In mid-July, the stock for the cancer drug developer MEI Pharma skyrocketed. It wasn’t because the small company, first listed on the Nasdaq in 2003, had discovered a blockbuster cancer cure. Rather, MEI Pharma’s soaring share price coincided with the company’s decision to buy up $100 million of the cryptocurrency Litecoin for its treasury.
The pop in price, which saw shares go from $3 to a high of $7, wasn’t surprising. In announcing the Litecoin purchase, MEI Pharma became just the latest firm to exploit a popular stock price hack: When a public company adds crypto to its balance sheet, traders have responded by buying up shares and boosting the firm’s value well beyond the cost of the purchase.
What was unexpected, however, was that MEI Pharma’s stock price almost doubled in the days before the announcement became public—despite there being no material updates filed with the Securities and Exchange Commission, no press releases, and barely any chatter on social media.
MEI Pharma is not the only firm that has recently experienced an unusual pop in its stock right before announcing a crypto-buying strategy. Fortune discovered a similar pattern at other small public companies, which suggests that insiders are front-running some of these announcements, according to finance professors, investors, and corporate CEOs.
“It does look suspicious to me,” said Xu Jiang, a professor at Duke University who has studied insider trading in public markets. “This usually happens for a lot of insider trading scenarios that I anecdotally know about.” He added that he couldn’t say whether insider trading definitively occurred without a thorough investigation.
A spokesperson for MEI Pharma declined to comment.
Spokespeople for four other companies whose stock showed unusual price movements just prior to crypto purchases—Kindly MD, Empery Digital, Fundamental Global, and 180 Life Sciences Corp—did not respond to a request for comment. Spokespeople for VivoPower and Sonnet BioTherapeutics, two other crypto treasury companies with similar price movements, declined to comment.
Crypto treasury boom
Treasury companies are one of crypto’s newest manias, and billionaire Michael Saylor is the trend’s pioneer.
In 2020, the founder and chairman of Strategy, formerly called MicroStrategy, announced that his data analytics software company would add Bitcoin to its balance sheet. Traders saw the company’s stock as a proxy for the world’s largest cryptocurrency, and bought up its shares as the price for the world’s largest cryptocurrency increased.
For Strategy, the tactic proved so successful that it went on to accumulate almost $70 billion worth of the cryptocurrency and reached a market capitalization of around $100 billion, despite reporting only a paltry $115 million in revenue in the second quarter of this year. (By comparison, Starbucks, which has a similar market capitalization, reported $7.8 billion in revenue in the same period.)
Others have sought to replicate Strategy’s success. Early copycats included a budget hotel company in Japan, which began adding Bitcoin in 2024 and a handful of other companies. This year, the trend has taken off in earnest. Since January, 184 public companies have announced crypto purchases collectively worth almost $132 billion, according to data from Architect Partners, a crypto M&A advisory and financing firm.
“We’ve kind of hit this point of saturation,” said Louis Camhi, founder of RLH Capital, an investment management and advisory firm that’s helped out on recent crypto treasury deals. Now, he said, investors are waiting to see if their crypto treasury bets will turn a profit.
‘Information leakage’
Some of these reaping the benefit of crypto-related price pops are not retail investors, however, but people with connections to the company or outsiders who gained access to private details, who appear to have turned a profit by front–running the news.
SharpLink, a marketing company for sportsbooks and casinos, saw its share price languish below $3 during April and early May. But on May 27, when it announced plans to add $425 million in Ethereum to its balance sheet, its shares rocketed to a high of nearly $36.
But, during the three trading days prior to the announcement, the stock for SharpLink more than doubled from $3 to $6, despite no SEC filings or press releases from the company. “There’s something leaking out there, because they approached so many investors, so it’s just really hard to control,” said the CEO for a separate crypto treasury company who was pitched on the deal. The executive declined to be named when talking about a competitor.
A spokesperson for SharpLink, which announced the completion of its first Ethereum purchase on June 13, told Fortune the company has “established policies and procedures in an effort to prevent” trading on insider information but declined to provide more details.
Then there is Mill City Ventures, a small, non-bank lender in Minnesota, which also showed signs of what financiers call “information leakage,” or when non-public information spreads beyond those within a company who are authorized to hear about a material event.
In the two trading days before Mill City Ventures announced it had raised $450 million to become a treasury company for the cryptocurrency Sui, it saw its stock more than triple to end the week at almost $6—without the company announcing any material changes to its business.
“There was definitely activity in the stock prior to the announcement,” said Stephen Mackintosh, an executive at Mill City and a general partner at the hedge fund Karatage, which led the fundraise. He later added: “We are highly confident that the price movements had no effect on the pricing of the deal.”
Mill City Ventures has since rebranded to SUI Group Holdings.
Insider trading
Public markets have clear rules when it comes to announcing news of “material non-public information” that are likely to affect a firm’s stock price.
Insiders who receive news of a material event must typically agree to be “wall-crossed,” a term that refers to “crossing the wall” from being an outsider without stock-moving information to an insider with sensitive information. Usually companies have a database of individuals that have been wall-crossed in case regulators reach out to investigate insider trading.
In the case of crypto treasury companies, the deals may be months in the making, but just days before the announcement, brokers commence what’s called a roadshow, or widespread outreach to investors to encourage them to put money into a deal.
For example, during a three-day period right before SharpLink announced its crypto treasury pivot, company executives pitched investors on ponying up capital, according to Mackintosh. Notably, it was during those three days when the price of the company’s stock popped. And, during the two-day period when dealmakers pitched investors on the $450 million fundraise for Mill City Ventures, the stock for the small non-bank lender also popped.
Insider trading laws in the U.S. don’t only preclude executives at a company from trading on news that may affect a stock’s price. The laws also apply to others who receive information from these executives, said Elisha Kobre, a partner at the law firm Sheppard Mullin and former federal prosecutor in the Southern District of New York. This includes investors briefed during roadshows.
In the case of the crypto treasury firms, it’s unclear who’s profiting off of the front-running. While some executives at these companies have filed notices of stock grants or purchases just before the crypto pivots, the vast majority haven’t sold their holdings, according to SEC filings. What’s more likely is that insiders beyond just company directors or executives are getting tipped off.
Still, the suspicious price movement is in line with what researchers have long catalogued in public markets. One study in 2014 found that companies’ stocks rose on average 7% in the 41 days before a merger announcement. And, while some of that price movement likely stems from traders who are correctly reading the tea leaves, researchers have found it’s also likely that the price moves stem from those trading on inside information.
“There is academic evidence that is widely cited that shows that most illegal insider trading happens before M&As,” Peter Cziraki, a finance professor at Texas A&M University who studies insider trading, told Fortune. He pointed to a 1992 study that found that 80% of illegal insider trading cases litigated by the SEC are associated with takeover attempts.
“Like every time you do a major M&A deal, this shit happens,” said a finance executive involved in a crypto treasury company, who declined to be named while talking about private business dealings. “And you always hear about how the SEC is asking people who knew what and when.”
Fighting front-running
In recent weeks, companies embracing crypto treasury strategies have taken additional measures to prevent “information leakage.”
“It’s a bad look for everyone here,” said Camhi, the founder of RLH Capital, in reference to those who appear to be front-running crypto treasury announcements. “So it’s really to everyone’s advantage to squash this issue.”
Mackintosh, the hedge fund investor at Karatage, and his team were aware of alleged leakage with SharpLink, which is why they decided to contact investors over just two trading days, not three, he said. “We were mindful that markets are very exuberant at the moment, and we tried to run it in the best and the safest way possible,” he added.
Others have gone even further. These include CEA Industries, a small public company focused on the Canadian vaping market.
In late July, CEA Industries announced that it had raised $500 million to become a treasury company for BNB, the cryptocurrency closely associated with the crypto exchange Binance. Instead of divulging the ticker of CEA Industries as they conducted the roadshow, dealmakers gave it to investors on Friday evening after markets closed on July 25, said David Namdar, CEO of CEA Industries, which has since changed its name to BNB Network Company. The company wanted “to minimize the risk of leaks or volatility” before it announced its crypto pivot on Monday, he said.
And just one week later, Verb Technology, a small public firm that develops a livestreaming platform called MARKET.live, adopted a similar strategy. In early August, the company announced that it had raised $558 million to hold TON, a cryptocurrency closely associated with the messaging app Telegram. Dealmakers also didn’t divulge Verb’s ticker until after markets closed on Friday evening, said an investor in the company, who declined to be named while talking about private business dealings.
A spokesperson for the company declined to comment.
Like with CEA Industries, the announcement for Verb came out just before markets opened on Monday, giving would-be frontrunners only the ability to buy up the stock in pre-market trading.
Still, in the four hours before the announcement went live, the stock jumped almost 60%.
