‘Pump and Dump’ Schemes on the Rise

The Nasdaq proposed sweeping new rules this month requiring Chinese companies to raise at least $25 million in IPO proceeds to list on the exchange—a direct response to an explosion of pump-and-dump schemes that have cost investors billions. The FBI reports a 300% surge in stock fraud complaints in 2025. In July 2025 alone, investors lost $3.7 billion when seven Chinese penny stocks crashed more than 80% after being aggressively promoted online.

The scams have evolved beyond cold calling would-be victims, using encrypted WhatsApp groups and social media ads to build trust with victims before coordinating massive price spikes in obscure penny stocks. And the schemes are highly effective: fraudsters create artificial FOMO through coordinated campaigns, then vanish after dumping their shares at peak prices, leaving investors with worthless holdings. Victims have ranged from first-time traders to former diplomats, all lured by promises of guaranteed returns from what appeared to be legitimate investment firms.

What are Pump and Dump Schemes?

Pump-and-dump schemes are one of the oldest forms of securities fraud. These scams follow a predictable pattern: fraudsters first accumulate large positions in low-priced stocks, typically penny stocks or microcap securities with limited public information available. Then they “pump” up the stock in the eyes of investors, often those with little experience.

After these purchases inflate the stock price, the fraudsters initiate the “dump” phase—selling their shares at peak prices and leaving unsuspecting investors with worthless or nearly worthless holdings when the price inevitably crashes.

How Fraudsters Orchestrate Modern Investment Scams

The playbook for such frauds might begin with a seemingly innocent contact: an “accidental” text message, a Facebook advertisement for an investment club, or a direct message on social media. Victims are then directed to encrypted messaging apps where fraudsters, posing as financial experts or successful traders, gradually build trust and relationships. Some schemes even involve faking romantic interest, with criminals engaging in “pig butchering” tactics to emotionally manipulate targets.

The fraudsters are brutally efficient. Starting in April 2025, individuals allegedly impersonating U.S.-based financial professionals made false representations and instructed investors to purchase shares, promising significant returns.

Why the Surge of Chinese and Hong Kong Micro-Caps on U.S. Exchanges Could Be Risky for Retail Investors

In 2024, 35 small Chinese companies listed in New York, nearly double the 17 microcap listings from U.S.-based firms. As of the end of the first quarter this year, 286 Chinese companies were listed on major U.S. exchanges with a combined market capitalization of $1.1 trillion.

These smaller companies share characteristics that make them appear to be easier targets for fraud. Many have market capitalizations under $100 million, minimal public information, and extremely limited public floats—sometimes with insiders controlling 70% to 90% of their shares. For example, when Regencell Bioscience (RGC) surged 82,000% earlier this year, its CEO controlled 86% of shares. Concentration like this can allow fraudsters to manipulate prices with relatively small amounts of capital while making it nearly impossible for legitimate investors to sell their positions when the stock crashes.

The complexity of Chinese companies adds another layer of risk. Many operate through variable interest entities, complex corporate structures that can obscure true ownership and control. Foreign omnibus accounts at U.S. broker-dealers have been observed liquidating large positions at peak prices, helping to hide the identity of manipulators while making it easier, experts believe, to dump artificially inflated securities.

The Financial Industry Regulatory Authority states that nearly 70% of its regulatory referrals since August 2022 have involved China-based companies, despite these companies comprising less than 10% of Nasdaq’s listings.

When a company like Regencell has only 30.5 million shares available for public trading out of a total of 500 million shares, even small trading volumes can trigger significant price swings. This concentration creates opportunities for fraudsters to coordinate on their scheme to manipulate the stock price while making it difficult for legitimate investors to exit positions as quickly as the price falls.

How Wall Street Is Addressing the Problem

Nasdaq has introduced new rules targeting Chinese companies specifically. If a company operates mainly in China and wants to list on Nasdaq, it now needs to raise at least $25 million from investors during its initial public offering—five times higher than the $5 million typical previously. This higher bar means that fly-by-night companies with no real business shouldn’t easily get listed.

The exchange is also targeting penny stocks already trading. Under proposed rules filed this month, any stock trading below 10 cents for 10 consecutive days would face immediate suspension and delisting proceedings—no grace period, no second chances. Currently, companies get 180 days to fix their stock price if it falls below $1. The new rules would bypass this entirely for the lowest-priced stocks, where manipulation is most rampant.

The Plan To ‘Crucify the Bilge Bracket’

Beyond Chinese companies, Nasdaq wants to triple the minimum value of freely traded shares from $5 million to $15 million for all new listings. This tackles a core problem: when fraudsters control 80% to 90% of a company’s shares, they can whipsaw prices at will. More shares in public hands means harder manipulation.

The U.S. Securities and Exchange Commission (SEC) has joined the fight with a cross-border task force launched earlier this month, but it’s taking a different approach. Rather than targeting the companies themselves, the task force is going after the “gatekeepers”—the small auditing firms and underwriters that help these companies access U.S. markets. One person familiar with the SEC’s thinking told the Financial Times they plan to “crucify the bilge bracket,” referring to the lesser-known firms that shepherd dubious Chinese companies through the listing process.

Bottom Line

With FBI complaints up 300% due to pump-and-dump schemes, investors need to be vigilant against unsolicited investment advice, especially from social media contacts promising quick profits. While the SEC and exchanges are tightening regulations to protect investors, the key defense remains your own. If an investment opportunity sounds too good to be true and anyone is pressuring you to act immediately, it probably is a scam designed to separate you from your money.