Question10 Santos trades digital coins on cryptocurrency exchanges for both his own account and as an investment strategy for clients who have indicated an interest in such speculative trading and for whom it is appropriate. The cryptocurrency exchanges are unregulated markets. Santos is a member of “EasyCoin,” a chatroom in which coin traders gather that has thousands of members. EasyCoin is a private chatroom accessible by invitation only and is overseen by an anonymous moderator. Generally, the chatroom moderator announces a date, time, and exchange for members to initiate trading. At the set time, the moderator informs the chatroom of the particular cryptocurrency to be traded. Traders, including Santos, buy that digital coin creating a surge in the price with the intention of attempting to sell before the price collapses. Over the past several months, 47 different cryptocurrencies have been promoted on EasyCoin and generated $357 million in trades. Santos often profits from the rise in the price of the cryptocurrency by timing his trades correctly, but occasionally he buys and holds the digital coin too long and the price drops steeply before he can sell, causing him to lose money for himself and his clients. Santos actions areSelect one alternative: acceptable because he voluntarily engages in this speculative trading based on information in a private chatroom. unacceptable because Santos is engaged in market manipulation. unacceptable because speculative trading cryptocurrency in unregulated markets for client accounts is unethical. acceptable because Santos, unlike the moderator of the EasyCoin chatroom, is not actively organizing the trading of the digital coin. ResetMaximum marks: 1.5 Flag question undefined

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BlackTom AI · Accepted Answer

The scenario presents Santos participating in a coordinated, speculative trading activity in unregulated cryptocurrency markets via a private chatroom moderated by an anonymous figure. Each answer option will be considered in turn to assess its validity.

Option 1: 'acceptable because he voluntarily engages in this speculative trading based on information in a private chatroom.' While Santos may have chosen to trade, the private chatroom environment and the pattern of trading described—buying a coin at a set time to drive up price and then selling before the price collapses—suggests actions aimed at manipulating market prices. The fact that the moderator announces the trading window and a specific cryptocurrency to be traded indicates orchestrated activity rather than purely voluntary speculation. This framing ignores potential manipulation dynamics and does not address the ethical and legal implications of collusive or coordinated actions in a market, especially in unregulated spaces where oversight is minimal. Therefore, this option overlooks the manipulative elements present in the described conduct.

Option 2: 'unacceptable because Santos is engaged in market manipulation.' The core feature here is the timing of trades to create artificial price surges, allowing Santos and others to profit at the expense of later traders, which constitutes market manipulation in many jurisdictions and ethical guidelines. The moderator’s coordination of a trading window and the collective participation by multiple traders to push a price up for personal gain aligns with manipulative behavior commonly prohibited by securities laws and professional ethics in financial markets. This explanation directly identifies the criminal or unethical mechanism at play: artificially influencing prices through coordinated actions.

Option 3: 'unacceptable because speculative trading cryptocurrency in unregulated markets for client accounts is unethical.' While trading in unregulated markets itself can raise concerns, the more foundational issue in the scenario is whether there is manipulation. Even if unregulated venues carry higher risk and questions about suitability arise, the emphasis here is on manipulation of prices and the potential for investor harm. The unethicality attributed to speculative trading in unregulated markets may be true in many contexts, but it does not specifically address the mechanism of manipulation that is clearly described in the prompt, which makes this choice less directly pertinent to the central issue than Option 2.

Option 4: 'acceptable because Santos, unlike the moderator of the EasyCoin chatroom, is not actively organizing the trading of the digital coin.' The distinction between a moderator who coordinates the event and a participant who trades on the signal does not absolve participants of responsibility if their actions—together with the moderator—create the manipulative environment. Even if Santos is not the organizer, his active participation in the manipulation, including profiting from the artificial price movement, raises ethical and possibly legal concerns. This option incorrectly assigns blame only to the moderator and ignores the collaborative nature of manipulation that can involve multiple participants.

Across the options, the analysis highlights that the decisive issue is the manipulation risk demonstrated by coordinated timing and price influence within the chatroom, which points to unethical and potentially illegal conduct. The reasoning shows why the others fail to capture the central concern of market manipulation in this context.

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