Imputation 13(a): Mr Kumova engaged in pump and dump schemes in the financial market
243 In the particulars subjoined to [46A] of his further amended defence, Mr Davison adopts a definition of what amounts to a "pump and dump scheme". This definition is taken from an affidavit sworn by Mr Kumova on 21 December 2020 (at [9]) and provides as follows:
Ramping and pumping stocks are very negative concepts in my industry. To me, both ramping and pumping mean that a person is engaging in market manipulation to increase a share price, including on the basis of spreading untrue information about a company and what is happening to the company's share price or business. Both ramping and pumping generally correlate with action to increase a share price and enable profit to be made from the sale of shares when they are sold or "dumped". As such, the phrase "pump and dump" is often used to describe this practice. My understanding is consistent with the two article extracts set out in paragraphs 110 and 113 of Mr Davison's affidavit, which state:
(a) "it was a classic "pump and dump", where stock is purchased at a low price before the release of positive and often misleading company announcements" (at paragraph 110);
(b) "… accused of running a "pump and dump" scheme, where a stock is bought at a low price before being inflated by positive and potentially dubious statements …" (at paragraph 113).
244 It is then said "further or in the alternative" (whatever that means in this context) that the concept adopted by Mr Davison as constituting a pump and dump scheme is the same as that:
used by the Australian Securities & Investments Commission Media Release 21-256MR dated 23 September 2021 (that is, 'pump and dump' activity occurs when a person buys shares in a company and starts an organised program to seek to increase (or 'pump') the share price by using social media and online forums to creat [sic] a sense of excitement in a stock or spread false news about the company's prospects, in order to then sell their shares and take a profit, and with other shareholders suffering as the share price falls).
245 Whatever else may be unclear, the case is pleaded on the basis that someone is engaged in a pump and dump scheme where they have a strategy to: (1) build up or inflate the price of stock; and (2) take advantage of that manipulation by selling the stock while it was impounded by share inflation.
246 Mr Davison is specific that all definitions have a common essential element: pumping involves the publication or dissemination of information about shares or securities that is false, misleading or exaggerated for the purpose of increasing demand for a security and thereby producing share inflation (which would either artificially maintain or increase the stock price).
247 This is consistent with the notion that there must first be pumping "events in the form of momentum ignition and organised campaigns on social media": Australian Securities and Investments Commission, Pump and dump of micro-cap securities (Report 732, July 2022) (at 3) (ASIC Report 732). As ASIC notes (at 3), such a campaign entails:
blatant attempts to pump share prices, using posts on social media to announce a target stock, a designated time to buy and a target price or percentage gain to be reached before dumping the shares. In some cases, posts on social media forums may mislead subscribers by suggesting the activity is legal.
248 Secondly, the "pumper" must then propose to dump their shares and take a profit: ASIC Media Release. This causes other shareholders to suffer as the share price falls.
249 It was only at trial that Mr Davison sought to fasten upon a somewhat different case. He now submits that it is not a necessary element of a pump a dump scheme that activity has an effect on the market price for shares. It is then said, however, that the objective is to produce or retain purchasers for the shares at the highest price possible (which does seem to carry with it some notion of an artificial market).
250 It is understandable why Mr Davison engaged in a case shift. He led no evidence as to any market effect of any event occasioned by Mr Kumova and was forced to accept in his final submissions that (for reasons discussed below) the share price of Bellevue Gold itself might not have been readily susceptible to manipulation.
251 I am not convinced it is fair to allow Mr Davison to change his case in this way. Defences of truth need to be pleaded with precision and proven in accordance with one's particularised case, a fortiori when illegal conduct is being alleged. Here, no attempt was made by Mr Davison to prove or plead the elements of the pump and dump scheme he says existed. The case seeking to prove the substantial truth of Imputation 13(a) should fail on this ground alone.
252 But having said this, I accept it is possible that a person may fasten upon a strategy to engage in a pump and dump scheme (as that concept might be understood by an ordinary reader) and yet carry out the scheme so maladroitly that there is no effective pump or dump. Accordingly, against the prospect I am in error in holding Mr Davison to his pleaded case, I will deal with the revised and broader case advanced in his submissions.
253 Even on this broader case, the want of evidence as to any price effect caused by Mr Kumova cannot be ignored. The absence of any attempt to prove any discernible share inflation occasioned by the alleged pumping conduct (making a subsequent dump a rational step) is a less than promising start to proving the existence of such a scheme. Put another way, a finding that a pumping scheme existed is made easier if one proves a spike in price related to the conduct of a pumper (or the co-ordinated conduct of pumpers), and then the sale of the relevant shares while the stock is impounded by share inflation.
254 The approach to proving the existence of share inflation occasioned by an event such as a tweet is not novel. Whether an identified event or series of closely connected events had a price inflationary effect is usually proven using a statistical tool involving linear regression analysis known as an event study. In the case of a mining stock, fundamental value and share price are usually closely connected to variations in the market value of the relevant commodity. To the extent there was any evidence, the SAF usefully sets out (at [101]-[161]) a narrative of relevant events, including a series of public statements by Mr Kumova (including the Impugned Statements and the "Pump and dump" Statements), ASX announcements and other company updates, and the acquisition and disposal of shares by Mr Kumova. Two graphs were also tendered summarising Mr Kumova's trades in Bellevue Gold shares, his tweets and the share price compared with the VanEck Gold Miners Exchange Traded Fund price between 2019 and 2021 and the gold spot price ($AUD/troy ounce) between 2019 and 2021. Those graphs are reproduced in Annexure A and Annexure B to these reasons. In short, it is evident that the price of Bellevue Gold shares essentially tracked the gold price and company announcements.
255 It is unnecessary for the purposes of this judgment to determine whether Bellevue Gold was trading on a "semi-strong" efficient capital market and that Bellevue Gold shares were themselves trading efficiently (such that the share price would reflect all publicly available information and respond quickly to new information). I have not been assisted by any evidence as to whether Bellevue Gold shares traded efficiently; nor has evidence been adduced to prove any price effect of the alleged pumping conduct. Why this matters on Mr Davison's broader case is that I cannot be satisfied on the evidence adduced that the so-called pumping conduct has been proven to have had any real effect on the share price such as to make dumping an economically rational step to take.
256 But this is not fatal on the broader case. As I have said, Mr Kumova might have had an insufficiently wide audience to disseminate information efficiently and introduce share inflation, or there may have been something about the market, or some confounding information, that make it difficult to show any relevant share inflation. One must look at what Mr Kumova was trying to do. If his proven intention was to conduct a scheme, even a misconceived scheme, that is enough.
257 Mr Kumova's Twitter activity demonstrates bullish comments, which could be consistent with pumping behaviour: so much is clear from their terms. But there are several problems in establishing the substantial truth of the imputation that Mr Kumova was engaged in a pump and dump scheme in the financial market.
258 First, as noted above, if there was such a scheme, the evidence does not make it an obvious one, such as to demonstrate a connexion between alleged pumping activity and share inflation.
259 Secondly, and connected to the last point, at least so far as the evidence adduced is concerned, it does not appear Bellevue Gold securities were particularly susceptible to a pump and dump scheme. ASIC Report 732 refers to promoters who encourage their followers "to engage in coordinated purchases and sales of low liquidity securities susceptible to market impact". It repeatedly refers to "micro-cap securities", which it defines as "securities with market capitalisations below A$61 million" (at p 10). Of course, at no point in the relevant period did Bellevue Gold fall within this definition. Mr Kumova gave unchallenged evidence, corroborated by Canaccord analyst reports, that there was significant liquidity in Bellevue Gold shares across the relevant period, with an average of $3-4.5 million worth traded per day. The largest shareholders in the relevant period were a leading global investment fund, a leading global gold fund and the largest gold exchange trade fund in the world. Mr Davison's allegation a scheme existed must be assessed in the light of the contextual fact that Bellevue Gold was a much more difficult stock to pump than a thinly-traded micro-cap with no institutional support.
260 Thirdly, to the extent there was a pump, there was no connected dump. While there is no denying that Mr Kumova's sell down across the period was significant, and while some patterns are discernible (for example, it appears Mr Kumova generally sought to maintain an average price), there is no established connexion between Mr Kumova's conduct on Twitter and in the media and his selling shares. In any event, the SAF identifies that he began selling shares before the period identified in the further amended defence (being May 2020 to June 2021), and well after that period, not selling out completely until about a month before the trial. Indeed, Mr Kumova's selling activity was not proven to be anything other than generally consistent with his trading strategy adopted in relation to similar mining stocks (in which he had a substantial interest). Further, as one would expect with any sophisticated trader, Mr Kumova's disposition of shares was not linear and in February 2021, when there was a correction in the share price, Mr Kumova bought 500,000 shares. He also gave evidence, which I accept, that he did not sell out in one transaction because he was hoping to be part of any takeover of Bellevue Gold that he anticipated would occur: T363.46, T365.22. At the very least, this trading evidence does not sit happily with the existence of a pump and dump scheme as alleged.
261 Fourthly, and most importantly, as noted above, while Mr Davison is not required to establish that every part of an imputation is literally true, he must prove the "sting" or gravamen of an imputation is substantially true. The sting was that Mr Kumova was involved in a scheme, that is, a premeditated, coordinated plan of action (the pump and dump) to achieve an illicit end. That is inherent in the nature of a scheme. Although Mr Davison has proven that Mr Kumova was tweeting about Bellevue Gold in a manner that was apt to cause excitement as to the company's prospects and was directed to making readers feel that Mr Kumova was clever or skilled in having backed the stock, such proof is insufficient.
262 Mr Davison has the onus of establishing the substantial truth of illegal conduct. It is trite that to the extent that allegations of illegality, unlawfulness and dishonesty are involved, such allegations cannot be justified by inexact proofs, indefinite testimony, or indirect inferences: s 140(2) of the Evidence Act; Briginshaw v Briginshaw (1938) 60 CLR 336 (at 361-362 per Dixon J). The focus on the gravity of the finding is linked to the notion that the Court takes into account the inherent unlikelihood of alleged misconduct, and common law principles concerning weighing evidence: see Qantas Airways Limited v Gama [2008] FCAFC 69; (2008) 167 FCR 537 (at 576 [137]-[138] per Branson J). Hence, bearing in mind the seriousness of the allegation, Mr Davison will not succeed unless the whole of the evidence establishes a reasonable satisfaction on the preponderance of probabilities such as to sustain the relevant issue: Axon v Axon (1937) 59 CLR 395 (at 403 per Dixon J). The "facts proved must form a reasonable basis for a definite conclusion affirmatively drawn of the truth of which the tribunal of fact may reasonably be satisfied": Jones v Dunkel (1959) 101 CLR 298 (at 305 per Dixon CJ).
263 A logical start to proving the substantial truth of the imputation would have been to focus on the scheme or "syndicate" referred to in the Fifth Matter. But no attempt was made to prove the involvement of the various persons named in the alleged plan of action, or to tender any material relevant to the existence of a collaboration.
264 Faced with a lack of evidence as to a syndicate, the cross-examination of Mr Kumova at times seemed simply to equate positive comments (even misleading statements such as that contained in the Seventh Statement) as equivalent to pumping and dumping: see, for example, T150.6-151.40. But Mr Davison's cases requires me to reject Mr Kumova's repeated denials that there was any such syndicate and, more particularly, his denials he had a dishonest and illegal plan to inflate shares through market manipulation, and that he dumped stocks to take advantage of his pumping activity.
265 Mr Kumova submits that he had "every reason to be proud" as Bellevue Gold "kept announcing positive drilling results and the share price increased" and that he was "boasting about his continued success and ability to pick shares early on". It is also said Mr Kumova "used Twitter to talk about and cheer on the companies he invested in as though they were a sporting team". These submissions are based on the evidence that Mr Kumova used Twitter essentially to convey his own sense of excitement. Although Mr Kumova's general approach to tweeting positively (and, on occasion, inaccurately) about companies in which he had an interest might have rationally aroused suspicion as to his motives, on balance, I accept Mr Kumova's primary motivation was to convey his excitement. Put in less attractive (and perhaps more accurate) terms, Mr Kumova's Twitter activity was, at least in large part, an exercise in swaggering braggadocio directed to telling the world about his skills, his wealth and his perceived success. Behaviour of this kind is not unique in the world of social media.
266 Accordingly, I do not accept that Mr Davison has established the substantial truth of Imputation 13(a).