Hong Kong busts perpetrators of ‘ramp and dump’ scam

Hong Kong’s financial watchdog, the Securities and Futures Commission (SFC), has charged thirteen suspects of market manipulation in a joint operation with the local police.

Local brokers were also prohibited from processing assets held in trading accounts related to five persons, who were possibly involved in a social media ramp-and-dump scam. The SFC added that the fraudulent scheme targeted the shares of two publicly-listed companies between October 2018 and May 2019. Among them, two face additional charges of money laundering together with eight other defendants.

Additionally, the brokers are required to notify the SFC if they receive such instructions from their blocked clients.

“ The alleged syndicate members organised and executed “ramp-and-dump” schemes in the shares of two Hong Kong-listed companies (target stocks) by using different social media platforms and manipulated the trading of a large volume of those shares through the use of a substantial number of nominee accounts.  In implementing the schemes, the syndicate members were alleged to have committed offences involving market manipulation and money laundering,” the statement reads.

The HK watchdog did identify who it suspects to have committed this market misconduct, and highlighted that they have conspired with others to use multiple nominee accounts “to corner the shares of the target stocks” and drive their prices up.

At a later stage, the scam was alleged to induce investors to purchase those shares through different social media platforms.  The defendants then disposed their shares aggressively at a profit just as the price collapsed once the demand vanished.

The SFC said the profile of financial fraud is changing as more people are being targeted online, moving away from the traditional cold call. Fraudsters are now contacting people through a range of popular social media sites, such as Facebook, Instagram, WeChat, Whatsapp, Telegram and even online dating platforms.

Fraudsters try to capitalize on fear

Moreover, the regulator urged investors to be vigilant when offered ‘inside information’ or investment tips online, particularly when strangers on social media promote small cap or less liquid stocks. Additionally, it revealed that more and more Hong Kong small-cap companies have come under the attack of pump-and-dump scams this year.

According to the SFC data, 20% of the market manipulation cases it is currently investigating fall under these kinds of fraudulent schemes that attempt to boost or decrease the price of a stock through recommendations based on false or misleading tips.

The perpetrators of so-called ‘ramp and dump scams‘ now focus on social media channels and employ increasingly sophisticated tactics to persuade victims to join. Sometimes, they have impersonated famous investment advisors and popular market commentators to draw victims into the scheme, the SFC said.

While there are many variations of these tactics, the watchdog said that some promotions use purported research reports and predict specific target prices in a company’s stock.