Legal Analysis of ‘Pump and Dump’ Schemes in Indonesia’s Capital Market: Perspectives and Prevention

Abstract

The economic development and capital market growth have led to the
emergence of many market manipulation issues in Indonesia and
worldwide. Legal frameworks and challenges associated with addressing
'pump and dump' schemes in the Indonesian capital market underscore the
need for strong legal strategies and regulatory oversight to protect investors
and maintain market integrity. The 'pump and dump' scheme, characterized
by artificially inflating stock prices followed by rapid selling, is a
significant form of market manipulation that undermines investor
confidence and market stability. While Indonesia has laws related to
market manipulation, primarily found in the Capital Market Law (Law No.
8/1995) and various regulations issued by the Financial Services Authority
(OJK), they do not immediately solve all capital market issues in
Indonesia. Operational challenges and limitations faced by regulatory
bodies in detecting and prosecuting perpetrators, including technology
deficiencies, resource constraints, and the need for more effective interagency
cooperation, are highlighted. It is emphasized that while current
laws provide a framework for action, there are still loopholes that allow
manipulators to exploit the system. A multifaceted approach to prevention
is proposed, suggesting enhancements in legal provisions, greater
regulatory cooperation, and broader use of technology in supervision and
enforcement. This legal analysis aims to contribute to ongoing discussions
and assist policymakers and stakeholders in refining the regulatory
mechanisms governing the Indonesian capital market.