Investors burned for billions in July on Chinese micro caps pumped up online

Investors lost billions of dollars in July on little-known Nasdaq-listed Chinese companies. Their shares soared following aggressive promotion on social media featuring celebrity mentions, before diving just as quickly, plunging 80% or more in a single day. Analysts say the pattern reflects a pump-and-dump scheme. The FBI has recently warned about this.

Shares of seven Chinese micro-cap stocks traded on the Nasdaq crashed 80% or more over a few trading sessions in recent weeks. As a result, their cumulative market value has decreased $3.7 billion, the FT writes, citing price data analyzed by predictive analytics firm InvestorLink.

All seven stocks had surged before their sudden selloffs, having been plugged to investors on WhatsApp groups and social media sites. None of the seven responded to FT requests for comment. But there is no suggestion, the FT notes, that any of the companies named were involved in the unusual share price moves.

Chinese IT security provider Concorde International is among the seven stocks where investors suffered heavy losses. The firm listed on the Nasdaq in April, and within two and a half months its stock surged 6.7-fold before plunging 80% in a single session on July 10.

Another case is display module maker Ostin Technology, whose shares nearly quadrupled from the start of the year to July 25, only to crash 94% in one day.

Other stocks include business consulting firm Top KingWin, building contractor Skyline Builders, digital marketing solutions provider Everbright Digital, skincare brand Park Ha Biological Technology, and Pheton Holdings, which sells radiation therapy devices. Their shares each tumbled between 80% and 95% on different days in July.

Victims of the alleged pump and dump scams include first-time traders and a former diplomat, according to correspondence seen by the FT.   

Tia Castagno, who runs her own executive coaching business from London, was added to a WhatsApp group after she clicked on an ad on Facebook. She eventually lost all of her savings after being encouraged to invest in Ostin Technology.  

“There’s a feeling of emptiness in my stomach, and shame. I keep questioning my judgment and remembering how I felt when the rug was pulled from under my feet,” she told the FT.   

One European retail investor, who said they lost a “six-figure” amount on Pheton and asked the FT not to be named, was added to a WhatsApp investment group after clicking on a Facebook ad boasting an endorsement from a well-known U.S. television pundit.  

“They asked if I was AI-bot early on... a good ruse. It looked like a kosher operation,” the person added. “I almost fell off my chair [when the stock was dumped], it was a chastening experience.”  

A Meta spokesperson said: “we don’t want this type of content on our platforms, which is why we’re continuing to invest in technology to aggressively enforce against scams [and] provide people with on-platform warnings and tools to protect themselves.”  

Analysts and investors say the moves bore "many of the hallmarks" of pump-and-dump scams, the FT writes. Recall those are where people with a vested interest artificially inflate a company’s share price before abruptly selling their own holdings.  

The FBI said last month it had seen a 300% year-over-year increase in victim complaints “referencing ramp and dump stock fraud." It added that investors were being targeted on social media by people impersonating “legitimate brokerage firms or well-known stock analysts."

Many scams are linked to the record number of Chinese companies that went public on US stock exchanges in 2024, a trend that has continued this year with China and Hong Kong-based companies dominating the otherwise sleepy U.S. microcap IPO market, the FT writes.

Analysts say U.S. regulators have been repeatedly warned that certain stocks are being used as vehicles for fraud, according to the FT. In late July, the Bear Cave, a newsletter that "exposes corporate misconduct," alleged a pump-and-dump in Pheton stock and called on regulators to halt trading in the stock before U.S. investors lost millions.  

The Bear Cave suspected that "overseas scammers have promoted Pheton stock on rumors that Gilead Sciences will soon acquire or partner with Pheton." This had led to the stock soaring before it plunged when the deal never materialized. 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 none emerged.

Nasdaq and the SEC declined to comment to the FT.

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