Source: Fortune; Compiled by Golden Finance. In mid-July, shares of cancer drug developer MEI Pharma soared. This wasn't because the small company, which first listed on the Nasdaq in 2003, had discovered a blockbuster cancer treatment. Instead, the catalyst for MEI Pharma's surge was its decision to spend $100 million to purchase the cryptocurrency Litecoin (LTC). The surge in shares, from $3 to a high of $7, was unsurprising. With the announcement of its LTC acquisition, MEI Pharma became the latest company to exploit a common stock manipulation tactic: when a publicly traded company adds a cryptocurrency to its balance sheet, traders respond by buying shares, driving the company's value far above the acquisition cost.
However, unexpectedly, MEI Pharma's stock price nearly doubled in the days leading up to the announcement—despite no major updates filed with the SEC, no press releases, and virtually no discussion on social media. MEI Pharma isn't the only company to experience an unusual stock price surge before announcing its cryptocurrency-buying strategy. Fortune has found similar patterns at other small, publicly traded companies, suggesting that insiders gained early access to some announcements, according to finance professors, investors, and CEOs.
"To me, this is definitely suspicious," said Xu Jiang, a professor at Duke University who studies insider trading in public markets. "From what I've seen, this is true of many insider trading situations." He added that he couldn't determine whether insider trading had occurred without a thorough investigation.
A spokesperson for MEI Pharma declined to comment. Spokespeople for four other companies whose stock prices saw unusual moves ahead of cryptocurrency purchases — Kindly MD, Empery Digital, Fundamental Global, and 180 Life Sciences Corp — didn’t respond to requests for comment. Spokespeople for VivoPower and Sonnet BioTherapeutics, two other cryptocurrency asset managers with similar stock price fluctuations, also declined to comment. Front-running the news: Stock price movements of eight digital asset treasury companies in the days leading up to their announcements of transitioning to cryptocurrency businesses. Treasury firms are one of the latest crazes in the cryptocurrency space, and billionaire Michael Saylor is a pioneer of this trend. In 2020, Saylor, founder and chairman of Strategy (formerly MicroStrategy), announced that his data analytics software company would add Bitcoin to its balance sheet. Traders viewed the company's stock as a proxy for the world's largest cryptocurrency and bought into it as its price rose. The strategy has been so successful for Strategy that, despite only $115 million in revenue in the second quarter of this year, it has amassed nearly $70 billion worth of cryptocurrency, giving it a market capitalization of approximately $100 billion. (For comparison, Starbucks, with a similar market capitalization, had $7.8 billion in revenue during the same period.) Other companies have tried to replicate Strategy's success. Early imitators include a Japanese budget hotel company, which began supporting Bitcoin in 2024, and several others. This year, the trend really took off. According to Architect Partners, a cryptocurrency M&A advisory and financing firm, 184 public companies have announced cryptocurrency purchases since January, totaling nearly $132 billion. "We've reached a sort of saturation point," said Louis Camhi, founder of RLH Capital, an investment management and advisory firm that has facilitated recent cryptocurrency treasury transactions. He said investors are now waiting to see whether their cryptocurrency treasury investments can be profitable.
"Information Leaks"
However, some of those who benefited from the cryptocurrency-related price increases weren't retail investors, but rather individuals with company connections or outsiders with access to private details who appear to have profited by front-running the news.
SharpLink, a sports betting and casino marketing company, saw its stock price dip below $3 in April and early May. But on May 27, when the company announced plans to add $425 million in Ethereum to its balance sheet, its stock price soared to a high of nearly $36.
However, in the three trading days leading up to the announcement, SharpLink's stock price more than doubled from $3 to $6, despite not filing with the SEC or issuing a press release. "Word definitely leaked out, and it was hard to control because they were reaching so many investors," said the CEO of another cryptocurrency treasury company involved in the deal. The executive declined to be named, referring to a competitor. After announcing its first ETH purchase on June 13th, a SharpLink spokesperson told Fortune that the company had “policies and procedures in place to prevent” trading on insider information, but declined to provide further details. Then there was Mill City Ventures, a small nonbank lender in Minnesota, which also showed signs of what financiers call “information leakage,” where nonpublic information spreads beyond those within the company who are authorized to know about significant events. In the two trading days before Mill City Ventures announced it had raised $450 million to become the cryptocurrency treasury company Sui, its stock price more than tripled, closing the week at nearly $6—without announcing any major changes to its business. “There was definitely some volatility in the stock leading up to the announcement,” said Stephen Mackintosh, a Mill City executive and general partner at hedge fund Karatage, which led the financing. He later added, “We are very confident that the stock price volatility will not have an impact on the pricing of the transaction.” Mill City Ventures has since changed its name to SUI Group Holdings.
Insider Trading
Public markets have clear regulations regarding the release of "material, non-public information" that could affect a company's stock price.
Insiders who gain access to significant events typically must agree to a "wall crossing," a term that refers to a transition from an outsider with no knowledge of stock movements to an insider with sensitive information. Companies often maintain a database of individuals who have been "wall crossed" to prevent regulators from investigating insider trading.
For cryptocurrency treasury companies, transactions can take months to close, but just days before the announcement, brokers begin what's known as a roadshow, reaching out to investors and encouraging them to invest their money.
For example, according to Mackintosh, SharpLink executives marketed funds to investors three days before announcing its cryptocurrency treasury transition. Notably, the company's stock price surged during those three days. Separately, shares of Mill City Ventures, a small non-bank lender, also surged over the two days that dealmakers pitched the company's $450 million funding round to investors. SharpLink and Mill City Ventures saw their shares climb as dealmakers approached investors. U.S. insider trading laws not only prohibit company executives from trading on information that could affect stock prices. Elisha Kobre, a partner at Sheppard Mullin and former U.S. attorney for the Southern District of New York, said these laws also apply to others who receive information from those executives. This includes investors who receive briefings during roadshows.
In the case of cryptocurrency treasury companies, it’s unclear exactly who profited from the front-running. While some executives at these companies filed notices of stock grants or purchases before the cryptocurrency market turned, the vast majority haven’t sold their holdings, according to SEC filings. It’s more likely that other insiders besides company directors or executives gained access to the information.
Still, the suspicious price swings are consistent with what researchers have long found in public markets. A 2014 study found that company stock prices rose an average of 7% in the 41 days before a merger was announced. While some of the price swings may stem from traders who accurately read the market, researchers have found that price fluctuations can also stem from traders who trade on insider information. "Widely cited academic research shows that most illegal insider trading occurs before mergers and acquisitions," Peter Zielaki, a finance professor at Texas A&M University who studies insider trading, told Fortune. He cited a 1992 study that found that 80% of insider trading cases prosecuted by the SEC involved takeover bids. "Every time you do a big M&A, this bad stuff happens," said a finance executive involved in a cryptocurrency treasury firm, who declined to be named discussing private business dealings. "And you always hear about the SEC asking questions about who knew what and when they knew it." Fighting Front-Running In recent weeks, firms employing crypto treasury strategies have taken additional steps to prevent "information leaks." "It's terrible for everyone," said Camhi, founder of RLH Capital, referring to those who front-run cryptocurrency treasury announcements. "So resolving this issue is in everyone's best interest." Mackintosh, a partner at hedge fund Karatage, and his team learned of the alleged breach at SharpLink and decided to contact investors within two trading days, rather than three. He added, "We're mindful of the market's volatility right now, and we're trying to operate in the best and most secure way possible." Other companies have gone further. Among them is CEA Industries, a small, publicly traded company focused on the Canadian e-cigarette market. In late July, CEA Industries announced it had raised $500 million to become the treasury company for BNB, a cryptocurrency closely associated with the cryptocurrency exchange Binance. David Namdar, CEO of CEA Industries, said the dealmakers kept the ticker symbol secret during the roadshow and informed investors after the market closed on Friday, July 25. CEA Industries, now known as BNB Network Company, wanted to "minimize the risk of information leakage or volatility" before announcing its cryptocurrency foray on Monday.
Just a week later, Verb Technology, a small, publicly traded company that developed a live-streaming platform called MARKET.live, followed a similar strategy. In early August, the company announced it had raised $558 million for its TON cryptocurrency, closely tied to the messaging app Telegram. An unnamed investor in the company said dealmakers withheld Verb's ticker symbol until after the market closed on Friday evening. The investor, speaking of a private business transaction, said:
A spokesperson for the company declined to comment.
Like CEA Industries, Verb's announcement came before the market opened on Monday, leaving potential front-runners only able to buy the stock in pre-market trading.
Despite this, the stock surged nearly 60% in the four hours leading up to the announcement.
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