Thinking | 15 November 2021

Social media warning: ‘pump and dump’ campaigns

By James Morvell, Michelle Eastwell, Vanessa Murphy and Adren Choon

In response to a growing trend of social media posts being used to coordinate ‘pump and dump’ activity in listed securities, ASIC has provided a cautionary warning that social media activity can, in fact, amount to market manipulation.

Pump and dump activity occurs where a person:

  • buys listed securities and organises a campaign to inflate (or ‘pump’) the market price. The recent trend is for this to be done through social media and online forums (including by disseminating false information about a listed entity’s prospects); and
  • following an increase in the market price, sells (or ‘dumps’) the securities, taking a profit and potentially exposing other securityholders to a drop in the market price as a result of the sale activity.

In a novel approach to regulation, ASIC has been joining pump and dump chat groups on messaging apps such as Telegram to warn against participation in illegal market manipulation activities.

ASIC's observations were that the concerning activity has been ‘blatant’ – using social media posts to call out a target stock, a designated time to buy and a target price or percentage gain that should be reached before the securities are sold.

In response, ASIC has published a warning about these campaigns, reminding:

  • investors that all trades on Australian markets are monitored by ASIC in real-time, in a way that enables it to see underlying clients, identify networks of connected parties and analyse trading patterns;
  • market participants that they should be reporting suspicious activities to ASIC, and taking an active role in identifying and preventing potential market misconduct; and
  • listed entities that they should also be reporting suspicious activity in relation to trading in their securities to either ASX or ASIC (including where there is a sudden and unexplained price movement).

Persons caught in breach of the market manipulation provisions can face fines of over $1 million and up to 15 years imprisonment – serious potential consequences for a social media post.

If you have any questions about monitoring and reporting suspicious activity in relation to trading in securities, please get in touch with a member of our Capital Markets team.

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