Australians caught ‘pumping and dumping’ the share prices of listed stocks may face $1 million penalties for rigging the market, the corporate watchdog has warned.
The Australian Securities and Investments Commission (ASIC) issued a warning this morning saying it had observed a “concerning trend” of social media posts encouraging Aussies to ‘pump and dump’ shares.
This involves a coordinated effort to buy shares in a company, inflating the stock price (‘pump’) before selling the shares (‘dump’) to take a profit while other shareholders cop the consequences of the 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,” the corporate watchdog said in a statement.
“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.”
The social media posts may mislead unwitting Australians into thinking this kind of activity is legal – but it isn’t, ASIC said.
In fact, Aussies taking part in this scheme may end up taken advantage of.
“They may become the victim. The people behind the campaign may start dumping their shares and taking profits before they reach the target price.”
This kind of activity is market manipulation, and is against the law. Those caught will face enormous penalties – including jail time.
“Market manipulation is illegal. It can attract a fine of over $1 million and up to 15 years imprisonment,” ASIC stated.
ASIC commissioner Cathie Armour said the watchdog was working closely with market operators to weed out these ‘pump and dump’ campaigns.
“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.”
How to recognise ‘pump and dump’ schemes
Aussies should watch out for investors who signal they intend to buy or sell the same stock at the same time of day.
These people might have opened accounts at the same time, been told to do so by the same person, share the same account contact details, or transfer money between themselves, ASIC’s statement said.
Australians should know that licensed Australian markets are being monitored by ASIC through real-time surveillance and cross-referencing trade data with third parties, allowing the watchdog to discover “networks of connected partners” and analyse trading patterns.