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21-256MR ASIC warns of social media led ‘pump and dump’ campaigns
ASIC has noted a concerning trend of social media posts being used to coordinate ‘pump and dump’ activity in listed stocks, which may amount to market manipulation in breach of the Corporations Act 2001.
‘Pump and dump’ activity occurs when a person buys shares in a company and starts an organised program to seek to increase (or ‘pump’) the share price. They do this by using social media and online forums to create a sense of excitement in a stock or spread false news about the company’s prospects. They then sell (or ‘dump’) their shares and take a profit, and other shareholders suffer as the share price falls.
ASIC has recently observed blatant attempts to pump share prices, using posts on social media to announce a target stock, a designated time to buy and a target price or percentage gain to be reached before dumping the shares. In some cases, posts on social media forums may mislead subscribers by suggesting the activity is legal.
If an investor decides to buy shares as part of one of these campaigns, they may become the victim. The people behind the campaign may start dumping their shares and taking profits before they reach the target price.
Market manipulation is illegal. It can attract a fine of over $1 million and up to 15 years imprisonment. ASIC takes breaches of the market manipulation provisions seriously.
ASIC Commissioner Cathie Armour said ‘ASIC has been working closely with market operators to identify and disrupt pump and dump campaigns, and we will continue to target actions that threaten the integrity of markets and to take enforcement action where appropriate. We expect anyone involved in these campaigns to recognise the potential impact on market integrity and to be aware ASIC monitors all trading on the ASX equity market on a real time basis.’
ASIC monitors trading on Australian licensed markets through its sophisticated real-time surveillance system and by integrating trade data with data from third parties. This enables ASIC to see underlying clients, to identify networks of connected parties and to analyse trading patterns.
‘Market participants, as gatekeepers, should take active steps to identify and stop potential market misconduct. They should consider the circumstances of all orders that enter a market through their systems, and be aware of indicators of manipulative trading,’ Ms Armour said.
Participants should be on the lookout for groups of clients who trade in the same stock, in the same direction and around the same time. They may have opened accounts at a similar time, been referred by the same person, have the same account contact details, or transfer funds between themselves.
Listed entities have a role to play in maintaining the integrity of our markets. They should report any suspicious activity they detect in their listed securities to the Australian Securities Exchange (ASX) or ASIC. This includes where there are sudden and unexplained price moves.