The $480 Million Scam Playbook: Chinese Microcap IPOs Are Bleeding U.S. Investors
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The playbook? Simple. A company raises funds from private investorsChina Liberal raised $21 million from 30 insidersthen shares move quietly to U.S. brokerages. Promoters hype the stock online, targeting individuals with promises of a "sure thing." After the shares are dumped, prices crash. In China Liberal's case, seven traders from Malaysia and Taiwan were charged after allegedly unloading over 50 million shares for $480 million in profit. The DOJ seized $214 million, and trading in the stock was halted by Nasdaq on June 3. Meanwhile, NetClass rode the same waveits shares soared from $5 to $51 before collapsing to just above $2.
Regulators are under pressure. Finra had already warned back in 2022 that many of these ultra-small IPOsoften raising less than $15 millionshowed signs of manipulative trading. Nasdaq has since sped up delistings for companies trading under $1. But even with stricter rules, these schemes continue. The Justice Department has now prioritized tackling this fraud, while Meta says it's testing tools to block deceptive stock ads. Still, the damage is done. As trader Nathan Michaud put it, these setups are dangerous even for short sellersbecause once the squeeze starts, even the bears can get buried.
This article first appeared on GuruFocus.
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