The clowns have been out the last few days, which has been...

The clowns have been out the last few days, which has been punishing to watch, but for the ones of us that have been here for a while, timely little article to remind us exactly whats going on...

Do your own research and you'll see the wheat from the chaff...

The pump and dump show live

Sep 30, 2021 – 9.54am

Being born into a family of stockbrokers, I was raised on colourful tales of disallowed floor and trading pits.

But nothing could prepare me for the morbid fascination of watching the inner workings of a Telegram account dedicated to pumping ASX stocks. In real time, in a blaze of memes and animated rocket emojis, I witnessed a bunch of anonymous traders will the stock of Australasian Gold Ltd, or A8G, higher.

On that day, three weeks ago, my colleague Tom Richardson had written about the group so the chat was populated with banter about their newfound fame and incredibly, no restraint about its activities. If anything, the group was emboldened.

The speed and reach of pump and dumps is truly mind blowing.

To get a sense of the flavour, these are some of the midday posts: “Let’s pump A8G again and finish what we started. For everyone’s sake in the group.”; “FIRE UP YOU APES”; "thoroughly researched. Best small cap Gold and Lithium at the same time”; “Hope the down rampers go to hell with the AFR”; “any publicity is good publicity”.

As the stock took off, the emojis came thick and fast. Few words. Many pictures. I had a busy day, so I logged off but when I checked back later shortly before the market close the mood had changed.

“I'm down 22% guys what should I do?”; “Cheap lesson”; “It’s the clowns who sold”; “It’s done the group’s had a big impact”; “you realise most of us are in the red”.

Date with dignity

It was four stock market seasons in one session, but that’s how things work in the world of meme stocks. I couldn’t shake the sense of deja vu. I’d seen this sort of activity before.

Almost two years ago, a friend of mine confessed that he’d lost a staggering amount investing in a cryptocurrency called Dignity Coin.

Over a bar crawl through the city, he told me how these coin issuers recruited a high powered advisory board including a Fortune 500 exec, how the Bermudan government had rolled out the red carpet, that some obscure but apparently expert analyst had tipped it to take-off (after he was gifted some coins). In his mind, it was a sure winner.

He also explained how he’d been cultivated by apparent insiders and when certain flagged developments appeared to come to fruition, he became convinced he was getting the inside word and bought more.

The following morning I found I’d been added to the Dignity Telegram group. The same rollercoaster of emotions were on display.

Needless to say, Dignity coin stripped him of much of his dignity and all of his cash. The last known market capitalisation was around $US700,000 and there’s 3 billion coins in issue. (Though his general premise that cryptocurrencies were just getting started was right).

My hunch is that the digital playbook that has been unleashed on listed penny stocks around the world, and including on the ASX, has been developed and perfected in the world of cryptocurrencies.

But judging by the brazenness on display, it appears many that are playing this game don’t know how dangerous it is.

Last week, the Australian Securities and Investments Commission issued a warning reminding investors of the stiff penalties associated with pump and dump activities.

Most schemes are likely far more sophisticated than the Telegram meme show. And market manipulation is certainly not limited to penny stock punters, as enforcement action shows.

Pump and dump schemes are as old as stock markets themselves. But the speed, reach and anonymity in which pump and dump schemes are being operated is mind blowing.

It’s facilitating a transfer of wealth from naive outsiders to insiders on an unimaginable scale. And the bright animations and dark forces of greed and orchestrated deception can be viewed in real time.