(BFM Stock Exchange) – This practice consists in spreading false positive information on an action to make it inflate artificially before taking its earnings. In June and July, movements on small Chinese actions listed with Wall Street suggest that this scam was used on multiple times to dive small carriers.

The “Pump and Dump” (“pump and eject”). This stock market scam may not tell you anything. However, it turns out to be old and has been regularly highlighted, especially in films.

This technique consists in taking a position on an action and spreading false excessive information on a title, so as to create a craze (and therefore massive purchases) on the action in question. Once the small carriers rushed on the value, the scammer balances its position at an artificially inflated price.

“Once the fraudsters get rid of their actions and stop promoting the action, the course of the action generally falls and investors lose their money,” explains the Investors.gov site, which depends on the Securities and Exchange Commission (SEC), the American stock market.

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The favorite technique of “Wall of Wall Street”

Obviously, this technique cannot work with large capitalizations, such as Nvidia, or even average capitalizations. First, because the exchanges are too substantial for the course of action to be greatly influenced by purchases of individuals. Second, because the false good news would be too easily denied by analysts who follow the value or by society itself.

This means that fraudsters throw their devolues on very low capitalizations (or even “Penny Stocks”, actions whose course is less than a dollar) with limited volumes, which makes it possible to quickly raise the courses.

“The ‘microcaps’ are particularly vulnerable to the ploats of ‘Pump and Dump’, because the information accessible to the public on these companies is often limited,” explains Investor.gov.

Jordan Belfort, a “Rogue Trader” (“A rogue investor”), made famous by the film by Martin Scorsese “The Wall of Wall Street”, released in 2013, made a fortune in the late 80s and in the early 90s with this scam. In total, the damage could have exceeded $ 200 million. The broker was caught up by the American authorities and spent 22 months in prison (he collaborated to reduce his sentence).

Another film released in 2000, with a 33 -year -old Diesel wine, “Boiler Room” (“Les Initiates” in French) deals with this scam. A young man without a diploma joins a brokerage company, before realizing that the success of the company in question is based on not very pink methods.

“A fraud epidemic”

Very suspicious market movements occurring in recent months on small Chinese capitalizations listed on the NASDAQ suggest that important “Pump and Dump” have recently taken place.

The Wall Street Journal, in June, told the story of American small carriers who had been encouraged by messages in WhatsApp loops or advertisements on social networks to invest in the titles of these Chinese companies.

The American media recalled in passing that nearly 60 Chinese groups have been introduced since 2020 on the Nasdaq by raising low sums each time, $ 15 million or less. FINRA (“Financial Industry Regulatory Authority”), an independent regulatory body, had also issued a warning on this type of operations in 2022, warning that they could augur with fraud.

The Wall Street Journal evoked more specifically in its article the case of five people – including a university professor who had lost $ 80,000 – who had acquired titles from Jayud Global Logistics.

The course of this Chinese logistics group is currently barely 18 cents (and market capitalization at 25 million dollars).

The title had swelled up to $ 8 on April 1 before collapsing in one go the next day (-95.7%).

“Traders and investigators claim that we are on an epidemic of fraud, frustrating American regulators who generally cannot have access to evidence in China,” said business daily.

A seller in the open alert

At the end of July, Bloomberg had devoted an article to Pheton Holdings, a Chinese health group listed on the NASDAQ, the course of which is currently 60 cents (and its capitalization less than $ 8.6 million).

The title had lost 90% in a few minutes after the publication of a Bear Cave report, a company specializing in uncovered sale, a technique which consists in selling a title without having it (by “borrowing” action) and sometimes publishing murderous notes to demonstrate the weakness of the company in question.

Bear Cave had then estimated that Pheton Holdings was at the heart of a system of “Pump and Dump”. The seller in the open pointed in particular to false rumors of redemption from Gilead Sciences, an important American pharmaceutical laboratory, to manipulate the course.

Bear Cave saw it as the rehearsal of a scheme already seen with, in particular, China Liberal Education Holdings, a company that claimed to provide international study programs for Chinese students. This company is currently the subject of fraud on the part of the American authorities and the NASDAQ suspended the rating of its action in early June.

Pheton Holdings, for his part, published a statement in early August, denying any market manipulation. “At no time did the company participated, initiated or sanctioned a rumor, a communication or an activity concerning an acquisition by Gilead or any other part,” said the company based in Beijing.

Other suspicious movements on actions of Chinese groups have occurred. Bloomberg discusses a 91% drop in the Ruanyun EDAI Technologies action on July 14 or a drop of 93% on July 8 on the skin care company by HA Biological Technology.

Very suspicious movements

In a survey published this week, the Financial Times quoted a group of seven Chinese “microcaps” listed on the Nasdaq, with, in addition to Pheton Holdings and by Ha Biological, Concorde International, Ostin Technology, Top Kingwin, Skyline Builders and Everbright Digital. These seven shares have, in the course, of the month of July, known each decreases of more than 80% in a few sessions, erasing a total of more than $ 3.7 billion in market capitalization.

“According to analysts and investors, these operations presented many characteristics of scams by ‘Pump and Dump’,” wrote the British daily. “Nothing suggests that one of the companies mentioned is involved in these unusual fluctuations in the course of their shares” added the Financial Times, adding that none of the seven companies had responded to its requests for comments.

The daily also noted that the FBI had identified in July an increase of 300% of complaints linked to this type of fraud. Ryan Sweetnam, a lawyer based in the United Kingdom at Cel Solicitors, told British media that he had “more than a hundred customers involved in ‘Pump and Dump’ operations on Chinese Penny stocks that have mandated me in the past two months”.

The Financial Times also reported cases of private investors who had lost tens or even hundreds of thousands of dollars after having followed injunctions on WhatsApp or on social networks to invest in some of the aforementioned securities. Often scammers manage so that the WhatsApp group looks like that of a real brokerage company.

Questioned by the “FT” A Meta spokesperson, Whatsapp’s parent company, said: “We do not want this type of content on our platforms, which is why we continue to invest in technology to fight aggressively against scams, provide users with warnings and tools on the platform to protect themselves, and collaborate with banks, governments and the police to stop these criminals”.

The British daily newspaper also noted, in the case of the fall of the company Ostin Technology (-94% on June 26), that a dozen Reddit users were probably coordinated to post the same promotional content on the action in the space of two hours. Geolocation data suggest that three of these users were based in Russia and Iran, according to Matthews Michel, founder of the investment platform for individual Investorink, quoted by the “FT”. According to the latter, this trend was observed several times in cases of “Pump and Dump”.