Australia's corporate watchdog has warned that investors using social media to drum up a 'pump and dump' of ASX shares could end up in jail.
The Australian Securities and Investments Commission (ASIC) announced Thursday that it was seeing "a concerning trend" of people conducting such online campaigns, which could amount to illegal market manipulation.
"'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," stated the commission.
"They then sell (or 'dump') their shares and take a profit, and other shareholders suffer as the share price falls."
A classic recent example has been in the US, where GameStop Corp (NYSE: GME) multiplied 20 times in January and has been on a rollercoaster since.
It seems ASIC is worried about copycat campaigns targeting ASX shares.
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'Blatant attempts to pump share prices'
ASIC stated it has witnessed on social media "blatant attempts to pump share prices" of certain stocks, which set up a particular time to buy — then a target price to dump.
"In some cases, posts on social media forums may mislead subscribers by suggesting the activity is legal," the commission stated.
"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 warned that market manipulation was illegal, and a conviction could result in 15 years' imprisonment and a fine of more than $1 million.
Warning: ASIC is watching
Commissioner Cathie Armour said ASIC had been "working closely" with market operators to catch pump and dump campaigns.
The authority performs data matching from multiple sources to find networks of investors conspiring together.
"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," she said.
"We will continue to target actions that threaten the integrity of markets and to take enforcement action where appropriate."
Armour added that brokers, which ASIC calls market participants, should take "active steps" to stop stock manipulation before it starts.
Signs of such campaigns could include groups of clients trading in the same ASX share at the same time in the same direction.
"They may have opened accounts at a similar time, been referred by the same person, have the same account contact details, or transfer funds between themselves."
ASIC stated it expected brokers to promptly report suspicious activity.
ASX-listed companies were also warned to report any strange trading of their shares, either to ASX Ltd (ASX: ASX) or ASIC. This included sudden but unexplained price moves.
