Penny stock gold miner Australasian Gold Limited bolted higher shortly after the market opened on Thursday after members of two organised ASX pump and dump groups using the encrypted messaging app Telegram named it as a target.
The shares opened up 9.8 per cent at 28¢, before rallying to about 30¢ before being mentioned on the Telegram groups at 10.15am AEST. The pump signal created a surge to as high as 47¢ minutes after. The stock’s peak equalled an 84 per cent gain.
According to market data, a total of 356 trades for 2.32 million shares worth almost $1 million were placed before the ASX intervened and put the shares into a trading halt at 10.20am.
The Telegram groups named ASX Pump and Dump Channel and ASX Pump and Dump Group boast about 1600 members and regularly post messages referencing other penny stocks or sharemarket chat forums.
Messages to the group chats in the days before the pump signal signalled the morning of September 9 as the target date for an organised pump of a penny stock, which preferably had a price-sensitive announcement to evade a quick trading halt from suspicious regulators.
The same messages also advised that a company with a low number of shares on issue and relatively large amount held by top-20 shareholders was likely to be targeted.
The messages encouraged potential pump group members to always use a market, rather than limit order, to allow the price to rise. Targeting less liquid stocks and encouraging the use of market price orders allows more room for artificial buying pressure to increase the price.
Organised manipulators of stock or cryptocurrency prices will generally accumulate shares in the pump target in the days before the pump itself, with the aim of selling into a pre-planned dump known by its “rugging” slang term.
One minute after Australasian Gold Limited was revealed as the pump target, a Telegram app user posted a screenshot from popular sharemarket message board HotCopper, where a September 8 user post also advocated to hold shares in the miner.
Other posters to the Telegram message channels complained that the stock had already climbed before the pump being revealed.
On September 6, Australasian Gold announced to the market that it acquired the title to the Capella gold project in exchange for the issue of 500,000 shares to its vendor.
The Corporations Act s1041a contains provisions against market manipulation including creating an artificial price for trading in financial products. However, dishonest or deceptive conduct is also prohibited.
However, there is little previous case law on organised pump-and-dump messaging groups, which means their treatment under the law is a grey area.
On Thursday, ASIC said it’s aware of the matter and making appropriate inquiries. The ASX said it couldn’t comment further beyond what has been released to the market.
According to an announcement released to the market at 12.36pm, Australasian Gold couldn’t explain the significant increase in the trading volume of its securities, in response to the ASX’s questioning.