Stock Swami court ruling will scare off critics of financial misconduct, warns Forager Funds chief

Fund manager Steve Johnson says there’s a power imbalance between those attempting to inappropriately promote stocks and those calling out the behaviour.

Forager Funds Management’s Steve Johnson. Picture: Britta Campion

Tolga Kumova’s legal victory over the Twitter user known as Stock Swami will lead to fewer people calling out conflicts of interest despite “rampant” pump-and-dump scams on social media, Forager Funds Management chief investment officer Steve Johnson says.

Alan Davison defamed Mr Kumova, a mining entrepreneur, conducting “himself with disregard” for decency and the desire for truth, Federal Court judge ­Michael Lee found last week.

However, Justice Lee accepted that Mr Kumova engaged in “contravening conduct” as claimed by Mr Davison on two occasions, including his failure to disclose changes to his substantial shareholdings in New Century and Bellevue Gold as required under the law. But it was “exceedingly low in the calendar of corporate misfeasance”, he said.

Alan Davison leaves the Federal Court during an earlier appearance. Picture: Nikki Short

In a second instance, Justice Lee said Mr Kumova’s assertion Bellevue Gold had access to $17bn “of metal sitting behind me there” was “apt to mislead and … reflects poorly upon Mr Kumova”.

Mr Johnson told The Australian that there was a power imbalance between those attempting to inappropriately promote stocks and those calling out such behaviour.

“There are some people out there playing a very, very important role, highlighting … conflicts of interest in this way. I hope that this doesn’t scare everyone away from doing that. They just need to be more careful about it,” he said.

“It’s undoubtedly going to make people think twice, but I think there are ways of doing it (that are) a bit more considered.”

Mr Davison, who was unmasked as Stock Swami through Mr Kumova’s legal action, had accused the businessman in a ­series of posts of insider trading and share price manipulation.

The Federal Court decision – and $275,000 in damages for Mr Kumova – could result in fewer people calling out inappropriate behaviour for fear of the legal consequences, Mr Johnson said.

“The first implication is people need to be very careful about defaming people online, in a newspaper or in an official publisher. There’s a lot of people looking at (the judgment) and worrying about that side of things,” he said. “The second implication is it’s fairly logical for people to therefore do less of that. And I think that would be an unfortunate ­implication.”

Despite Justice Lee’s decision, Mr Johnson said the world needed more people like Mr Davison, not fewer.

Forager Funds Management chief executive Steve Johnson. Picture: Hollie Adams

“The concept of pump and dump scams, and even just promotional activity, has always been around. But with the advent of Twitter, and online in general, you can now do it on a scale that is bigger than anything you could have ever done before,” he said.

“It’s extremely rampant out there, with people saying crazily positive things about a stock for reasons that are mostly related to getting the share price up so that they can make money out of it. That behaviour is rampant.

“People like (Mr Davison) on the other side, highlighting some of these conflicts of interest … The market needs both sides.”

There were far more people interested in pumping stock prices up than highlighting conflicts, Mr Johnson said. “It’s already very one-sided and that’s why, for me, it would be disappointing if there were fewer people trying to uncover and highlight some of this behaviour.”

Justice Lee, despite finding Mr Davison defamed Mr Kumova, and that he could not prove “the substantial truth” of claims he made, added that he was “tilting at windmills in being generally concerned about the real or ­potential misuse of social media to ‘ramp’ securities”. “Speaking in the abstract, the financial media or a public commentator exposing market manipulation … might be thought to have social and economic utility,” he wrote.

Tolga Kumova was found by court to have been defamed. Picture: Nikki Short

“But the very seriousness of market manipulation in any form means that a public accusation of pumping and dumping or insider trading must be approached ­responsibly and with a degree of circumspection.”

The Australian Securities and Investments Commission had repeatedly warned about a rise in so-called pump and dump activity and last year began legal proceedings against Gabriel Govinda – or Fibonarchery on the HotCopper share trading forum – who pleaded guilty to 23 charges of manipulating listed resources stocks.

Mr Johnson told The Australian that investors should not only rely on regulators for protection.

“My expectation is not that high. I think if (ASIC) can win a few high-profile things here and it makes people think twice, then that’ll be a really good start,” he said in an interview. “I actually worry in some ways about having too much faith in a regulator to protect you. I think the best thing for the average person out there is to be highly sceptical of what you’re reading and being told.”

Mr Johnson said his advice for those calling out bad behaviour online was to keep it simple.

“Stick to the facts … Let (readers) join the dots and utilise the facts and then you don’t have to accuse anyone of anything ­illegal,” he said. “You just lay out the facts of what’s happened.”

Mr Kumova said he had been forced to take action against Mr Davison to defend his reputation.