Chinese micro-cap company Pheton loses 95% in a day on allegations of pump-and-dump

Chinese micro-cap company Pheton Holdings, whose shares trade on the Nasdaq, crashed and lost nearly 95% of its value yesterday, July 29. Investors were reacting to a report by the Bear Cave, a newsletter that "exposes corporate misconduct," which alleged that Pheton is "being manipulated by overseas stock manipulation groups and is at risk of a near-term, severe stock collapse" and called on regulators to halt trading in the stock before U.S. investors lost millions.

Shares of Pheton, which develops and sells brachytherapy treatment software and devices, plunged nearly 95% yesterday. Due to volatility, trading in the stock was halted upwards of eight times, writes Bloomberg. 

Today, Pheton has continued to sink, losing over 60% of its remaining value as of this writing.

Yesterday, the Bear Cave, which tracks new activist short campaigns, published a report on Phenton. It said "Overseas scammers have promoted Pheton stock on rumors that Gilead Sciences will soon acquire or partner with Pheton." This had led to Pheton's stock rising more than 600% year to date, as of the close on Monday, July 28. 

This matches a "familiar pattern in which overseas stock scammers promote tightly held U.S.-listed Chinese companies on the basis of spurious M&A rumors, only for them to later experience sudden intraday stock collapses, often falling 90% or more," the Bear Cave wrote. This was the case with the Chinese manufacturer of display modules Ostin Technology, whose shares rose sharply on rumors of its acquisition by U.S. peer Universal Display, before collapsing when no deal materialized, the Bear Cave points out.

The Bear Cave believed the same thing was playing out with Pheton and called on regulators to halt trading in the name. 

A spokesperson for Gilead declined to comment to Bloomberg, saying that “It’s our practice not to comment on market rumors or speculation.”

The Bear Cave, according to its website, provides analysis, commentary, and curated links on the short world, weekly summarizing new activist short campaigns, identifying notable resignations, and highlighting interesting tweets. It also produces for paid subscribers investigative pieces on companies whose stock is traded in the U.S. Its founder Edwin Dorsey said in an interview with Opto Sessions that he focuses on companies he believes are highly overvalued by the market. "If the CFO is resigning, and a board member or chief accounting officer resigned even a year ago, effective immediately, it kind of promotes this thread that, hey, maybe there’s a problem going on that the market might be missing," he explained.

In 2021, for example, the Bear Cave looked into the soaring stock of The Joint, a franchised chiropractic clinic. After investigating reviews from its clients, Dorsey discovered that the company was auto-enrolling them into monthly unlimited contracts and often forged their signatures. When the investigation was published, the stock plunged almost 84%. 

The AI translation of this story was reviewed by a human editor.