The Human Cost of Market Manipulation
Bambang, a 39-year-old employee at a Jakarta digital advertising firm, entered the Indonesia Stock Exchange with hopes of building a better future for his family. Influenced by social media chatter and the promise of quick returns, he invested in Bank MNC, a Jakarta-based lender, during what appeared to be an unstoppable rally. The rumors were seductive: ByteDance, the Chinese tech giant behind TikTok, was supposedly preparing to back the bank through a major rights issue. Five years later, the father of two still bears the scars of that decision. He purchased shares at the artificial peak of the rally, only to watch in horror as the stock collapsed within days, wiping out more than half of his investment value.
Bambang is not alone in his suffering. Across Indonesia, millions of retail investors have fallen victim to what locals call “goreng saham”, or stock frying, a colloquial term for pump-and-dump schemes that have plagued the exchange for decades. Rivki Maulana, a 37-year-old bank employee, lost at least 100 million rupiah (approximately $7,500) after trusting companies that promised rapid, high gains without requiring fundamental analysis.
Muhammad Avisena, a full-time trader based in Pekalongan, Central Java, suffered similar losses. He observed that manipulation targets are not limited to small companies with low market capitalization. Some schemes involve large-cap stocks, even those listed on the LQ-45 index, the exchange’s benchmark for the most liquid and highly capitalized equities.
The scale of devastation is staggering. According to the Financial Services Authority, public losses from various financial scams have reached 7 trillion rupiah (approximately $460 million). With over nine million retail stock investors registered in Indonesia, the vulnerability of ordinary citizens to these practices has become a national crisis that extends far beyond individual tragedies.
From Rumors to Ruin: How Pump-and-Dump Schemes Operate
The mechanics of “goreng saham” follow a predictable pattern that exploits both market psychology and regulatory gaps. In the case of Bank MNC, the ByteDance narrative was systematically seeded across stock trading forums and social media platforms. Aggressive buying by coordinated groups created the illusion of legitimate demand, driving prices upward and attracting unsuspecting retail investors. When Bambang and others bought in at inflated prices, the original manipulators sold their positions for substantial profits. The rights issue proceeded, but ByteDance never participated. The subsequent price collapse was swift and merciless.
Academic research on the Indonesia Stock Exchange has documented the technical structure of these schemes. Manipulators typically execute a “buy-buy and sell-sell” strategy over four consecutive trading days. They purchase large quantities at the highest bid prices during the first two days to create artificial liquidity and attract attention. Once other investors enter the market and prices rise, the manipulators sell their entire positions on the third and fourth days, often at the lowest ask prices, capturing cumulative abnormal returns while leaving late entrants with worthless shares.
Contrary to common belief that only small-cap stocks fall prey to manipulation, empirical studies of the exchange reveal a disturbing trend. Research analyzing 149 companies listed in late 2015 found that large-capitalization stocks actually showed a higher probability of manipulation (0.48) compared to small-cap stocks (0.25). This finding challenges the conventional wisdom that only penny stocks attract such activity. In the Indonesian context, even relatively large capitalization values remain small enough to be vulnerable to coordinated trading by well-capitalized actors.
The 1995 Capital Market Law grants the Financial Services Authority independent power to investigate stock market crimes without relying on police intervention. However, market participants widely report that the authority frequently appears to turn a blind eye to suspicious activities. Despite possessing disgorgement instruments that could force manipulators to return illegal gains to victim compensation funds, enforcement actions remain rare.
The Breaking Point: MSCI Crisis and Regulatory Collapse
The long-simmering crisis reached a boiling point at the end of January 2026, when Morgan Stanley Capital International froze Indonesia’s market status review and issued an unprecedented warning. The global index provider threatened to downgrade Indonesian stocks from Emerging Market status to Frontier Market, citing severe opacity over shareholdings and persistent weak enforcement against market manipulation. The announcement triggered immediate panic. On January 28, the Jakarta Composite Index plunged 7.35 percent to close at 8,320.56, falling well below critical support levels and wiping out billions of dollars in market value.
The stakes of this potential reclassification extend far beyond national pride. MSCI indices serve as benchmarks for trillions of dollars in global investment funds. A downgrade to Frontier Market status would render Indonesian equities ineligible for many institutional investment portfolios, potentially triggering massive capital flight and permanently damaging the country’s ability to raise long-term financing through equity markets.
The market collapse forced a housecleaning at the highest levels of financial regulation. Within days, OJK chairman Mahendra Siregar, his deputy Mirza Adityaswara, and Indonesia Stock Exchange chief Iman Rachman submitted their resignations. The shakeup acknowledged what critics had long maintained: the regulatory framework had failed to keep pace with mounting structural risks in the equity market.
The crisis occurred against a backdrop of broader economic instability. Indonesia’s rupiah currency had already slid to historic lows against the US dollar amid concerns over fiscal imprudence and aggressive state intervention under President Prabowo Subianto. The convergence of currency weakness and market integrity concerns created a perfect storm that tested investor confidence to its breaking point.
Decades of Neglect: A Pattern of Manipulation
The January collapse was not an isolated incident but rather the culmination of years of documented manipulation. In 2020, the Indonesia Stock Exchange itself identified 41 stocks suspected of pump-and-dump practices, contributing to 8.3 percent of the bourse’s average daily transaction value. That same year, President Joko Widodo publicly demanded that stakeholders “clean up” the capital market, specifically citing the need to crack down on manipulation that had led to fraud and criminal activities.
The Asuransi Jiwasraya scandal provided a tragic illustration of these risks. The ailing state-owned insurer suffered massive losses after investing in low-quality stocks widely believed to have been subject to pump-and-dump schemes. Despite these high-profile failures, systematic enforcement remained elusive.
Recent market activity shows the problem has only intensified. In April 2025, shares of plastic pipe manufacturer Multi Makmur Lemindo surged 130 percent within a month. Around the same period, real estate company Diamond Citra Propertindo experienced a 2,900 percent price increase. Barito Renewables Energy saw its value surge more than 1,000 percent within months during 2024. In each case, individuals or groups accumulated massive portions of the available supply to dictate prices artificially, yet investigations remained conspicuously absent.
Academic research confirms the ubiquity of these practices. A study examining trading periods in late 2015 found evidence of pump-and-dump manipulation in 14 of 16 observed four-day trading cycles. The research identified 73 specific stock-day trading instances where manipulation occurred, proving that these schemes operate not as rare anomalies but as regular features of market microstructure.
Global Context: How Other Markets Fight Back
Indonesia’s struggles place it within a global landscape of market manipulation, though other jurisdictions have developed more robust defensive mechanisms. South Korea offers a compelling technological comparison. The Korea Exchange deploys AI-powered surveillance tools that scour online posts, YouTube videos, and even spam text messages to detect pump-and-dump schemes in real time. The system analyzes social media content alongside recent stock price movements to automatically generate reports for regulatory investigation. South Korea’s Financial Supervisory Service is expanding these capabilities with high-performance servers equipped with advanced CPUs and GPUs to monitor high-frequency cryptocurrency trades.
The United States has pursued aggressive restitution strategies. The Department of Justice recently secured $214 million in forfeited proceeds from a pump-and-dump scheme involving Chinese Liberation Education Holdings, preparing to disburse these funds directly to victim investors through formal remission processes. The Securities and Exchange Commission has established a Cross-Border Task Force specifically targeting foreign-based companies engaged in ramp-and-dump activities, particularly those with China links.
International penalties for market manipulation demonstrate the severity with which other jurisdictions treat these crimes. In the Philippines, the Villar family faced fines equivalent to 3.4 trillion rupiah for stock manipulation. Bernard Madoff received a 150-year prison sentence for his Ponzi scheme. Chinese investment expert Xu Xiang received 5.5 years in prison and fines of 26 trillion rupiah for manipulating 13 listed companies. French courts have ordered asset seizures exceeding 8 billion rupiah for market manipulation convictions.
These examples stand in stark contrast to Indonesia’s enforcement record. While the Indonesian National Police has recently secured convictions against former exchange officials and corporate directors for capital market crimes, resulting in prison sentences and multi-billion rupiah fines, observers note that such outcomes remain exceptions rather than systematic deterrents.
Reform on the Horizon: Restoring Market Integrity
The MSCI crisis has catalyzed unprecedented promises of structural reform. Luhut Pandjaitan, chairman of the National Economic Council, has pledged to accelerate changes to make the capital market more transparent. Among the proposed measures is the demutualisation of the Indonesia Stock Exchange, a structural reform that would eliminate the inherent conflict of interest created by the current ownership model. At present, the exchange is owned by the very stock brokerages it is supposed to regulate, creating hesitation to punish recalcitrant members.
Technical reforms include raising the minimum free-float threshold from 7.5 percent to 15 percent, making it significantly harder for small groups to corner stocks and dictate prices. The exchange plans to implement artificial intelligence surveillance systems modeled on South Korean precedents to monitor unusual transactions and detect manipulation patterns automatically. Legal counsel Erwin Kurnia Winenda has highlighted the importance of the free-float increase, noting that companies can achieve higher public ownership through rights issues or private placements to legitimate investors.
The Financial Services Authority has stated its intention to tighten supervision of financial influencers on social media, recognizing that modern manipulation schemes increasingly originate in digital spaces rather than traditional trading floors. The Indonesia National Agency for Consumer Protection has called for criminal prosecution of manipulators, describing pump-and-dump practices as white-collar crimes that erode public trust and undermine the market’s function as a provider of long-term financing.
Giovanni Mofsol Muhammad, a senior partner at Dentons HPRP law firm, stresses that existing legal frameworks already provide powerful tools for victim restitution. The OJK possesses disgorgement authority that could force manipulators to return illegal gains to compensation funds for victims. The challenge lies not in the absence of legal instruments but in the will to deploy them consistently.
As investigators from the Indonesian National Police work alongside regulators to identify specific actors who exploited recent market volatility, the fundamental question remains whether these reforms will translate into lasting cultural change or represent temporary responses to an acute crisis. For victims like Bambang, whose losses represent years of savings destroyed by rumors of ByteDance investments that never materialized, the answer will determine whether the capital market remains a vehicle for national development or a rigged casino where retail investors serve as prey for sophisticated manipulators.
Key Points
- The Jakarta Composite Index plunged 7.35 percent on January 28, 2026, following MSCI’s threat to downgrade Indonesia to Frontier Market status due to opacity and manipulation concerns
- OJK chairman Mahendra Siregar, deputy Mirza Adityaswara, and IDX chief Iman Rachman resigned following the market collapse
- Retail investors have lost billions of dollars to “goreng saham” or pump-and-dump schemes, with recent financial scams totaling 7 trillion rupiah in public losses
- Research shows large-cap stocks on the Indonesia Stock Exchange actually face higher manipulation probability (0.48) than small-cap stocks (0.25)
- Proposed reforms include exchange demutualisation, raising free-float requirements from 7.5 percent to 15 percent, and implementing AI surveillance systems
- The Indonesia Stock Exchange identified 41 manipulated stocks in 2020, yet enforcement actions remain rare despite existing disgorgement laws
