Following an ASIC investigation, four individuals have been charged over their alleged involvement in a coordinated Telegram scheme to artificially inflate the price of certain Australian stocks before selling them off at inflated values—a practice known as "pump and dump." These schemes have been a focus point for regulators around the world in recent years.
The four individuals, Syed Yusuf, Larissa Quinlan, Emma Summer, and Kurt Stuart, have been charged with conspiracy to commit market rigging and false trading, facing potential penalties of up to 15 years in prison and fines exceeding AUD$1 million.
ASIC alleges that the defendants formed a private group on the Telegram app to select and discuss penny stocks. These stocks were then announced to a public Telegram group that was humorously and unashamedly named the "ASX Pump and Dump Group", where investors were encouraged to buy, driving up the stock prices. Once the prices were artificially inflated, the defendants sold their shares at these higher prices, profiting at the expense of other investors.
The defendants have also been charged with dealing with the proceeds of crime related to the profits made from these fraudulent activities. This case is being prosecuted by the Commonwealth Director of Public Prosecutions following ASIC's referral in December 2022.
This crackdown follows ASIC's recent warnings about the rising trend of using social media platforms to coordinate pump and dump schemes (having in fact warned a Telegram group in a similar situation back in 2021). ASIC has noted that these activities often involve creating a certain excitement around a stock or spreading false information or news about a stock's prospects to temporarily inflate share prices. Investors who participate in these schemes often suffer losses once the orchestrators sell off their inflated shares, causing the stock prices to drop back down to their pre-artificially inflated price (or even lower).
ASIC Chair Joe Longo emphasised the importance of market integrity in ASIC's media release, stating that:
Market manipulation is illegal. Pump and dump schemes are a form of financial fraud, eroding investor wealth, threatening the integrity of our markets and potentially the Australian economy more broadly.
Upholding the integrity of Australia’s financial markets is a priority for ASIC.
ASIC monitors the cleanliness of our markets, and we take decisive action to disrupt activities that may impact cleanliness. This is why we took the action of entering social media forums and posting directly to issue warnings to members that their actions may be in breach of the law. Coordinated attempts to manipulate the market is a criminal offence.
The recent action is a reminder that seemingly innocent or even humorous trading practices can lead to significant legal (and criminal) consequences when such actions constitute market manipulation. Ethical conduct should be a cornerstone of any investor's or business' operation.
While the alleged offences in this case involved listed securities and related breaches of financial services laws, cryptocurrencies are not immune. US law enforcement has pursued a number of crypto related market conduct cases under general anti-fraud provisions and securities laws. It also an important reminder that the perceived anonymity of chat messaging platforms can be illusory and that regulators may well be lurking in chats and forums or able to hoover up user data later.
ASIC's decisive action against the alleged perpetrators of the pump and dump underscores the regulator's commitment to tackling this problem. Businesses and investors alike should take note of the legal risks associated with market manipulation and prioritise ethical practices and compliance to protect themselves. This case serves as a stark reminder that fraudulent activities will be met with stringent enforcement, highlighting the importance of maintaining clean and transparent markets.
By Luke Higgins, Steven Pettigrove and Michael Bacina
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