ASIC warns on 'pump and dumps'

The Australian Securities and Investments Commission has warned companies, brokers and traders who coordinate illegal pump and dump actions in listed stocks in order to pocket high profits.

In a statement on Thursday 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.

The statement coincides with the 6400% increase in Aura Energy, a small uranium prospector that was spruiked in Twitter posts and a Telegram group focused on ASX pump and dumps after it nominated the company as its target for the day. By 10am the stock had opened up 7800 per cent at 33 cents, having recently traded at .03 of a cent before a 13 for 1 share consolidation that should’ve pumped up its price to 4 or 5 cents a share. It closed at 26 cents.

‘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 said 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 said it 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.”