Shares of Hong Kong-based TOP Financial (NASDAQ:TOP) jumped as much as 1,000% higher following yesterday’s close, and the reason isn’t exactly clear. This morning, shares of TOP stock opened by about 250% higher and, as of this writing, are rocketing back up over 700%. As its name suggests, TOP operates in the financial industry and provides a futures brokerage and other financial services through its trading platform.
Other Hong Kong stocks, like Magic Empire Global (NASDAQ:MEGL) and Golden Sun Education Group (NASDAQ:GSUN), experienced wild, volatile moves to the upside for unknown reasons.
However, Nate Anderson, the Founder of short seller activist firm Hindenburg Research, believes that market manipulation is the culprit behind the outsized gains:
For anyone wondering why Nasdaq-listed $TOP is up 1,100% in 2 days…
No it is not a "mystery". It is the latest in a years-long pattern of China/HK-based chatroom fueled pump and dump schemes on Nasdaq:
1. Wash trading
2. Chatroom pump
3. Rug pullcc @adenatfriedman pic.twitter.com/ZWGk5jpb7n
— Nate Anderson (@ClarityToast) April 28, 2023
Since last November, Anderson has been tracking unusual price movements of Chinese and Hong Kong-based companies in a Twitter thread. In the tweet above, he highlights a stream of messages that details a very apparent pump-and-dump scheme. Anderson alleges that the pump-and-dump organizers first used an illegal trading method called wash trading. Wash trading involves traders that buy and sell a security to feed misleading information to the market. Wash trades can also result from collusion between a trader and a broker.
“Wash trading misleads investors into believing that trading volumes for a security are higher than they actually are, potentially increasing legitimate trading activity on the security in the process,” notes Investopedia.
According to Anderson, the next step is to influence members of a chatroom to buy the stock to drive the price up. Once the price is higher, the pump-and-dump organizers will then dump their positions on the unsuspecting users that drove up the price.
Anderson’s theory is still unconfirmed, although given his track record, investors should pay heed to his statement.
3 Investors Betting on TOP Stock
Tracking institutional ownership is important, as these large investors provide liquidity and support for stocks. However, barely any institutional shareholders own shares of TOP. According to Yahoo Finance, institutions own just 0.17% of shares outstanding and just 1.16% of the public float. Meanwhile, insiders own a whopping 85.59% of shares outstanding. During Q4, only three institutions reported a stake in TOP Financial:
- Millennium Management: 38,761 shares.
- Geode Capital Management: 19,596 shares.
- Advisor Group: 250 shares.
Considering this extremely meager institutional support as of Q4, the significant price jump raises even more questions. Based on the low ownership as of Q4, we can make an educated guess that institutional investors were not behind the latest price jump.
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
