The new pump and dumps

Katie Martin (0:06)

Pushkin. It is a wonderful, wonderful time to be a scammer. It is just so incredibly easy to call someone up, pretend to be from their bank, and extract crucial personal details so you can make innocent people's money just vanish. It's also, it seems, alarmingly easy to lure people into investment scams, even on regulated public stock markets. Well, it turns out, investors have lost billions of dollars in recent months by betting on a clutch of US listed Chinese stocks that later turned out to be worthless. The FBI says it's seen a 300% rise in reports of pump and dump schemes. And when you're a victim, it can be devastating. Today in the show, we're getting into the anatomy of a pump and dump and asking, how does it feel to be on the receiving end? This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I'm Katie Martin, a markets columnist locked deep down in the bowels of FT Towers in London, and I'm joined, energised, back from his cabin in the woods by that Robert Armstrong guy off of the Unhedged newsletter, but also from our New York office by the young and charming George Steer, who's been writing about all of this for us this week. George, don't laugh, you are young and charming. You're definitely young compared to me and Rob.

Rob Armstrong (1:33)

George, what's your title?

George Steer (1:35)

US capital markets correspondent.

Rob Armstrong (1:36)

I think we need to get you a more colourful title, like the US scumbag correspondent.

George Steer (1:41)

I would love that.

Rob Armstrong (1:42)

Or the slime correspondent. Because it's Sleaze. This has become something of a specialty for you. You are kind of a dark underside of Wall Street reporter, in a way, aren't you?

George Steer (1:54)

Yeah, there's so much dodgy-ness. The stories kind of keep falling onto my lap, honestly.

Katie Martin (1:58)

George, this is kind of quite a twisted hobby for you, covering this stuff.

George Steer (2:05)

I'm obsessed.

Katie Martin (2:05)

Tell us, what's going on here? Like, what is the story?

George Steer (2:09)

So, in July, I found seven stocks, all on NASDAQ, all with their operations in China, that were worth very, very little early in the month, and then were pumped up to a mad scale, like hundreds of percent, thousands of percent, in some cases. We found one company called Regencel, which made a loss of five or six million dollars last year. They make herbal remedies in China. At one point, this summer, it was worth $40 billion. Like, whew! And then, lo and behold, shock horror. The shares crashed over the space of a few days, and that's the pattern that we've identified. Companies get pumped up, pumped, pumped, pumped, hit a peak, and then insiders sell all of their entire stake on a single day. The share price crashes, return investors lose all of their savings.

Katie Martin (2:59)

Yeah, if you were late onto the train, then you lose all of that money.

Rob Armstrong (3:02)

Yeah. This is unbelievable, George. Tell me about some of the other companies.

George Steer (3:07)

I mean, none of them make any money. A lot of them, yeah, they will tend to be loss-making. They'll be in really varied industries, like industrials, like a lot of them are biotechs. A lot of them will sell, I don't know, kind of niche medical equipment. Every year, there's really no pattern to the kinds of companies that tend to be pumped and dumped, apart from the fact that a lot of them are in China. Not exclusively, there are pump and dumps involving US companies too, but Chinese companies dominate the small cap, micro cap IPO market in America, which is interesting, given everything that's going on between Washington and Beijing, that even now, Chinese companies are listing, like, every day on NASDAQ, almost exclusively, yes.

Rob Armstrong (3:47)

It's sort of the evil twin of the stock market enthusiasm. We've talked about so much on this show, Katie. Whenever there's all this hype and excitement and like real prosperity, there's also this like dark side going on at the same time.

Katie Martin (4:05)

There's just a lot of bad people out there. So George, tell me in broad terms, there are different ways to fleece people out of their hard-earned cash in regulated stock markets. But what is the kind of new way of doing it? What's the hot new way to scam people out of money?

George Steer (4:22)

So back in the day, people would just call you up on the phone and say like, hey, we've got a stock, we think you should invest in this, blah, blah, blah. The stock would get pumped and then dumped.