Market manipulation using pump-and-dump strategy
CFA SOCIETY SINGAPORE ADVOCACY TEAM, 31 March 2021
CONSIDER this hypothetical scenario: In an effort to pump up the price of his holdings in a loss-making distributor of electronic games, Steve Wong logs on to several investor chat rooms on the Internet to start rumours that the company is about to expand its distribution network to untapped overseas markets, in anticipation of tie-ups with big local champions in their respective domestic markets.
Wong also uses several accounts and supposedly sound analysis of the company to reinforce his messaging. Should the price of the securities rise, Wong would dump his holdings in hopes of earning a tidy sum.
This is often labelled a pump-and-dump strategy, which allegedly may have been employed on the stock of GameStop, a US-based consumer electronics and gaming merchandise retailer.
