ASIC warns GameStop-style ‘pump and dump' campaigns may amount to market manipulation

A “concerning trend” of social media posts being used to coordinate ‘pump and dump’ activity in listed stock may amount to market manipulation, according to Australia’s corporate regulator.

Pump and dump activity, the most famous example being the social media-induced GameStop buying frenzy earlier this year in the US, has been on the rise ever since.

The Australian Securities and Investments Commission (ASIC) reports the activity may amount to a breach of the Corporations Act, and can attract a fine of more than $1 million and up to 15 years imprisonment.

The 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.

The corporate watchdog says it has recently observed “blatant” attempts to pump share prices, using posts on social media to announce a target stock and a designated time to buy as well as a target price or percentage gain to be reached before dumping the shares.

ASIC warns would-be participants in ‘pump and dumps’ that they may become the victim, as people behind the campaign may start dumping their shares and taking profits before they reach the agreed-upon target price.

“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,” ASIC commissioner Cathie Armour said.

“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.”

The watchdog says it uses a real-time surveillance system to detect these schemes, enabling it to see underlying clients and to identify networks of connected parties to analyse trading patterns.

“Market participants, as gatekeepers, should take active steps to identify and stop potential market misconduct,” Armour said.

“They should consider the circumstances of all orders that enter a market through their systems, and be aware of indicators of manipulative trading.”