SEC Launches Task Force Targeting Foreign Pump-and-Dump Schemes Threatening US Investors

The SEC is unleashing an aggressive new task force to target foreign-based companies exploiting U.S. markets through pump-and-dump and ramp-and-dump manipulation schemes.

Cross-Border Pump-and-Dump Schemes Prompt SEC Enforcement Action

The U.S. Securities and Exchange Commission (SEC) announced on Sept. 5 the launch of a Cross-Border Task Force to enhance the Division of Enforcement’s efforts to detect and pursue international fraud that threatens U.S. investors. The move reflects growing regulatory scrutiny of foreign-based companies accessing American capital markets and the intermediaries that support them.

The SEC set out the task force’s priorities in its announcement:

The Cross-Border Task Force will focus initially on investigating potential U.S. federal securities law violations related to foreign-based companies, including potential market manipulation, such as ‘pump-and-dump’ and ‘ramp-and-dump’ schemes.

“The task force also will focus enforcement efforts on gatekeepers, particularly auditors and underwriters, which help these companies access the U.S. capital markets,” the SEC added. “In addition, it will examine potential securities law violations related to companies from foreign jurisdictions, such as China, where governmental control and other factors pose unique investor risks.” A pump and dump is a fraudulent scheme where people artificially boost an asset’s price with hype, then sell their shares quickly for profit, causing the price to crash. A ramp and dump is similar, but manipulators use controlled, high-volume trading instead of just false news to drive up the price before selling.

SEC Chairman Paul S. Atkins emphasized the balance between openness and enforcement, stating: “We welcome companies from around the world seeking access to the U.S. capital markets. But we will not tolerate bad actors – whether companies, intermediaries, gatekeepers or exploitative traders – that attempt to use international borders to frustrate and avoid U.S. investor protections.”

In addition to the task force, Atkins directed other divisions, including Corporation Finance, Examinations, Economic and Risk Analysis, and Trading and Markets, as well as the Office of International Affairs, to consider further protective measures such as new disclosure guidance and potential rule changes. Division of Enforcement Director Margaret A. Ryan underscored the initiative’s goals, stating:

The Cross-Border Task Force will leverage the Division of Enforcement’s resources and expertise to combat international market manipulation and fraud. We are pleased to be part of this critical effort to enforce the federal securities laws and protect U.S. investors.

While the SEC framed the initiative as a safeguard against transnational misconduct, market participants note that properly regulated foreign issuers also provide diversification, innovation, and capital-raising opportunities that benefit U.S. investors.