PSA: Beware of “Pump and Dump” Activities in Investment Telegram Groups

The Singapore Exchange Regulation (SGX RegCo) recently alerted the public about possible market misconduct activities that misuse Telegram chat groups and other channels where investment strategy is discussed.

SGX RegCo is an independent subsidiary of Singapore Exchange (SGX) which carries out regulatory functions on behalf of the exchange.

It said that while such platforms could be useful for investors to share knowledge and information, wrongdoers may misuse those social channels for their own benefit.

TL;DR: “Pump and Dump” Activities via Telegram and Other Channels

People may engage in “pump and dump” schemes in Telegram or social groups with an aim to profit from it.

Under such schemes, the wrongdoer promotes interest in a particular stock to encourage other members in the chat group to buy the same stock. The wrongdoer would have already bought shares in the company prior to this.

Once more members of the chat group bid the price of the stock up by buying and there’s momentum, the wrongdoer would then sell the stock at a higher price, making quick bucks.

The Modus Operandi

The exploitation is usually carried out via Telegram, and the steps involved are as such:

1. Wrongdoer buys shares in a typically low-volume, low-price stock.
2. The person may enter orders to sell the shares at a higher price.
3. Wrongdoer posts in a Telegram group discussing investments that he/she is about to enter that particular stock and interest in the company’s shares are building up.
4. Encouraging tones are used in the messages to induce others to buy as well. There’s also a “target” price to exit the trade. The purported target price is usually higher than the price at which the wrongdoer plans to sell at.
5. Wrongdoer then makes small purchases at higher shares prices and announces in the chat that interest in the shares is building up and that the share price is gaining momentum.
6. Wrongdoer may also use other aliases to post messages to show support for the original post.
7. Price reaches the level at which the wrongdoer is queuing to sell or intends to sell at.
8. The wrongdoer then closes the position with a profit and may move on to “pump and dump” another stock.

Pictorially, here’s an example of how the scheme occurs:

We also covered a similar scheme that happened with Hong Kong stocks in 2019.

What Investors Should Do

There’s a treasure trove of information on investing out there and it’s growing by the day.

When we read a particular piece of investment research, we should think critically and not buy based on what we read alone. This also applies to “buy” recommendations we hear from family and friends.

Before buying or selling any particular stock, investors should always perform their due diligence on the company and understand the risks involved thoroughly.

Let’s not let greed get the better of us; invest safely!