The defendants include a leader of what the authorities describe as “a sophisticated syndicate operating ramp-and-dump schemes through a complex cross-shareholding network of Hong Kong-listed companies.” They were arrested in a joint operation of the Securities and Futures Commission (SFC) and the Independent Commission Against Corruption (ICAC).
The SFC added that the fraudulent scheme, which yielded $191 million in illegal gains, targeted the shares of six publicly-listed companies.
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. Some arrestees are also key members of the syndicate including the chairperson of a Hong Kong-listed company and three responsible officers of two brokers.
Two more suspects appeared at the Eastern Magistracy last week and were charged with money laundering offenses related to “a large-scale and sophisticated syndicate suspected of engaging in “ramp-and-dump” market manipulation,” the regulator said.
At a later stage, the scam was alleged to induce investors to purchase those shares through different social media platforms. The defendants then disposed of 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.
