{"text":[[{"start":8.99,"text":"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."}],[{"start":32.03,"text":"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."}],[{"start":54.760000000000005,"text":"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."}],[{"start":83.55000000000001,"text":"A recent case is Pomdoctor Ltd. (POM.US), which sold IPO shares last October for $4 each. The stock initially rose above $5, until one day in December, when it suddenly tanked to $0.50 from its $5.42 close the previous day. Another example is agricultural goods trader Yimutian (YMT.US), whose shares popped from their $4.10 IPO price last August to $5.88 on their first trading day, only to move steadily downward to their latest close of $0.448 – off nearly 90% from their IPO price."}],[{"start":126.65,"text":"“These scam centers defraud American households through coordinated ‘ramp-and-dump’ stock manipulation schemes involving Chinese shell companies listed on American exchanges, which your firm appears to facilitate,” the committee wrote in its letter to each of the three small underwriters. The committee accused such listings of being the work of “organized crime networks” in China and other nations where Chinese fraudsters typically operate."}],[{"start":154.89000000000001,"text":"It cited a Bloomberg report saying Chinese companies using such schemes have robbed $16 billion worth of American wealth since 2023, adding that about a quarter of smaller Chinese listings exhibit signs of such fraud."}],[{"start":172.29000000000002,"text":"Of the more than 30 IPOs Boral underwrote for Chinese firms since 2020, 10 quickly crashed in “manipulated patterns,” the committee said in its letter to the bank, citing Bloomberg. Eleven of 29 Chinese IPOs underwritten by Dominari since 2020 followed a similar pattern, while the same was true of 12 of 40 Chinese listings underwritten by Revere Securities."}],[{"start":200.24,"text":"Of that trio, Revere is listed as the underwriter for four of the 50 Chinese companies currently awaiting approval from the China Securities Regulatory Commission (CSRC) for Nasdaq listings, according to the CSRC’s latest list. D Boral’s name is connected with six pending listing applications, while Dominari’s name doesn’t appear on the CSRC’s list. Other underwriters whose names appear on multiple listing applications on the CSRC list include Prime Number Capital, Kingswood Capital and U.S. Tiger Securities."}],[{"start":234.98000000000002,"text":"On notice"}],[{"start":237.17000000000002,"text":"Truth be told, China is also quite aware of this phenomenon and is trying to stamp out the problem. As part of that effort, the CSRC set up a regime several years ago requiring its approval for all companies seeking to list abroad. While Yimutian and Pomdoctor both got the necessary approvals, there’s evidence that the regulator is paying closer attention when it vets such listing applications, and is stopping ones that look suspicious."}],[{"start":267.55,"text":"The congressional committee’s latest move is aimed squarely at the small investment banks that underwrite these smaller listings – a critical step in the IPO process. While we can’t say for sure, we suspect that many of these smaller investment banks aren’t directly aware of any fraud, but probably know that something fishy might be going on and are simply looking the other way, pretending not to see."}],[{"start":293.28000000000003,"text":"Accordingly, the latest step by this congressional committee, which was set up in 2023, appears to be sending a message not only to the three investment banks, but also to others who underwrite similar listings. In effect, it’s putting them on notice that they need to do a better job of vetting the IPOs they underwrite, and walk away from anything suspicious looking – or be prepared to face the consequences."}],[{"start":320.03000000000003,"text":"The congressional committee isn’t the only U.S. body trying to tackle the problem. Last September, the Nasdaq also issued proposed new rules designed to screen out such listings, and quickly delist any suspicious companies that completed IPOs. Specifically, it said all new Chinese listings would have to raise at least $25 million from their IPOs, and would face an expedited delisting process if they failed to maintain public floats of at least $5 million."}],[{"start":354.77000000000004,"text":"This cleanup is part of a broader U.S. campaign against all Chinese listings on Wall Street, which has caused most major companies to list in Hong Kong, Shanghai and Shenzhen instead. U.S. politicians are most concerned about preventing American funds from being used by Chinese companies for defense-related work. But the result has been a near-halt to major new IPOs by Chinese companies in New York, which used to be one of their favorite listing locations."}],[{"start":385.1,"text":"New listings by Chinese companies in the U.S. raised just $1.12 billion last year, down sharply from $1.91 billion in 2024, according to Deloitte. And fundraising by the average Chinese IPO in the U.S. last year dropped to just $18 million from $32 million a year earlier, showing major companies were avoiding the market. One of the last major listings by a Chinese company in the U.S. came in April last year, when milk tea chain Chagee (CHA.US) raised around $400 million."}],[{"start":423.79,"text":"Consumer companies like Chagee clearly don’t pose any threat of doing defense-related work, though the same can’t be said for the country’s many internet companies that previously flocked to New York and are current leaders in areas like AI and cloud computing."}],[{"start":441.63,"text":"Still, the constant “chicken killing to scare the monkey” doesn’t look set to end anytime soon, meaning Chinese companies on Wall Street are likely to become an increasingly rare breed in U.S. capital markets. One interesting angle to watch will be whether some of the largest currently traded names, such as Alibaba (BABA.US; 9988.HK), Baidu (BIDU.US; 9888.HK) or JD.com (JD.US; 9618.HK), simply decide the risk isn’t worth it and abandon their longtime Wall Street listings to become purely Hong Kong-traded companies."}],[{"start":497,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1773655458_1259.mp3"}