U.S. IPO price pops prompt fraud and 'pig butchering' warnings

Magic Empire Global

17/11/2022 17:59

By John McCrank
       NEW YORK, Nov 17 (Reuters) - U.S. exchanges and Wall
Street's top cop on Thursday warned about a heightened threat of
fraud mostly involving the initial public offerings of small
companies, driven in part by a social media-driven pump-and-dump
scheme called "pig butchering."
    In a rare move, Nasdaq Inc  NDAQ.O , Intercontinental
Exchange Inc's  ICE.N  New York Stock Exchange and the Financial
Industry Regulatory Authority (FINRA) published notices about
manipulation and fraud tied to market debuts.
        Some investors harmed by the pump-and-dump schemes
appear to be victims of an evolving social media scam called
"pig butchering," Finra said.
    "These schemes sometimes begin with a seemingly misdirected
text message or message on a social media messaging application
leading to a relationship (sometimes romantic in nature) between
victims and bad actors," Finra said.
    Once a relationship is formed, the scammer recommends the
victim place limit orders in certain securities at specific
times and prices.
    Finra said most of the price spikes it observed involved
IPOs of small-cap issuers with operations outside the United
States.
    The IPOs typically raised less than $25 million, valued the
firms at under $100 million and issued fewer than 20 million
shares.
    There has been a spate of unusual post-IPO price pops this
year, including many China-to-U.S. offerings, such as Magic
Empire Global  MEGL.O , which soared over 5,000%, and fintech
AMTD Digital, which tripled in price in a week.    
    Finra also said it was investigating accounts opened for
foreign nationals at U.S. broker-dealers to invest in IPOs that
later placed manipulative orders and trades to inflate
aftermarket prices. 
    The NYSE and Nasdaq said they were probing the underwriters
of the IPOs to ensure they did proper due diligence on
registration statements. 
    "When gatekeepers such as underwriters engage in misconduct
or otherwise are derelict in their duties, confidence is
diminished and investors suffer," Nasdaq said. 
 (Reporting by John McCrank; Additional reporting by Lance
Tupper; Editing by Josie Kao)
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