Authorities in Hong Kong are seeing new twists on securities fraud. In the latest wave of “pump and dump” schemes involving micro-cap stocks, fraudsters appear to be targeting investors in distant jurisdictions, such as Singapore and Macau. These stock-price manipulators are commonly abetted by WhatsApp and even lace their pitch with faux romance.
According to the South China Morning Post, a female executive in Singapore was wooed virtually earlier this year by a Hong Kong man. After professing his love for her and even suggesting she should meet his parents, the rogue instructed the executive to put all her savings into a “hot” micro-cap stock. The stock price then crashed after an initial sharp increase, while the phone lover vanished.
The volume of stories is disturbing; individuals have lost their life savings overnight. In Hong Kong, for instance, authorities are reporting some HK$196 million (about US$25 million) in online stock fraud during the first ten months of 2020, representing a four-fold increase over 2019. The trend is echoed in many jurisdictions worldwide; Covid-19 has exacerbated financial vulnerability.
“Pump and dump” fraud is a longstanding problem in global securities markets, although technology is adding complexity to identifying criminals and seeking restitution. As a notable textbook example, the New York-based firm Stratton Oakmont—formally shuttered by US authorities in 1996—provided the basis for the film The Wolf of Wall Street.
Hong Kong of course has regulations in place to protect consumers, but they may not be adequate, given the extreme economic fall-out of the pandemic. Existing penalties for those found guilty of manipulative stock-market activities are as much as 10 years in prison and fines reaching HK$10 million. Apparently local swindlers feel the return is worth the risk.
Hong Kong is not alone in battling securities fraud. A quick scan of the English-language press underscores a similar reality in Australia, the UK, and Canada. The US too can be added prominently to the list. In June, for instance, US authorities uncovered a “pump and dump” coronavirus-centered scam that generated as much as $25 million in illegal gains. ■
Our Vantage Point: The pandemic has led to heightened levels of securities fraud worldwide. Awareness and caution may be limited because these incidents are treated either as local news or one-off cases.
Learn more at the South China Morning Post
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