Interesting debate guys regarding market manipulation. I think aminorex's definition below is a good one (regardless of one's views on the ethics of such an activity):
Market manipulation is generally understood to mean trading for purposes of effecting a price impact, not otherwise in the interest of the trader. For example, sham sales, in which the counterparties have pooled resources, or one party takes both roles, so that transactions occur at their preferred prices, can be used to create a trap for speculators, who trade at prices not determined by market forces, but by the collusion of the manipulator(s).
According to this definition, I believe that market manipulation is indeed happening. The next question is "is this wrong"? vdcc says this is fraud:
No violence, but fraud yes. If you pump/dump coins (or even fake volume and trades) for financial gain, then you are defrauding honest traders.
I'm not convinced, but I'd like to hear further arguments. Here's what I think is fraud:
A whale calls up the owner of an exchange and, says "I want to put up a 5,000 BTC ask wall to scare the fish into selling to me for cheaper, but I don't actually want to risk a bigger whale buying all my coins. Can I pay you 50 BTC to ensure that if someone tries to buy my wall that your trading engine encounters 'technical difficulties'?" If the owner agrees, this is fraud and we have laws that would apply in such a situation. I agree this is fraud, as I don't expect the exchange owners to do this. (I wish they stated clearly how they stand in such cases). This is probably unlawful. Even regarding this, I do not want regulation, because a) regulation invites to corruption b) excessive regulation and control leads to erotion of ethics on the part of the exchange ( anything that is not expressly forbidden will seem ethical, ref current situation with the banks) and mostly, c) it leads to complacency among the traders, who will not care to evaluate the exchanges themself, but blindly trust the regulators (ref the Madoff example). Another thing is a voluntary organization to check on the exchanges for their members, that could be useful. Now we have only the press and this forum, which is better than nothing.
But if two colluding whales buy and sell to each other on the open market to try and make it appear there is more volume at a price higher or lower than what they believe to be the market price, then could not one argue that this is simply "strategy"? Is not everyone still playing by the same rules?
Exchange owners don't need to involve anyone else to do fraud. They have millions of dollars of our money and BTC with no auditors. Volunteer organizations would prove a security risk. Wasn't there a huge incident when an auditor's account got hacked and lots of BTC was stolen? Was that Mtgox? Sorry don't recall the exchange without looking it up.