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US Regulator Warns Against Chinese ‘Pump-And-Dump’ IPOs

Criminals also try to entice people to invest in these IPOs through texting, social media and sometimes even seemingly misdirected messages


A person displays stock data on his phone in a restaurant in Taipei, Taiwan
Most of these small IPOs raise less than $25 million for companies worth less than $100 million, regulators said. Photo: Reuters.

 

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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Vishakha Saxena

Vishakha Saxena is the Multimedia and Social Media Editor at Asia Financial. She has worked as a digital journalist since 2013, and is an experienced writer and multimedia producer. As a trader and investor, she is keenly interested in new economy, emerging markets and the intersections of finance and society. You can write to her at [email protected]

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