ASIC targets pump and dump trading activity amid crypto spillover warnings

The corporate regulator has some ASX companies and figures linked to them in its sights amid warnings that recent pumping of crypto assets risks spilling over into equities markets.

Financial regulator ASIC has its eye on pump and dump activity on the Australian sharemarket. Picture: Gaye Gerard

A pump and dump or rug pull – call it what you like and there may be subtle nuances – but both schemes rely on the same adage: a sucker is made every day.

The last few years have seen countless examples of the schemes, largely in the opaque world of cryptocurrency assets – who can forget the popularity and dubiously sky-high valuations of monkeys in various outfits or the surge in interest in shares in listed games companies or cinema chains.

So often these schemes are co-ordinated through social media, or private channels such as Telegram, Signal, or Discord.

Now Australia’s corporate regulator has started sifting through the noise in a bid to catch a pump in the act.

The Australian Securities and Investments Commission is charged with preserving the rectitude of the country’s financial markets.

And ASIC has not been idle, notably intervening in an almost 500-person Telegram channel two years ago, warning prospective pumpers to pull back from their plans or face punishment.

ASIC markets executive director Calissa Aldridge, who previously ran the regulator’s market surveillance arm, said a range of monitoring tools were being used to keep a watch on prospective pump schemes.

This includes monitoring social media channels and trading activity to see if there’s “something happening in the market”.

ASIC has looked at several signs of a potential pump, including connections among people making trades in companies the regulator was keeping tabs on.

“We take data from the (Australian Taxation Office), which helps us identify connections, individuals who might live together or work together,” Ms Aldridge said.

“But we’re also looking at connections on social media, are they friends, has there been any communication or connection on different platforms.”

But Ms Aldridge said the use of closed channels, like Telegram chats or Discord servers, has made monitoring more difficult.

ASIC is monitoring social media platforms for suspicious activity.

During ASIC’s Telegram chat intervention, it warned possible pumpers and moved to shut down potential market manipulation as soon as it became aware of it.

In the past, these social media chat groups had proliferated, with the regulator’s energy better spent not chasing every rabbit down every hole.

The group ASIC went after in September 2021 had been targeting several small caps, those easy to manipulate when traders moved en masse.

Targets had included battery manufacturer and graphite miner Magnis Energy Technology, which saw a surge in its share price to almost 70c, as well as security authentication small-cap YPB.

As these shares peaked, more market-watchers would come along for the rally, before the pumpers would dump their holdings into the maelstrom.

Some of these groups didn’t strive to deny their aims, branding one Telegram chat ASX Pump Organization and ASX Pump Announcement Channel.

These same groups made similar efforts around crypto assets, something ASIC does not regulate.

“Our objective was to shut down that behaviour as soon as we could,” Ms Aldridge said.

“We were aware not just in the context of shares, but we we’d seen what was obviously happening abroad. We could see it happening in crypto,” she said.

“We still see it from time to time, very proactive and active concerted pump and dump activity in crypto.

“And so when we became aware of this one, we moved pretty quickly to make a call that actually we just want to put an end to this behaviour in our market before it becomes pervasive.”

The first priority was to maximise the integrity of the market, she said, but ASIC also has a record of the pump groups as well as details of who was involved.

Ms Aldridge said ASIC did not set a dollar threshold for its market surveillance activity and looked at “the full spectrum of conduct”.

“We also don’t want to end up in a situation where there’s this artificial threshold put in place that creates a mechanism for people to skirt underneath that threshold,” she said.

ASIC has secured a number of convictions in the last year targeting pumpers, including social media sensation Gabriel ‘Fibonarchery’ Govinda, who copped a two and a half year sentence.

The regulator found Fibonarchery used HotCopper, a stock forum, to manipulate the market and promote financial products.

In December, Henry Eng Chye Heng pleaded guilty to charges of market manipulation after using family members’ trading accounts to mask buying and selling of shares in ASX-listed bottled water company Eneco Refresh.

Ms Aldridge said ASIC’s wins in court helped set the limits of what the regulator could pursue.

“We’re always thinking about the broad range of issues rather than just the success you might have on one case,” she said.

UTS finance professor Talis Putnins said despite regulatory attention, pumping and dumping was still “very much alive”, pointing to crypto markets as still among the worst manipulated.

Bitcoin has seen a stunning resurgence in its market value in the last six months, up nearly 39 per cent to $US42,497.70 at the start of 2024.

Mr Putnins said crypto manipulation was taking place out in the open, with major pumps on Binance and Coinbase.

He said pumps being left unchecked in crypto markets risked the behaviour cropping up in equities markets.

“There’s a negative externality of leaving unregulated markets to their own devices – it allows crime and misconduct to breed there and spill over into regulated markets,” he said.

Mr Putnins said market manipulation in equities was often done by outsiders, but there were instances of company insiders or executives, who think the business is undervalued, adding their efforts to pushing the price up, often through overly-enthusiastic market announcements.

Investigative consultancy Kroll often works with regulators or companies, looking at market movements.

Kroll Australia managing director Cem Ozturk said co-ordination between groups of pumpers was often difficult to prove.

Kroll had also looked at matters where company figures tried to use the media to pump up share prices, to create hype.

“There’s a lot of kinds of pump and dump scenarios – some can be hugely co-ordinated schemes or penny stock things which we’ve seen here,” he said.

Kroll often looked for commonalities between figures, when looking to see if companies were trying to pump up their own share prices.

“There’s certain corporate secretaries or addresses of companies in certain corporate offices in West Perth or Singapore,” he said.

“There are a bunch of usual suspects, generally speaking, in a lot of work we do, which has to do with broad organised crime and fraud; there are the same groups of people.”

Mr Ozturk said the patterns of market manipulation were common.

“Corporate secretaries, directors, individuals, addresses that link people,” he said. “It’s a pattern where there’s a tiny company that has an asset very far away and then for whatever reason, there’s a complex cross-listing between Australia and a secondary listing so it becomes more and more confusing.”

ASIC was often reactive in dealing with this kind of market behaviour, Kroll’s forensic investigations and intelligence practice head Gary Gill said.

“The more of this stuff that happens and people become aware of it, the more damaging it is to the market,” he said.

Originally published as ASIC targets pump and dump trading activity amid crypto spillover warnings