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Guilty plea to market manipulation following ASIC investigation into online ‘pump and dump’ posts

08 June 2022

#Corporate & Commercial Law

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Guilty plea to market manipulation following ASIC investigation into online ‘pump and dump’ posts

Care must be taken by traders using social media platforms to report and trade information about share prices, including those using the Australian online share trading forum HotCopper.

The Australian Securities and Investments Commission (ASIC) has previously warned about social media campaigns that use ‘pump and dump’ tactics. Subscribers to these social media forums may be misled by posts suggesting the activity is legal in some cases – this is not true.

Using social media to coordinate ‘pump and dump’ activity in listed stocks is an offence under the Corporations Act 2001 (Cth). ASIC continues to take action against this form of ‘market manipulation’.

What is ‘pump and dump’?

A ‘pump and dump’ activity occurs when a person buys shares in a company and then starts an organised program to try to increase (or ‘pump’) the share price. Using social media and online forums, they create a sense of excitement in a stock or spread false information about the company's prospects. They then sell (or ‘dump’) their shares and make a profit, and other shareholders suffer as the share price falls.

Recent case

Gabriel Govinda (known on the internet as ‘Fibonarchery’) has pleaded guilty to 23 charges of manipulating listed stocks on the Australian Securities Exchange and 19 charges of illegally disseminating information relating to the manipulation, on 6 June 2022.

This is the first time a person has been convicted of charges under section 1041D of the Corporations Act.

What happened?

Mr Govinda used 13 different share trading accounts, each in the name of a friend or relative, to manipulate the share price of 20 different listed stocks from September 2014 to July 2015. Mr Govinda has manipulated the market, contrary to section 1041B of the Corporations Act. This arose from:

  • trading by him between the accounts he controlled (wash trading)
  • using fake, ‘prop’, or ‘dummy’ bids to falsely increase the perceived demand, and ultimate price, for listed stocks.

Guilty plea

Mr Govinda pleaded guilty to charges under section 1041D of the Corporations Act regarding his posts on HotCopper, in which he illegally disseminated information about his wash trades and dummy bids. He was attempting to increase (or pump up) the share price to sell (or dump) these listed stocks at a higher price.

In one HotCopper post, Mr Govinda stated, “dummy bids are all part of the fun and games and cat and mouse of the stockmarket!".

The Commonwealth Director of Public Prosecutions prosecuted the matter after a referral from ASIC.

This matter has been adjourned part-heard to 29 July 2022 for a mention hearing.

Fines and penalties

A fine of up to $765,000 or 10 years' imprisonment are the maximum penalties for each charge facing Mr Govinda. Maximum penalties for these offences were increased to 15 years of imprisonment in March 2019.

Takeaways

ASIC has noted a trend of social media posts being used to coordinate 'pump and dump' activity in listed stocks, which may amount to market manipulation.

The regulator has stated that it has recently observed blatant attempts to pump share prices through posts on social media. These posts announce a target stock, a designated time to buy and a target price or percentage gain to be reached before dumping the shares.

Any individuals posting or participating in web forums in respect of shares and securities must be mindful at all times of the application of corporations and securities laws.

If you have any questions about these laws, please contact us below or get in touch with our team here.

Author: Trent Taylor

Disclaimer
The information in this article is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.

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