AXEL STURM

HONOURABLE INVESTORS in stock markets buy equities at a low price and sell them at a higher price. The difference is their profit. Unfortunately not all investors are honourable.

Since October 2012, the Australian Securities Exchange has experienced rather unusual trades in Bougainville Copper securities.

It’s obvious to me that there are a few dubious market participants who are trying to destabilise the market by pulling the BCL share price down. As a result, investors who become insecure might sell their equities at a price much lower than the fair value.

Fraudulent market participants make use of two different tools to intimidate honourable investors by manipulating share price.

Either they sell off shares borrowed from a custody bank such as JP Morgan, Citicorp or HSBC.

Or they already own a huge amount of the shares in question, which are traded between multiple custody or brokers’ accounts.

The aim is to benefit from investors whose nerves are on edge and will sell their shares at an artificially-created low price. At that low price, the market manipulators collect the shares sold at a loss by other investors.

It’s come to my notice that there’s a particular group operating which has long experience in market manipulation

Such a scam works primarily in small stocks such as Bougainville Copper. BCL has only some 27% of its shares in free-float. About 17% of these are held by custodians who keep the true ownership secret.

Unfortunately, it seems to me, Bougainville Copper's major shareholder, Rio Tinto, is not convinced that there are fraudulent activities in its investments.

Ben Mathews, Rio Tinto company secretary, stated to ESBC recently that “Rio Tinto has no reason to suspect that there is any market manipulation taking place in the publicly-traded shares of Bougainville Copper Limited”

Maybe the stunning ASX trades in BCL shares on Friday 8 February  (almost 2.5 million shares in a single day) will help Mr Mathews overcome this view.

I suspect that the people behind these trades are a father and son outfit operating out of Zug in Switzerland.

You can read the full story, together with supporting evidence, on the ESBC website here