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ASIC warns against “pump and dump” campaigns

The Australian Securities and Investments Commission (ASIC) has noted a worrying trend in the use of social media to coordinate pump and dump activities on publicly traded stocks. According to ASIC, this could amount to market manipulation in breach of the provisions of the Corporations Act 2001.

Pump and dump activity occurs when an individual buys stocks in a company and begins structured actions to raise (or “pump up”). It uses social media and online forums to generate high interest in stocks or spread fake news about the company. Then he sells his shares and makes a profit, while other shareholders suffer losses as the share price drops.

High penalties for market manipulations

Recently, ASIC has seen blatant attempts to pump share prices using social media. It even happens that the organizers announce a price increase to a certain level and the possibility of achieving specific profits. In some cases, posts on social forums can mislead users, implying that the activity is legal.

If an investor decides to buy stock as part of one of these campaigns, they may become a victim of it. Campaigners can start selling stocks and taking profits before they hit your target price. ASIC reminds you that market manipulation is illegal. This is punishable by a fine of over $1 million and a penalty of up to 15 years’ imprisonment.

ASIC encourages the reporting of irregularities

Participants should pay attention to clients who trade the same shares in the same way and at the same time. They could open accounts simultaneously, be referred by the same person, have the exact contact details or transfer funds between themselves.

ASIC expects participants in such programs to report suspicious activity promptly. Investors and consumers are also encouraged to report inappropriate behaviour to the ASIC.

Author: Daniel Hill

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