The Securities and Futures Commission (SFC) of Hong Kong has recently frozen some accounts in relation to a pump and dump scam. It issues notices to two local brokers to freeze the accounts suspected of participating in market manipulation.
Two public companies targeted
The fraudulent scheme targeted two publicly traded companies between March 2020 and October 2020. The SFC ordered Futu Securities International and Enlighten Securities to stop processing assets held in the accounts of three clients. The regulator believes that these accounts were engaged in a social media pump and dump scheme which targeted two publicly-listed companies between March and October 2020.
The regulator has asked the brokers to suspend all activity related to the accounts, including withdrawal of money of securities. It also restricts them from
“disposing of or dealing with, or assisting, counseling 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 prior consent from the SFC. The brokers also need to inform the regulators if they receive such instructions from clients.
SFC focusing on financial misconduct
The regulator did not provide details of the people it suspects to have been involved in the market manipulation scheme. It clarified that it wasn’t investigating the brokers for their involvement in the scam. The regulator highlighted that financial frauds are changing quickly and now targeting people online. Social media websites like Facebook, Instagram, WhatsApp and Telegram, and even online dating websites have become popular means of targeting victims.
The fraudsters are mostly trying to capitalize on fear. They offer investment tips and inside information to the people. The watchdog has asked people to be vigilant when strangers are offering advice or promoting small caps or less liquid stocks. It also revealed that many small-cap companies in Hong Kong have become the victim of pump and dump schemes. At least 20% of market manipulation in the market can be directly connected to these fraud schemes.