 500,000 yen.

e-GOV Law Search｜Penal Code[ja]

In other words, the criteria for credit damage are as follows:

• Spreading false rumors or using deception
• Damaging a person’s credit

The “credit” in credit damage refers to a person’s evaluation in economic aspects, not only social trust in payment intentions and payment ability, but also social trust in the quality of products, etc.

If credit damage is established, you may be sentenced to imprisonment for up to three years or a fine of up to 500,000 yen.

Cases Where Investment Information Dissemination on SNS Becomes Rumor Spreading

As previously mentioned, spreading false rumors and damaging a person’s reputation can constitute a crime of defamation under the Penal Code. However, the spreading of rumors is also regulated under the Japanese Financial Instruments and Exchange Act.

What is Rumor Spreading?

Article 158 of the Japanese Financial Instruments and Exchange Act stipulates the following:

(Prohibition of Rumor Spreading, Fraud, Assault, or Threats)
Article 158: No person shall spread rumors, use fraud, or commit assault or threats for the purpose of soliciting, selling, or trading securities or other transactions or derivative transactions, or for the purpose of manipulating the market price of securities, etc. (meaning financial instruments related to securities or options or derivative transactions, excluding securities. The same shall apply in Article 168, paragraph 1, Article 173, paragraph 1, and Article 197, paragraph 2, item 1).

e-GOV Law Search | Financial Instruments and Exchange Act[ja]

Spreading rumors (gossip, baseless speculation, etc.) to an unspecified or large number of people for the purpose of soliciting, selling, or trading securities, or for the purpose of manipulating market prices, is prohibited as “rumor spreading” under Article 158 of the Japanese Financial Instruments and Exchange Act.

Examples of cases where this provision has been applied include posting false information on internet bulletin boards to sell stocks of a company one owns at a high price, allowing an unspecified number of people to view it, and then selling the stocks after the stock price rises due to investors buying the stocks based on the posted information.

While this case involves information dissemination on internet bulletin boards, it is believed that the same could apply to cases where investment information is disseminated on SNS. For example, posting on SNS based on rumor-level grounds, such as “Company XX seems to be window-dressing… Maybe it’s time to sell.”

Also, using fraudulent or unfair schemes or means to cause others to make mistakes for the purpose of soliciting, selling, or trading securities, or for the purpose of manipulating market prices, is prohibited as “fraud” under Article 158 of the Japanese Financial Instruments and Exchange Act.

An example of a case where this provision was applied is when a fund controlled by the person in question made a false public announcement that the listed company had increased its capital, despite the fact that the capital increase funds paid in by the third-party allotment were immediately leaked out of the company, and the person in question sold the acquired shares for a profit after raising the stock price.

Penalties if Judged as Rumor Spreading

If the dissemination of information on SNS is judged to be rumor spreading, the following penalties apply:

First, as a criminal penalty, you may be sentenced to imprisonment for up to 10 years or a fine of up to 10 million yen, or both (Article 197, paragraph 1, item 5 of the Japanese Financial Instruments and Exchange Act).

Next, you may be ordered to pay a surcharge.

The amount of the surcharge for the violation is based on the amount of profit equivalent to the violation (the same applies to other types of violations). In cases that fall under rumor spreading, it is conceivable that the difference between the selling price (buying price) of the position at the end of the violation and the lowest (highest) price evaluated for the position within one month after the violation could be considered as the surcharge equivalent amount (Article 173 of the Japanese Financial Instruments and Exchange Act).

Cases Where Investment Information Shared on Social Media Becomes Market Manipulation

Market manipulation refers to the act of artificially altering the market, misleading others into believing that the market is formed naturally by supply and demand, and seeking personal gain.

Such actions obstruct fair price formation and can cause unexpected damage to investors, and are therefore prohibited under the Japanese Financial Instruments and Exchange Act.

Criteria for Determining Market Manipulation

Market manipulation is defined under Article 159 of the Japanese Financial Instruments and Exchange Act.

(Prohibition of Market Manipulation)
Article 159 No person shall, with the purpose of misleading others into believing that any of the transactions of securities trading (limited to the trading of securities listed by a financial instruments exchange, over-the-counter securities, or handled securities. The same shall apply hereinafter in this Article.), market derivative transactions or over-the-counter derivative transactions (limited to financial instruments listed by a financial instruments exchange, over-the-counter securities, handled securities (including financial indices calculated based on their prices or interest rates, etc.) or those related to financial indices listed by a financial instruments exchange. The same shall apply hereinafter in this Article.) are thriving or with any other purpose of causing others to misunderstand the circumstances of these transactions, commit any of the acts listed in the following items:
1 to 9 (omitted)
2 No person shall, with the purpose of inducing any of the transactions of securities trading, market derivative transactions or over-the-counter derivative transactions (hereinafter referred to as “securities trading, etc.” in this Article.), commit any of the acts listed in the following items:
1 (omitted)
2 Disseminating the fact that the market price of listed financial products, etc. in the exchange financial product market or over-the-counter securities in the over-the-counter securities market is to fluctuate due to one’s own or another’s manipulation.
3 Intentionally making a false or misleading representation about an important matter in conducting securities trading, etc.
3 (omitted)

Financial Instruments and Exchange Act | e-Gov Law Search[ja]

An example of the application of this provision is a case where an individual, with the aim of inducing the purchase and sale of shares of a stock they own, placed continuous high bid orders through multiple securities companies, raising the stock price, and by placing a large number of buy orders at the lower price, misled others into believing that the trading of the stock was thriving. As a result, investors who were induced by this bought the stock, further raising the stock price, and the individual then sold the stock, gaining an unfair profit.

It should be noted that the following actions, which can influence stock prices and may be considered manipulative trading, require caution:

• Buying up: For example, continuously placing high buy orders against sell orders placed in the market, fulfilling all these sell orders and raising the stock price.
• Supporting the lower price: For example, placing a relatively large number of buy orders at a lower price than the current price, or actually buying, to prevent the stock price from falling.
• Involvement in the closing price: For example, placing a high buy order (or a low sell order) just before the trading closing time and fulfilling it, influencing the formation of the closing price.
• Show orders: For example, placing a large number of buy orders with low priority, without the intention of fulfilling them, in the price range displayed on the order book screen.

For instance, posting on social media, “The stock price of Company XX is sure to plummet because Mr. XX is selling,” could be considered.

Penalties if Determined to be Market Manipulation

Firstly, as a criminal penalty, you may be sentenced to imprisonment for up to 10 years or a fine of up to 10 million yen, or both (Article 197, Paragraph 1, Item 5 of the Japanese Financial Instruments and Exchange Act). Secondly, if you manipulate the market with the purpose of gaining property benefits and cause the market price of securities, etc. to fluctuate or be fixed, you may be sentenced to imprisonment for up to 10 years and a fine of up to 30 million yen (Article 197, Paragraph 2 of the Japanese Financial Instruments and Exchange Act).

Also, in the case of a corporation, not only the individual corporate officer (representative or agent, employee or other worker of the corporation or person) who committed the market manipulation, but also the corporation itself may be subject to a fine of up to 700 million yen (Article 207, Paragraph 1, Item 1 of the Japanese Financial Instruments and Exchange Act).

Comparing the Requirements for Defamation, Spreading Rumors, and Market Manipulation

So far, we have explained the requirements for investment information dissemination on SNS to be considered as defamation, spreading rumors, and market manipulation. These can be organized as shown in the table below.

Conclusion: Legal Checks by Lawyers are Essential for Investment Information Dissemination

In this article, we have discussed the precautions to be taken when disseminating investment information using social media. While social media allows for easy dissemination of investment information, the ease of dissemination can sometimes lead to violations of laws such as the Penal Code and the Japanese Financial Instruments and Exchange Act. When disseminating investment information, it is necessary to be cautious to avoid defamation, spreading of rumors, and market manipulation.

We recommend consulting with a lawyer in case of any issues related to the dissemination of investment information using social media or other platforms.

Our Firm’s Approach

Monolith Law Office is a legal practice with high expertise in both IT, particularly the internet, and law. In recent years, defamation through social media has become a significant issue, and the need for legal checks is increasingly important. This is especially true when it comes to disseminating investment information. Our firm analyzes the legal risks associated with businesses that have already started or are about to start, based on various legal regulations. We aim to legalize the business as much as possible without stopping it. Details are provided in the article below.

Areas of practice at Monolith Law Office: IT & Corporate Law for Startups[ja]