ASIC has identified a “concerning trend” of social media being used to coordinate “pump and dump” activity in listed companies.

Australia’s corporate watchdog has issued a stern warning to local investors that indulging in illegal “pump and dump” activities could result in hefty fines or jail time.

The Australian Securities and Investments Commission (ASIC) said this week it had noted a “concerning trend” of social media posts being used to coordinate “pump and dump” activity in listed stocks.

The practice could amount to market manipulation in breach of the Corporations Act 2001 and investors that are caught red-handed could be fined more than $1 million or face a jail sentence of up to 15 years.

Pump up the price

“Pump and dump” occurs when someone (usually a scammer) buys shares in a company and starts an organised program on social media or online forums to falsely inflate (or ‘pump up’) the share price.

Scammers buy cheap shares before spreading rumours that drive the stock price higher.

They then encourage other investors to get in on the supposed windfall.

When the stock hits a high point, the scammers dump their shares and make a quick profit, leaving unsuspecting investors holding shares of a much lower value.

GameStop manipulation

A recent example has been in the US, where shares in video gaming company GameStop Corp multiplied 20 times in value during a six-month window…

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