ASIC issues warning on social media ‘pump and dump’

The Australian Securities and Investments Commission (ASIC) has placed markets on notice to report what it is describing as “pump and dump” activity on listed stocks.

In a notice issued today, the regulator said it had “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 200”.

It explained that “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,” the ASIC announcement said.

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.”

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.”