Stock Scam Revealed
Seems eerily similar to a stock I wrote about Friday.
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On Friday I wrote a piece headlined “Stock Promotion on Steroids.” I should have called it, “The NEW China Hustle,” but I’ve already used that for something else. So maybe... the new NEW China hustle? Too many to keep up with...
What surprises me most is that the stock I wrote about – Ostin Technology OST 0.00%↑ – wasn’t hammered today. That’s because it sounds eerily like a scam exposed this morning by The Wall Street Journal in a story headlined, “Obscure Chinese Stock Scams Dupe American Investors by the Thousands.”
The bizarre part is that the stock ended the day... up! On crazy-high volume, no less...
The Journal explained how the Justice Department is getting involved in investigating the scam, which it says “feeds on tiny Chinese stocks that are vulnerable to manipulation and easily bought by U.S. investors.” The story went on to say...
Victims are typically recruited through social-media ads or messages on WhatsApp advertising investment advice. Unlike as in many other online scams, they are told to buy shares in real companies, often obscure Chinese firms that fizzled after going public on U.S. stock exchanges.
The investors are duped into believing the company is on the verge of something big, perceptions that are reinforced by short-term gains in share prices engineered through manipulative trading. The sellers are often a ring of traders who bought the stock at much cheaper prices, sometimes directly from the companies, and want to dump it on the unsuspecting victims.
Nearly 60 China-based companies have conducted initial public offerings on Nasdaq since 2020 that each raised $15 million or less. More than one-third have experienced sudden one-day price drops of 50% or more over the past two years, according to FactSet data. Another 17 listed companies based in Hong Kong have lost half of their market value in a single day.
Here’s the kicker: Among federal cases the Journal cited as a focus of the investigation is one involving trading in (drumroll!)... China Liberal Education, which I mentioned at the tail-end of my piece as a preview of what might happen with Ostin.
As I mentioned in my report, China Liberal Education used to trade on the NasdaqCM, but then ran out of chits for more reverse mergers and was delisted. It now trades on the Pink Sheets.
Turns out it was a classic pump-and-dump, with warrants out for the arrest of seven individuals from Taiwan and Malaysia after Feds in Chicago seized $214 million in proceeds, which are now being returned to the victims.
Which gets us back to Ostin... Stay tuned!
DISCLAIMER: This is solely my opinion based on my observations and interpretations of events, based on published facts and filings, and should not be construed as personal investment advice. (Because it isn’t!) I do not have a position in any stock mentioned here.
Feel free to contact me at herb@herbgreenberg.com