Financial regulators around the world are on high alert as so-called pump-and-dump operators are increasingly targeting investors ahead of the holiday period.

ASIC Warns Australian Investors Against Pump And Dump Schemes

Australian Securities and Investments Commission (ASIC) published a warning against pump and dump operators and their schemes yesterday, December 22. In its statement, the financial regulator explained that pump and dump operators are “unscrupulous actors who start rumours about small-cap securities to inflate the share price in the hope of making a quick profit.”

The regulator also warned that they are increasingly targeting Australian investors ahead of the holiday season, with a notable rise in recent reports. ASIC warned the public to be vigilant about widespread, coordinated pump and dump schemes targeting retail investors, which include Australians trading in overseas markets.

The regulator warned that these schemes are more than capable of tricking investors into buying thinly-traded overseas stocks that are then quickly sold by the promoters after their price has been artificially inflated.

Apart from that, ASIC also warned that it has observed scammers fraudulently using the identity of Australian celebrities to lure victims into messaging apps like WhatsApp, where they are directed to buy shares.

Regulators Around The World Share Similar Concerns

ASIC’s warning also noted that the rise of pump and dump schemes was heavily discussed during a meeting of key financial regulators from Australia, Asia, Europe, and North America in London last month.

ASIC’s Senior Executive Leader, Market Integrity, Amanda Zeller, said that the type of schemes was becoming increasingly sophisticated, with criminal gangs employing various techniques. One of the popular methods was hacking brokerage accounts to conduct trades, exploitation of differing regulatory regimes in cross-border trading, and luring in traders through ad targeting using social media.

Commenting further, Zeller said: “Pump and dump operators zero in on small-cap stocks with low liquidity, which means when a misleading announcement or rumour is made, it has an outsized impact on the share price. That then draws in traders who watch for momentum in small-cap stocks, who then pile in to ride the increase. Unfortunately, those are the ones left with the losses after the pump instigators have bolted.”

ASIC’s Commissioner, Alan Kirkland, added that pump and dump schemes are a serious threat to market integrity and investor confidence, and can lead unsuspecting investors to lose money.

Moving forward, ASIC intends to continue to collaborate with other countries’ regulators, and take enforcement action where appropriate.