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Key Takeaways:
A U.S. congressional committee has sent letters to three small investment banks looking into their potential role in underwriting suspicious IPOs by small Chinese companies
The move adds to an increasingly hostile environment on Wall Street towards Chinese companies, whose new IPOs there are rapidly dropping
To quote an old Chinese proverb, the U.S. was "Killing the chicken to scare the monkey" this week, in its recent Long March to rid Wall Street of "pump and dump" IPOs by Chinese firms. Suitably enough, the latest monkey-scaring came from the House Select Committee on the Strategic Competition Between the United States and the Chinese Communist Party.
In this case, the chickens being used to scare the monkeys were three small IPO underwriters, D. Boral Capital, Dominari Securities and Revere Securities. The committee on Monday said it sent letters to each of the three demanding information about IPOs they underwrote for Chinese firms that allegedly defrauded U.S. investors through "pump and dump" schemes.
We've written about such questionable offerings for quite a while, which have all the markings of stock manipulation. They typically see Chinese companies raise modest amounts, usually $20 million or less, by selling shares at extremely inflated valuations. The stocks briefly pop after their trading debuts, before plummeting, leaving unsophisticated mom-and-pop investors with huge losses.
A recent case is Pomdoctor Ltd. (NASDAQ:POM), which sold IPO shares last October for $4 each. The stock initially rose above $5, until one day in December, when it suddenly tanked to $0.50 from its $5.42 close the previous day. Another example is agricultural goods trader Yimutian (NASDAQ:YMT), whose shares popped from their $4.10 IPO price last August to $5.88 on their first trading day, only to move steadily downward to their latest close of $0.448, off nearly 90% from their IPO price.
"These scam centers defraud American households through coordinated ‘ramp-and-dump' stock manipulation schemes involving Chinese shell companies listed on American exchanges, which your firm appears to facilitate," the committee wrote in its letter ...
