Regulators have warned US investors to remain cautious about a wave of small initial public offerings (IPOs) that have been accused of being pump-and-dump schemes.
Many of the IPOs were from China, they said, and some stocks had risen as much as 2,000% in recent debuts after raising small amounts, only to nosedive in the days that followed.
Most of these IPOs raise less than $25 million for companies worth less than $100 million, regulators at the US Financial Industry Regulatory Authority (FINRA) warned on Thursday.
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The regulator said IPOs involving Chinese companies limit supply and artificially drive up share prices by allocating up to 90% of their offering to foreign broker dealers, primarily based in Hong Kong.
Criminals also try to entice people to invest in these IPOs through texting or social media. Sometimes they send a seemingly misdirected message, leading to a relationship that convinces victims to place orders around IPOs at a specific time and price, FINRA said.
Nasdaq and the New York Stock Exchange said separately on Thursday they would look more closely at small-cap IPOs.
“You’re dealing with market manipulations, small companies, small float, so they got to figure out what happened,” said Drew Bernstein, co-chairman of Marcum Bernstein & Pinchuk, a China-focused accounting firm.
Nasdaq had in October put the brakes on IPO preparations of several small Chinese companies, as it investigated short-lived stock rallies of such firms following their debuts.
- Reuters, with additional editing by Vishakha Saxena
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