SFC Freezes Client Accounts on Suspected ‘Pump-and-Dump’ Scam

Hong Kong’s financial watchdog, the Securities and Futures Commission (SFC), has issued notices to two local brokers, instructing them to freeze certain client accounts suspected of market manipulation.

Enlighten Securities and Futu Securities International were prohibited from processing assets held in trading accounts related to three clients, who were possibly involved into a social media ramp-and-dump scam. The SFC added that the fraudulent scheme targeted the shares of two publicly-listed companies between March 2020 and October 2020.

The restriction specifically requires the two brokerage firms to suspend all traction types with concerned persons, including their money or securities withdrawal. It also prohibits them from “disposing of or dealing with, or assisting, counselling or procuring another person to dispose of or deal with, any assets in any way in the trading accounts up to a certain amount,” without the SFC’s prior consent.

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

While the HK watchdog did not identify who it suspects to have committed this market misconduct, it highlighted that it was not investigating the brokers in question.

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

The regulator also 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.

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