A dummies guide to spotting a PUMP AND DUMP on AIM

Anyone who has seen The Wolf of Wall Street movie will be familiar with Jordan Belfort (played by Leonardo de Caprio) and his exploits in ‘pump and dump’ boiler room scams involving US Penny Stocks. The movie is sadly based on a true story which took place in the late 80s and eventually let to Mr Belfort’s downfall, rewarding him with a 22 month custodial sentence for his scheming. The events may have taken place some time ago but the sophistication of these schemes has not changed much in the almost 20 years since, these schemes are very much still alive and kicking on many international markets, including the UK’s AIM market.



The AIM pump and dumps come in all shapes and sizes, from the well organised boiler room scheme scams to a very loose and decentralized pump. Many of the ‘pump and dumps’ now operate exclusively online rather than through the traditional cold calling method used during Mr Belfort’s heyday in the late 80s. I will focus today on the typical social media promoted ‘pump and dump’, which tend to be low level and unsophisticated, but that is not to say significant financial loss does not occur. The typical schemes have some some or all of the following symptoms and follow a certain pattern:

Which companies are targeted for the pump and dump?

Some market commentators tend to exaggerate the extent to which stocks are pumped and dumped on AIM. It is actually a very small minority of the 973 companies quoted on AIM. My own experiences would suggest there are only a handful of stocks under the complete control of the P&Ders at any one time. These stocks though are almost always micro cap ‘penny stocks’, i.e. stocks with a market capitalisation of less than £30m. This tends to mean that with limited shares in existence that the price will jump quickly with any liquidity.

The other criteria is a stock in a sector which lends itself to speculation, this means junior resource stocks, junior biotech and other blue sky technology stocks. These sectors are the ones that capture the imaginations of gullible private investors, the ‘willy wonka’ effect where investors dream of the hallowed ’10 bag’ i.e. returning 1000% or 10x your initial capital. Two recent stocks that fell victim to these schemes were African Potash (Booted off AIM to the limited liquidity ISDX market) and Cloudtag (Booted off, private and I would guess soon to be in liquidation). There typically also usually needs to be expected news flow to drive interest and speculation.

Stage 1 – The Pump Takes Hold

It usually starts by one or a few experienced ‘pumpers’ purchasing stock in a company. The experienced pumpers will have a large following on the bulletin boards and increasingly also on twitter. The pumper will normally go by an ‘alias’ and often have pictures of flash cars, money and other tacky photos as part of his/her profile avatar or wallpaper. You can spot them a mile off.

The pumper will write confirming they have bought the stock and usually post some ludicrous claims about the company concerned. I will invent one, company XXX:

Screen Shot 2017-04-21 at 15.34.15Rocket emoticons or a similar GIF is normally posted for dramatic effect.

The statements usually have some ‘tie back’ to official company news. For example, the 1bn barrels could be the gross oil in place and this figure multiplied by current oil price gets to £100bn. The pumper has though conveniently forgotten the resource recovery factor, the CAPEX needs, the OPEX and critically that the company XXX owns just 10% of the licence, let alone commercial chances of success for this pre drill prospect.

The other method is to quote ‘a rumour in the city’ to imply they have inside knowledge, which may or may not be true.

Stage 2 – The Pump is Maintained

The next step is for ‘Sub Pumpers’ to join in, they have probably already had reasonable success on other stocks just hanging off the coat tails of big pumpers. Sub pumpers will typically have a reasonable following too, perhaps 300 or so followers on twitter. They will also use rocket emojis…

Screen Shot 2017-04-21 at 15.35.34A common tactic of sub pumpers is to outline how difficult it is to buy shares, comment on the Buy price being about to move up based on the Level 2 order book or they might instead post charts prophesying how the share is about to breach a key resistance level. This plays on the human phycology that you are about to miss out on the golden ticket. Simple but very effective.

These posts may also be genuine and relate to good shares too, so it is not always easy to sort the wheat from the chav (chaff). The surefire way though is to ensure ‘sceptical’ is always your default mindset when investing in small caps. For example, the easy way to test whether it is indeed difficult to buy the share is get a quote on the stock from your broker, don’t go in blind. IG Stockbrokers are particularly good as they allow you to get quotes from the market makers irrespective of whether you have funds in your account. Try obtaining a £10,000 BUY and SELL quote. It is normally very easy to buy these stocks at any level but very hard to sell with any size. This implies there is limited real demand for the shares and sub pumper is lying.

Stage 3 – Peak Pump is reached

Once critical mass is gained a whatsapp or twitter private group will typically be created where all bulls will be invited to join. This is where naive and inexperienced investors begin to think they have the golden ticket, as in these forums they will only hear as to how fantastic the company’s prospects are. As a result they begin to tell the ‘offline’ friends, family and may even place large sums of their savings into the share. Significant volume is generated which can see sometimes 10-100x the average volume of shares changing hand in a day.

The bears will beginning to take note at this stage too, this includes experienced bearish investors such as Waseem Shakoor, Tom Winifrith, Gary Newman and many others. These guys usually highlight the flaws, or in the case of Waseem declare a short position. At this point the pumpers and ordinary investors who have far too much at stake will become aggressive and attempt smear campaigns. Any bearish posts will usually be reported on bulletin boards or twitter. This combined with ‘bulls only private groups’ means it is very difficult to receive any bearish commentary on the stock on question. At this stage the stock is likely to have achieved a valuation well in excess of fair value. This is the final stage of the pump and now it we are ready for…

Stage 4 – The DUMP.

The typical catalyst for the dump will be some sort of funding, usually a heavily discounted placing or other quasi equity issue. The price may have already come off a little ahead of the announcement as some participants in the placements (which may even be the same original pumpers) forward sell stock (sell stock with a delivery date in the future).

The dump can be horrific, for example the CloudTag Pump and Dump, dropped 40% on the day when the financing was announced. Those investors who bought into the Pump late could be nursing extreme losses over a very short period of time.

Once denial is overcome the usual reaction will be anger towards the various stakeholders in this order 1) The bears, 2) The board and 3) The broker. The individuals who actualy pumped the stock don’t get much flack. Quite often a lot of the social media accounts disappear often after the dump has landed and the cycle just repeats again…. Same tactics, different stock…..


Pumping is grey area, how is it defined?

There is often a grey area with stock promotion, particularly for those in wave 2 or 3 of the pumping. The acid test for market abuse is ‘deliberate dissemination of false or misleading information’.

The issue is that some involved in distribution of information on bulletin boards and twitter might well believe what they are writing. The FCA Market Abuse Regulation does though not require the person engaging in such market abuse to actually intend to commit market abuse, however the FCA does define the below in MAR 1.8 as a factor to be taken into account in determining whether behaviour amounts to dissemination:

A normal and reasonable person would know or ought to have known in all the circumstances that the information was false or misleading, that indicates that the person disseminating the information knew or ought to have known that it was false or misleading.

It is though natural to be bullish on the stocks you own, I post positively about the stocks I own on twitter and on my own blog. The difference between blogers and other commentators such as I and the pumpers is that I genuinely believe in the investment case for the stocks I own and make considerable effort to verify what I post. I also have a financial background and post a transparent history of all my tips. On top of this I also outline the downside risks and make it clear to followers that this is not a recommendation to buy.

The FCA is not prescriptive on what is ‘false’ and ‘misleading’ but I believe the following factors are likely to be relevant if a case is bought:

  1. Posting content which you know to be false or misleading, which are deliberately designed to to make profit. As mentioned above.
  2. Correspondence proving intent to create a flase market. e.g. emails showing collusion between ‘pumpers’ and other documentation showing an organised ‘effort’.
  3. Your ability to impact the share price. If you have a significant following on social media or twitter then you have a higher degree of responsibility to verify your content in my opinion. Also important is the size of the company, with my 700 or so followers on twitter I can pump a FTSE100 company all day long, but it would not have a material impact on the share price. This does not make that activity moral though, as it still has the ability to cause financial loss to others.
  4. Selling your position whilst encouraging others to buy. It is natural to derisk some positions but to sell a large proportion of your holding substantially around the same time as promoting the share could be decisive factor as provide evidence as to whether there was an intention to make profit from the ‘false and misleading’ information or whether you had a genuine belief of the company as a long term investment.
  5. The level of financial gain made.

So Surely Convictions every week then?

Sadly there are limited convictions for ‘pumping and dumping’ on AIM. The FCA has limited  resources and simply does not have the time to investigate every case and naturally focuses on the market abuse at the higher end of the scale.

Unfortunately the best you can do for now is raise awareness of the ‘pump and dump’, which is the reasoning behind this blog post.

Are the companies concerned complicit?

There are four types of companies who find themselves those on the end of a pump and dump.

  1. Those directly responsible.
  2. Those indirectly responsible.
  3. Those who tolerate it.
  4. Those who extinguish it.

At the bottom end of AIM it is one of the CEO’s key roles to be able promote the company to enable it to raise money. The company leaking inside information directly to stock promoters is extremely rare though, two cases centre on African Potash and Cloudtag where both have been accused of lying in RNSs and therefore creating a false market. The information in these cases, if proven, also relates to deliberate dissemination of false information, albeit this is via the company directly rather than through a boiler room scam or a ‘pump and dump’

A source of inside information can also be from the city advisors of the company, i.e. indirectly. The broker arguably has the biggest conflict of interest in this context, they have an incentive to generate volume to enable the company to raise finance, and take a hefty commission as part of that process. This is of course is not sanctioned by the broker as a corporate but individual sales traders can lack the integrity and leak select information to known stock promoters.

Many companies tolerate the pump and dump, a single day pump and dump occurred on Fitbug where the company released a non regulatory news release (see article for details) which led to pumpers to propel the price to 550% in a single day. Rather than FITBUG immediately extinguishing and clarifying the news the company allowed the shares to trade most of the day before the NOMAD towards the end of the day pulled the plug and forced a clarification. The company followed up with a fund raise the following week on the back of this volume.

Some companies though immediately issue ‘speeding tickets’ when the share price rises on the back of no news – the right thing to do. Unfortunately though this is fairly rare and companies often let the share price get well ahead of fair value before taking any action.

Is this a victimless crime?

No. Some individuals recklessly promoting or pushing stocks on social media do not believe they are committing a crime. Ultimately though, selling stock in a false market to another punter is not a victimless crime. I don’t deny riding the momentum created by a ‘pumper’ can make you a lot of money, but there will always be someone left ‘holding the baby’ and the process is ultimately transferring wealth from the ‘Mugs’ to the ‘Pumpers’. For example, according to posts on bulletin boards some individuals who bought stock in Cloudtag at peak ramp have lost entire life savings. Think about that for a moment…


The last year has seen some incredible gains on some small AIM stocks and whilst some of this has been as a result of renewed sentiment towards junior resource stocks on the back of a recovery in commodity prices, some I believe is as a result of an increase in the ‘pump and dump’ method.

Hopefully this piece though has given you an ability to spot when a stock is in the midst of a ‘pump and dump’. It should equally give you some insight into what is Market Abuse so you don’t inadvertently become a pumper yourself.

The pump and dump is not a victimless crime, it is a transfer of wealth from naive new investors to experienced pumpers.

Understanding the rules and intent of Director Share Dealings

I’ve been meaning to put aside a section of the blog for regulatory topics. There is a lot of misconception in the smaller cap investment community around certain FCA and Stock Market rules. Some of the rules around Statutory Director Dealings, Prompt Release of Inside Information and Notifications of Substantial Shareholder Interests can be complicated and hence are frequently misunderstood amongst retail investors.

I’ll start by covering Director Dealing, prompted by a twitter debate yesterday I had with a few people on this topic.

When Can Directors Buy and Sell Shares?

Directors, like any other shareholders must comply with Market Abuse Regulation (MAR) 1.3.2 on inside information. This regulatory mandates that Persons Discharging Management Responsibility (PDMRs) i.e. the company statutory directors in this context cannot deal when they are in possession of price sensitive information, i.e. information that when released to the public is likely to have a material impact on the share price of the stock in question. A period of time when Directors are prohibited from dealing is referred to as a ‘closed period’.

On top of this ‘catch all’ the EU Market Abuse Regulation (MAR), Section 19 goes a step further to explicitly state that PDMRs cannot deal in the period of 30 calendar days before the announcement of interim financial results or a year end results. This is referred to as the MAR closed period. Taking the AIM market for example, companies need to publish a half year financial report within 3 months of the half year period ending and the final results within 6 months of the end of the full year. It is worth noting that the full annual report does not need to be published on the same day, the closed period can end on publication of the final results statement, assuming no additional material information will be produced in the annual report which is not included in the Final Results statement.

Let’s take a look at how this affects AIM companies specifically now. The rules prior to the adoption of EU MAR from summer 2016 were actually 60 days, so the MAR actually relaxes the closed period requirement relating to release of financial information somewhat. AIM companies as part of AIM rule 21 are though also now required to have in place at all times a dealing policy which must also specify the company’s closed periods. This dealing policy though is not required to be published publically by the company and therefore it may not always be clear whether the company is in a closed period of not.

What director deals should be disclosed to the market? When should disclosure take place?

The EU MAR sets out all the requirements, but the core requirements are the PDMR’s Name, Position within company, Volume and Value of shares. Disclosure is only required for transactions in aggregate over EUR 5,000. This does not mean PDMRs are free to deal though during closed periods, it is just that no disclosure is required for dealing below EUR5,000 in aggregate.

The PDMR must disclose to the company within 3 business days of the transaction, and the company must disclose on the same terms. I.e. if the PDMR discloses to the company after 1 business day then the company has a further 2 business days to disclose.

Do these rules apply to other instruments, such as debt or options? Are there any other exceptions?

Debt and other financial instruments are within scope, as is the lending or pledging of existing shares. Section 19 (12) of the EU MAR does make two important exceptions, 1) if the director needs to make a sale due to financial distress and 2) ‘participation of employee share saving schemes and qualification or entitlement of shares’.

Point 2 from the MAR is not prescriptive, unlike the Model Code which was the UK precursor to these rules. There is some good commentary from lawyers Stephenson Harwood on topic though. The understanding from SH is as follows:

  • Grants of options/awards of shares will be prohibited in a MAR closed period
  • MAR sets out certain circumstances in which the issuer may permit options to be exercised during closed periods.  These include the situation where the option would lapse, if not otherwise exercised, during the MAR closed period, provided the option holder has given at least 4 months’ notice of the intention to exercise.

The view seems to suggest that Point 2 above concerns the joining of an employee share scheme rather than anything that could be considered ‘dealing’. In summary share option cannot be exercised nor transferred during a closed period.

Worked Example – URU Metals

The example I debated on twitter related to the exercise of share options by URU Metals CEO John Zorbas and the belief that an insider can exercise share options during a closed period. For information, the value of the transaction was £60,000 or 0.38% of the share capital of the company. Prior to the announcement Zorbas owned 3.6% of the company, so this takes his holding above 4%.

Firstly to establish is this considered a director dealing? Yes, this is the exercising of share options and as noted above is to be considered as dealing. The director cannot therefore deal during a closed period. However it is stated that:

The existing options expire on 23 May 2017.

This could mean the options could lapse if a closed period occurs, (i.e. the directors have inside information, remember this has to be price sensitive) between today, the 20th April and the next four weeks, i.e. 23rd May.  The only exception which would allow the exercising of these options during a closed period is if four months notice had been given by the director. The RNS though states:

Mr Zorbas has informed the board of his intention to exercise his existing options today. (19th April 2017)

I therefore conclude based on the content of the RNSs that the company is not in a closed period and the CEO is privy to no inside information not yet released to the market. John Zorbas is therefore able to exercise his options.

Let’s just beat this to death though – lets look at mandatory closed periods regarding the publishing of the financial statements, I.E. MAR Closed periods; the company has a year end date of March 2017, it therefore must publish its final accounts by September 30th 2017, so assuming like last year URU publishes on the deadline, the closed period then would start from Sept 1st 2017. URU may decide to publish the final results earlier, but we can safely assume there is not a closed period at time of writing, i.e. April 2017.  The Half year report for the period for September 2016 was published within the deadline here in December 2016. This rules out a MAR closed period.

What are the general implications for Directors of MAR?

In general it can be very difficult for Directors to be able to buy or sell shares in the open market or exercise share options. This may be particularly true for rapidly growing companies, those who report quarterly or those where lengthy material commercial negotiations are taking place. The simple reason is that the company may be in a closed period for very long periods of time in all of those scenarios. This is why you will often only see director deals popping up straight after results are issued or after other material RNS.

What can shareholders read into Director buys and sells?

Director Buys can be both a buy and sell signal. Small director buys are frequently ways to spoof the market. It is worth considering the context, clearly a £10,000 purchase for a director earning £200,000 is minor but this does not necessarily mean it is a spoof, but if the company is cash strapped then it could be a spoof to support the share price into an equity raise.

Director Sells can be a sell signal, if a director with his/her knowledge of the company wishes to sell then you could read this as a vote of no confidence. Small sells though are often made to settle tax liabilities, particularly if the director is issued and exercises options at the same time. If the company reaches an all time high and the directors start to make material sales then the story could be different of course.


Directors cannot deal in the shares, exercise options or other financial instruments in the companies where they are board members during a closed period.

Director buys and sells outside of this period are not automatic buy or sell signals to other shareholders and should be taken in the broader context of the situation with the specific company concerned.

Disclaimer – I have no conflicts of interests regarding any companies mentioned in the post. This means no positions long or short nor any other financial or non financial incentive for publishing the post. I will not initiate any positions in the next two trading days from the date of the post being published.
This post is purely my opinion and should not be taken as financial advice. I welcome any alternative comments and will consider adjusting posts based on information made available to me.