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.