In response to a surge in pump-and-dump operations that have cost investors billions of dollars, the Nasdaq this month proposed comprehensive new regulations requiring Chinese businesses to collect at least $25 million in initial public offerings (IPO) funds in order to list on the exchange. In 2025, the FBI reports a 300% increase in complaints about stock fraud. Investors lost $3.7 billion in July 2025 alone when seven Chinese penny stocks that had been heavily advertised online plummeted by more than 80%.
The frauds have progressed from cold phoning potential victims to establishing confidence with them through social media advertisements and encrypted WhatsApp groups before coordinating significant price increases in obscure penny stocks. The scams are also quite successful: scammers use coordinated marketing to create fake FOMO, then disappear after selling their shares at the highest price, leaving investors with worthless shares. From novice traders to retired diplomats, victims have been drawn in by the promise of assured profits from what seemed to be trustworthy investment companies.
Pump and Dump Schemes: What Are They?
In the realm of securities fraud, pump-and-dump operations are among the most ancient. There is a recurring pattern to these scams: scammers first build up substantial holdings in cheap stocks, usually penny stocks or microcap securities with little information available to the public. In the view of investors, many of whom lack expertise, they then “pump” up the stock.
The fraudsters start the “dump” phase after these acquisitions boost the stock price, selling their shares at peak prices and leaving gullible investors with holdings that are worthless or almost worthless when the price eventually plummets.
Be cautious
Modern variations of pump-and-dump scams are referred to by the FBI as “ramp-and-dump” schemes because, instead of depending just on public marketing, the criminals have nearly total control over the process.
How Modern Investment Scams Are Constructed by Fraudsters
A Facebook ad for an investing club, a “accidental” SMS message, or a direct communication on social media might be the starting point for such scams. The victims are then sent to encrypted chat applications where scammers progressively establish connections and confidence by posing accomplished traders or financial gurus. Some schemes even use “pig butchering” techniques to emotionally influence individuals, such as pretending to be in love.
The scammers are ruthlessly efficient. Beginning in April 2025, people posing as U.S.-based financial experts reportedly gave investors misleading advice and told them to buy shares with the promise of large profits.
Why Retail Investors May Be at Risk from the Increase of Chinese and Hong Kong Micro-Caps on U.S. Exchanges
In 2024, there were 35 small Chinese companies listed in New York, which is almost twice as many as the 17 microcap listings from American enterprises. 286 Chinese businesses with a combined market value of $1.1 trillion were listed on major U.S. markets as of the end of the first quarter of this year.
The traits that these smaller businesses have in common seem to make them more vulnerable to fraud. Insiders may control 70% to 90% of their shares, and many have market capitalizations under $100 million, very limited public floats, and no public information. For instance, the CEO owned 86% of Regencell Bioscience’s (RGC) shares when the company’s stock jumped 82,000% earlier this year. Such concentration can make it almost hard for genuine investors to sell their shares when the company drops, while enabling scammers to manipulate prices with very tiny sums of cash.
The intricacy of Chinese businesses raises the risk even further. Many use complicated corporate structures, such as variable interest organizations, to conceal their real ownership and influence. Foreign omnibus accounts at U.S. broker-dealers have been seen to liquidate significant positions at peak prices, which analysts say makes it simpler to dump artificially inflated stocks while also helping to conceal the identities of manipulators.
China-based corporations have been engaged in about 70% of the Financial Industry Regulatory Authority’s regulatory referrals since August 2022, even though they make up less than 10% of Nasdaq’s listings.
Just 30.5 million of Regencell’s 500 million shares are accessible for public trading, meaning that even modest trading volumes can cause large price fluctuations. Since it is difficult for real investors to sell their shares as soon as the price drops, this concentration gives scammers the chance to coordinate their plan to manipulate the stock price.
The Way Wall Street Is Handling the Issue
New regulations have been imposed by Nasdaq that especially target Chinese enterprises. In order to list on the Nasdaq, a firm that mostly works in China must now receive at least $25 million from investors during its initial public offering. This is five times more than the $5 million that was previously typical. Fly-by-night enterprises with no genuine business should not be listed readily because of this higher barrier.
The exchange also targets already-trading penny stocks. Any stock that trades below 10 cents for ten days in a row would be immediately suspended and delisted under the new regulations submitted this month; there would be no grace period or second chances. Companies now have 180 days to correct their stock price if it drops below $1. For the lowest-priced equities, where manipulation is most prevalent, the new regulations would completely circumvent this.
The Plan To ‘Crucify the Bilge Bracket’
Nasdaq plans to treble the minimum value of openly traded shares for all new listings, from $5 million to $15 million, in addition to Chinese enterprises. This addresses a fundamental issue: fraudsters have the power to manipulate prices whenever they own 80% to 90% of a company’s shares. Greater public ownership of shares makes manipulation more difficult.
With a cross-border task force established earlier this month, the U.S. Securities and Exchange Commission (SEC) has entered the battle, but it is doing it differently. The task force is targeting the “gatekeepers”—the small auditing firms and underwriters that facilitate these companies’ access to U.S. markets—instead of the corporations themselves. They intend to “crucify the bilge bracket,” which refers to the lesser-known corporations that guide questionable Chinese companies through the listing process, according to a source familiar with the SEC’s thinking who spoke to the Financial Times.
Bottom Line
Due to the 300% increase in FBI complaints about pump-and-dump scams, investors should be on the lookout for unsolicited investing advice, particularly from acquaintances on social media who promise rapid rewards. Your defense is still the most important one, even though the SEC and exchanges are strengthening their rules to safeguard investors. If someone is urging you to take action right away and an investment opportunity seems too good to be true, it’s most likely a scam meant to defraud you of your money.
