Source: Fortune; Translated by Golden Finance
In mid-July, the stock price of cancer drug developer MEI Pharma skyrocketed. This was not because the small company, which first listed on NASDAQ in 2003, discovered a groundbreaking cancer treatment. Instead, the surge in MEI Pharma’s stock price was triggered by the company’s decision to spend $100 million to purchase the cryptocurrency LTC as an asset.
It is not surprising that the stock price soared from $3 to a high of $7 after announcing the acquisition of LTC, as MEI Pharma became the latest company to employ common stock manipulation tactics: when a publicly traded company adds cryptocurrency to its balance sheet, traders respond by buying stock, driving the company's value to levels far exceeding the acquisition cost.
However, unexpectedly, in the days leading up to the announcement, MEI Pharma's stock price nearly doubled—despite not submitting any major updates to the SEC, issuing press releases, or generating much discussion on social media.
MEI Pharma is not the only company to have experienced unusual stock price increases before announcing a cryptocurrency purchase strategy. Fortune has discovered similar patterns in other small public companies, indicating that insiders may have had advance knowledge of some announcements, according to finance professors, investors, and corporate CEOs.
“To me, this is indeed suspicious,” said Xu Jiang, a professor at Duke University who studies insider trading in public markets. “As far as I know, many insider trading cases are like this.” He added that he could not determine whether insider trading occurred without a thorough investigation.
MEI Pharma spokesperson declined to comment.
Spokespersons for four other companies that experienced unusual stock price fluctuations before cryptocurrency purchases—Kindly MD, Empery Digital, Fundamental Global, and 180 Life Sciences Corp—did not respond to requests for comment. Spokespersons for two other cryptocurrency asset management companies, VivoPower and Sonnet BioTherapeutics, which had similar stock price fluctuations, also declined to comment.
News Front-Running Trades
Stock price trends of eight digital asset treasury companies in the days leading up to their announcements of transitioning to cryptocurrency business.
Cryptocurrency Treasury Craze
Treasury companies represent one of the latest crazes in the cryptocurrency space, with billionaire Michael Saylor being a pioneer of this trend.
In 2020, Strategy (formerly MicroStrategy) founder and chairman Saylor announced that his data analytics software company would incorporate Bitcoin into its balance sheet. Traders viewed the company's stock as a proxy for the world’s largest cryptocurrency and bought shares as the price of the largest cryptocurrency globally rose.
This strategy has been very successful for Strategy, although its revenue in the second quarter of this year was only $115 million, it has accumulated cryptocurrency worth nearly $70 billion, with a market capitalization reaching about $100 billion. (In contrast, Starbucks, with a similar market capitalization, reported revenue of $7.8 billion during the same period.)
Other companies are also trying to replicate the success of Strategy. Early imitators include a Japanese budget hotel company (which began supporting Bitcoin in 2024) and several other companies. This trend truly started to rise this year. According to data from Architect Partners, a cryptocurrency merger advisory and financing firm, 184 publicly traded companies have announced purchases of cryptocurrency since January, totaling nearly $132 billion.
“We have reached some form of saturation,” said Louis Camhi, founder of RLH Capital. RLH Capital is an investment management and consulting firm that assisted with recent cryptocurrency treasury deals. He stated that investors are now waiting to see if their cryptocurrency treasury investments will be profitable.
“Information Leakage”
However, some of those benefiting from the rise in cryptocurrency-related prices are not retail investors, but people connected to the company or external individuals who gained private details, seemingly profiting from front-running news.
SharpLink is a sports betting and casino marketing company whose stock price fell below $3 in April and early May. However, on May 27, when the company announced plans to add $425 million in Ethereum to its balance sheet, its stock price soared to nearly $36.
However, in the three trading days before the announcement, despite SharpLink not filing documents with the SEC or issuing press releases, its stock price more than doubled from $3 to $6. 'There must have been a leak because they contacted too many investors, so it's hard to control,' said the CEO of another cryptocurrency treasury company involved in the transaction. This executive refused to name the competitor.
A spokesperson for SharpLink announced on June 13 that after completing its first ETH purchase, the company has 'established policies and procedures to prevent' trading on insider information, but declined to provide further details.
Then there is Mill City Ventures, a small non-bank lender in Minnesota, which also showed signs of what financiers call 'information leakage,' meaning that non-public information had spread beyond those within the company entitled to know about significant events.
In the two trading days before Mill City Ventures announced raising $450 million to become a cryptocurrency Sui treasury company, its stock price more than doubled, closing the week at nearly $6—during which the company did not announce any significant business changes.
“There was definitely some volatility in the stock before the announcement,” said Mill City executive and Karatage general partner Stephen Mackintosh, who led the financing. He later added, “We are very confident that the stock price fluctuations will not affect the pricing of the deal.”
Mill City Ventures has now been renamed SUI Group Holdings.
Insider Trading
There are clear regulations in the public market regarding the release of 'material non-public information' that may affect company stock prices.
Insiders who receive information about significant events must often agree to a 'wall crossing' treatment, a term that refers to the process of moving from being an outsider unaware of stock movements to an insider with sensitive information. Companies typically maintain a database to track individuals who have been 'wall crossed' in case regulators intervene in an insider trading investigation.
For cryptocurrency treasury companies, transactions may take months to complete, but just days before the announcement, brokers begin what is known as a roadshow, extensively reaching out to investors to encourage them to put money into the deal.
For instance, Mackintosh noted that three days before SharpLink announced its cryptocurrency fund transformation plan, company executives pitched the fund to investors. Notably, it was during these three days that the company's stock price soared. Additionally, during the two days that brokers pitched Mill City Ventures’ $450 million financing to investors, the stock price of this small non-bank lender also surged.
Roadshow Warm-Up
As deal facilitators engaged with investors, stock prices for SharpLink and Mill City Ventures both saw increases.
U.S. insider trading laws not only prohibit company executives from trading on information that may affect stock prices. Elisha Kobre, a partner at Sheppard Mullin law firm and former U.S. Attorney for the Southern District of New York, stated that these laws also apply to others who obtain information from these executives, including investors who listen to presentations during roadshows.
As for cryptocurrency treasury companies, it is currently unclear who exactly is profiting from front-running trades. According to filings with the U.S. SEC, while some executives at these companies submitted notices of stock gifts or purchases before turning to the cryptocurrency market, the vast majority of companies have not sold their stock holdings. It is more likely that, in addition to company directors or executives, other insiders have obtained information.
Nevertheless, this suspicious price fluctuation is consistent with what researchers have long found in public markets. A 2014 study found that company stock prices averaged a 7% increase in the 41 days leading up to a merger announcement. While some price fluctuations may stem from traders accurately interpreting market trends, researchers also found that price movements could result from traders leveraging insider information.
Peter Zilaki, a finance professor at Texas A&M University who studies insider trading issues, told Fortune: "Widely cited academic research indicates that most illegal insider trading occurs prior to merger activities." He cited a 1992 study which noted that 80% of illegal insider trading cases brought by the SEC were related to acquisition offers.
“Such bad things happen with every large merger deal,” said a financial executive involved with a cryptocurrency treasury company, who refused to be named when discussing private business transactions. “And you always hear that the U.S. SEC will ask those who know what, when they knew it.”
Crackdown on Front-Running Trades
In recent weeks, companies adopting cryptocurrency treasury strategies have taken additional steps to prevent 'information leakage.'
“This is bad for everyone,” said RLH Capital founder Camhi, referring to those who front-run the announcement of cryptocurrency treasury news. “So addressing this issue is beneficial for everyone.”
Hedge fund Karatage partner Mackintosh and his team were aware that SharpLink was involved in information leakage, so they decided to contact investors within two trading days (rather than three). He added, 'We noticed that the market is very active right now, and we are doing our best to operate in the best and safest way.'
Other companies have gone further. This includes CEA Industries, a small public company focused on the Canadian vaping market.
In late July, CEA Industries announced it had raised $500 million to become a treasury company for BNB, a cryptocurrency closely associated with the cryptocurrency exchange Binance. CEA Industries CEO David Namdar stated that brokers did not disclose its stock code during the roadshow, only informing investors after the market closed on Friday, July 25. He mentioned that the company aimed to 'minimize the risk of information leakage or volatility' before announcing its foray into the cryptocurrency sector on Monday.
Just a week later, Verb Technology, a small public company that developed a live streaming platform called MARKET.live, also adopted a similar strategy. In early August, the company announced it had raised $558 million to hold cryptocurrency TON, which is closely related to the messaging app Telegram. An investor who wished to remain anonymous stated that brokers did not disclose Verb's stock code until after the market closed on Friday.
The company spokesperson declined to comment.
Like CEA Industries, Verb's announcement was also made before the market opened on Monday, so potential frontrunners could only buy the stock in pre-market trading.
Nevertheless, the stock still rose nearly 60% within four hours before the announcement.
