Janet Austin speaks at Europe’s largest stock exchange

This past March, Professor Janet Austin flew to Paris to deliver a series of talks on market manipulation at Euronext, continental Europe’s largest stock exchange. Euronext operates exchanges in Paris, Amsterdam, Oslo, Dublin, Lisbon and London.

“The project was to speak to Euronext and European Securities Regulators about the problem of pump-and-dump stock market manipulation schemes in micro/small capital markets and to discuss and work on possible solutions.”

According to Janet, pump-and-dump manipulation schemes occur when the perpetrators of the scheme acquire a large holding in the shares of a company and then, by either making false or misleading statements about the shares or by making it look like there is a lot of active trading in the shares, works to increase or ‘pump’ the price of the shares. After the price has risen because of these artificial devices the perpetrators sell or ‘dump’ the shares at the higher price. Without the artificial support, the price of the shares then comes crashing down, leaving the victims of the scheme with worthless shares.

The speaking invitation came about after Austin was contacted by a compliance officer at Euronext, who had read her book, Insider Trading and Market Manipulation: Investigating and Prosecuting across Borders. 

“The audience included Euronext staff, compliance officers from brokers and banks and securities regulators from across Europe who supervise European securities markets, including Euronext.”

Janet believes that, while many may consider pump-and-dump schemes as merely a problem for uneducated investors, there is a much more important impact on securities markets and the economy as a whole.

“These schemes significantly interfere with the integrity of small capital markets by seriously disrupting investors’ confidence in these markets. They have even caused the closure of some of these markets. This is a problem because small capital markets are important venues which work to foster the growth of small to medium enterprises, and such enterprises account for a significant proportion of jobs and job growth in an economy.”

Furthermore, Austin sees this as a global problem in which the perpetrators can and do target many of the smaller capital markets in the world because of the multi-millions of dollars that can be made from these schemes. As such, she urged regulators to coordinate their efforts globally, to learn from each other and share information.

“It is possible to stop or at least limit the number of pump and dump schemes. This will take a lot more coordination between those responsible for regulating the markets. Pump-and-dumps need to be detected early, recidivists need to be identified, and effective enforcement action needs to be taken against them.”