Small-Cap IPOs That Are Pump-And-Dumps Are On The Rise, Thanks To Chinese Firms

The Financial Industry Regulatory Authority Inc. (FINRA) cautions that initial public offerings (IPOs) by international small-cap issuers are increasingly being exploited in manipulative trading schemes like pump-and-dump strategies.

“FINRA has observed significant unusual price increases on the day of or shortly after the IPOs of certain small-cap issuers, most of which involve issuers with operations in other countries,” the self-regulatory organization said in a statement.

These are often minor IPOs (less than $25 million) with a small number of shares issued (less than 20 million). Many of the issuers are Chinese, with Hong Kong-based broker-dealers receiving the majority of the IPO proceeds, restricting the number of publicly available shares.

“Some of the investors harmed by ramp-and-dump schemes appear to be victims of social media scams,” the organization added.

FINRA advises investors to exercise caution and urges that “underwriters, as gatekeepers, must continue to be vigilant in this regard, particularly when dealing with offshore participants in the underwriting and foreign broker-dealers receiving allocations of shares.”

Earlier in October, the Nasdaq stock exchange halted the preparations for at least four small Chinese companies’ IPOs while it probes short-lived stock rallies of such firms following their debuts.

According to attorneys and bankers that work on such stock launches, the big board decided to stay the pending IPOs amid a boom in the shares of Chinese companies that raise tiny amounts, often $50 million or less, in their IPO. These companies will then see stocks rise up to 2,000% in their IPOs, only to plummet in the days that follow, punishing investors who are brave enough to wager on penny stocks.

Small Chinese firms have been drawn to Nasdaq’s exchange rather than the New York Stock Exchange because the former has traditionally been the site for red-hot technology startups – an image these firms frequently aim to create.

So far this year, nine such listings have occurred, despite the fact that the US IPO market is experiencing its worst drought in almost two decades due to market instability caused by the Federal Reserve boosting interest rates to combat inflation.

Source: Factset

Information for this briefing was found via Reuters. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

Video Articles

Is Gold’s Bull Market About to Hit Junior Stocks? | Ken Armstrong – Westhaven Gold

Surge Battery Metals: The Nevada North Lithium PEA

Silver @ $36 & We’re Still 200M Oz Short | Paul Andre Huet – Americas Gold and Silver

Recommended

Goliath Resources Closes Out Funding Round With Total Gross Proceeds Of $27.1 Million

Silver47 Kickstarts 4,000 Metre Drill Campaign At Red Mountain Project

Related News

Extending A Coal Branch: China Is Reportedly Considering Lifting Ban On Australian Coal

Chinese authorities are reportedly considering lifting its unofficial two-year ban on Australian coal imports. Rumors...

Sunday, July 17, 2022, 01:13:00 PM

Fintech Firm-Backed SPAC FTAC Emerald Acquisition Prices US$220 Million IPO

Special purpose acquisition company FTAC Emerald Acquisition Corp. (Nasdaq: EMLDU) started trading publicly on the...

Thursday, December 16, 2021, 02:22:00 PM

Biotech Firm CinCor Pharma Kicks Off Nasdaq IPO Roadshow

Clinical-stage biopharmaceutical company CinCor Pharma, Inc. is setting its sights on trading at the Nasdaq...

Tuesday, January 4, 2022, 02:36:00 PM

Evergrande Narrowly Averts Default Again, Makes Last Minute Interest Payment

The fate of China’s most indebted property developer Evergrande was hanging on its last thread...

Thursday, November 11, 2021, 10:26:00 AM

Probe Calls On Chinese Interference In Canadian Elections Intensify After Trudeau Refuses Inquiry

Voices calling for a federal inquiry on the Chinese interference in Canadian elections have been...

Monday, February 27, 2023, 03:44:00 PM