In 2019, CNBC surveyed some of the largest companies in the
world and found that one in five North American companies were
claiming that Chinese competitors had stolen
intellectual property from them within the last year alone.
That's a fairly shocking statistic, but we learned this
summer that it's not just corporate IP that's being
stolen. Investors lost billions of
dollars this summer after investing in a group of US
listed Chinese stocks that collapsed in value shortly after
being promoted on social media. The Chinese, it seems, are
ripping off 1 of America's greatest innovations, the meme
stock. Now, there's nothing I love more
than a good meme stock story, and I think we all know that
meme stocks were invented in America by Americans.
Well, the meme stock craze exploded in 2021 with GameStop
and AMC. Bloomberg had already declared
2020 the year of the meme stock, highlighting Hertz, Kodak and EV
companies. 2022, unfortunately, was a tough year for the meme
investors. The meme stock ETF, which is a
real thing that you can meme fest in, collapsed in 2022,
falling from $70 a share to 25. There was a bit of a resurgence
in 2024 as GameStop and a few other meme stocks made a
comeback. But this summer saw the rise of
a new crop of good old fashioned American meme stocks dubbed the
Dork Stocks by Investors Business Daily.
Krispy Kreme, Open Door Rocket Companies and Kohl's, whose
ticker symbols spell out Dork, cost ME investors $13 billion
this summer as they rose and fell while entertaining the rest
of us. This was all good, wholesome
American fun. American stocks been pumped by
American me investors on American message boards traded
on American exchanges. But while everyone was
distracted by these dorks, another seven NASDAQ listed
stocks, Concord International, Austin Technology, Top King Win,
Skyline Builders, Everbright Digital Park, HA Biological
Technology, and Feton Holdings were being pumped up, only to
collapse by 80% or more over a few trading sessions.
Why has no one heard of these stonks?
Well, the answer is they were Chinese stonks, knockoffs
promoted by foreigners in WhatsApp groups, Reddit message
boards, Facebook, and on the Everything app formerly known as
Twitter. You could tell these weren't
American meme stocks. There were no hedge fund
managers accused of being short. There were no charismatic CEOs
live streaming in their underwear.
There weren't even thousands of pages of online rants being
posted and described as due diligence that people were told
to read. These were low quality
knockoffs. The number 8 is the luckiest
number in China because aid is associated with wealth.
But there were only 7 Chinese meme stocks.
How sloppy is that? the FT wrote about this a few
weeks ago saying that the collapse wiped out $3.7 billion,
which isn't even close to the $13 billion loss on the dork
stonks. This is a low quality RIP off of
an American innovation. The FBI said last month that it
had seen a 300% year on year increase in victim complaints,
referencing ramp and dump stock fraud.
It added that investors were being targeted on social media
by people impersonating legitimate brokerage firms or
well known stock analysts. Now this is a huge increase in
complaints, so you would hope that the FBI is arresting some
criminals. But both the FBI and the Justice
Department have been overworked and under a lot of stress this
summer with over 1000 agents working 24 hour shifts, removing
politicians names from the Epstein files, meaning that
there's no time left to investigate investor fraud,
according to the Wall Street Journal.
NASDAQ, the exchange on which these Chinese stocks were all
listed, announced this week that it's seeking to tighten its
rules for small Chinese stocks as it says that these listings
have become a hotbed for fraud and manipulation, which you
would have hoped would have all moved to crypto where it's
legal. NASDAQ proposed a new rule
requiring that companies principally operating in China
will now have to raise at least 20, $5,000,000 in an IPO in
order to go public on NASDAQ. They're also seeking to increase
the minimum flow for future listings to $15 million, and
they're saying that there should be faster D listings for
companies that no longer meet listing standards.
The changes will require approval from the SEC before
they can be implemented. With this 300% increase in fraud
complaints, I imagine that the SEC are quite busy, especially
because Reuters reports that key divisions of the agency lost
between 15 and 19% of their full time headcount earlier this
year. According to NASDAQ, a record
number of Chinese companies applied to list on US exchanges
both this year and last, with China and Hong Kong based
companies dominating the US micro cap IPO market.
The PCAOB, the US audit regulator which was threatened
with being shuttered earlier this year, has faced
difficulties in the past inspecting many of the Chinese
accounting firms that audit US listed companies.
In such cases, the PCAOB can initiate actions that lead to a
company's delisting from U.S. stock exchanges if it doesn't
provide an audit from a compliant auditor.
So how are people losing money in Chinese meme stocks and what
has caused them to invest in these meme stocks when meme
crypto tokens, many of which are backed by our most respected
politicians and influencers, exist?
Well, the FT describes how an executive coach lost all of her
savings after clicking on an advert on Facebook and being
added to a WhatsApp group talking about investments.
Another retail investor told a similar story, saying that they
clicked on a Facebook ad which seemed to be endorsed by a well
known American TV pundit. These people then described how
the WhatsApp groups had around 40 members, most with British or
American phone numbers, and they appeared to be run by a
legitimate US broker who began recommending investments.
Amusingly, one of these victims explained that some of the group
members accused him of being an AI bot early on, forcing him to
defend himself from being kicked out.
According to the article, all of the information that was given
to the victims in these groups came from fake participants and
that the only real people in the groups were the people being
scammed. A man named Matthew Michael, who
runs a business called Investor Link, noticed a lot of this
unusual stock market activity and began contacting the
Financial Times along with American regulators and
exchanges, pointing out the unusual social media activity
around certain US listed micro cap stocks which were being
pumped up. He noticed clusters of
coordinated activity on Reddit which appeared to have been
happening at the same time as these stocks were being pumped
in the WhatsApp groups. His analysis suggests that many
of the Reddit accounts were based in Russia and Iran, a
trend he said his firm Investor Link had identified in other
pump and dumps. Now the FBI in their public
service announcement are describing these as ramp and
dump stock manipulation schemes. But if you read the full
description of the scam and the announcement, it describes a
classic pump and dump scheme where perpetrators impersonate
legitimate. Brokerage firms are well known
stock analysts. They secretly control a large
volume of a low price stock and coordinate to inflate its price
by encouraging investment club members to purchase shares over
a period of several weeks or months.
Once the stock has been ramped up, they then dump their stock
out of profit. I'm not sure why the FBI are
using the term ramp and dump rather than pump and dump, but
they seem to be using this new term and they say that if you've
been scammed you should contact them and they might even do
something once this whole Epstein thing has been dealt
with. So what do these Chinese meme
stocks look like? Well, the one that appears to
have been pumped up the most was called Regen Cell Biosciences.
It's stock price was pumped up an impressive 60,000%.
Yes, that's right, 60,000%, which gave the company a market
value of $38 billion before the dump.
Now if we look at biotech companies, that's almost four
times the size of Moderna. It's bigger than Baxter, bigger
than Biogen, Tiva, Bayer, companies that you'll have heard
of. Now, I wouldn't claim to be an
expert on bioscience firms, but I did do an internship about 20
years ago working with a pharmaceutical analyst.
So I thought maybe I should check out Regen Cell Bioscience.
And I don't need to be negative. Who knows, it might be a great
stonk. I imagined that a few ME
investors took a look at the company's website before putting
their life savings into a $38 billion firm that they hadn't
heard of before. So that's probably a good place
for me to start. So here's the website.
Look at me doing due diligence like a meme stock investor.
Step one, check if the company has a website and look, there
are all these graphics of what I'm going to guess are neurons
and the slogan natural formula that works.
That's a great slogan. And then there's this little red
flag thing in the bottom corner that says error for site owner
invalid domain, which isn't exactly confidence inspiring,
but they at least have a website and it hasn't crashed yet.
So let's Scroll down about our formula, it says.
And then there seems to be a collection of herbs and spices.
Is this the KFC website? I I might have found the secret
recipe of 11 herbs and spices here.
What have we got anyhow? I'm not sure what the first one
is, but then we've got what looks like coriander seeds, but
they might be white peppercorns. Then we've got some sliced
cinnamon twigs. We've got some steaks that looks
like dried turmeric. We're well on the way to making
a Curry here. There's some cloves, green
cardamom, and I think that's vanilla pods.
Yeah, delicious. Let's click on about our
formula. Maybe they'll be a recipe.
Oh, sorry, I forgot that. It's a bioscience company.
It says they have treatments for ADHD and ASD.
Now, I'm not sure what ASD is, so let's look that up.
It seems to be a heart defect. I'm not sure what the 11 herbs
and spices will do for that. Hold on.
No, it seems to be autism. OK, there are some charts on the
size of the markets for their products.
And here's the founder. And it says that he has a brain
theory, OK, Something about blood flow and
neurotransmitters, that that's a brain theory, all right.
It says he went to Berkeley and has degrees in electrical
engineering, so nothing to do with cooking or healthcare.
But nonetheless, he's now dedicating all his efforts to
treat people afflicted with incurable diseases, illnesses
and and disorders. Now, I'm no expert, but what I
do is focus on curable diseases because the thing about
incurable diseases is that they're incurable.
So you're, you're kind of wasting your time there.
What else have we got here? Patient case studies,
testimonials. Oh, look at that.
They have a COVID cure. Maybe that's why this stock
ramped 60,000%. Maybe this guy got on Rogan, JFK
Junior. He'd love a COVID cure made out
of things you find lying around the kitchen.
And look, there's a guy who rides motorbikes and he posted a
video where he says that the COVID cure works.
There are loads of testimonials. This guy felt sick, took a COVID
test, took the herbs and a bit later he was better.
Well, there you go. That's all the proof that I
need. Everyone else who got COVID
died, so the 11 herbs and spices must work.
I noticed that no one wrote in saying that the secret recipe
killed them, so it's probably safe too.
In fact it it definitely is. TCB here says I contracted COVID
and was eating western medicine. Well, I think that's where TCB
went wrong. You get sick, you don't just
start eating medicine. You should probably continue
eating food as normal, but consult a doctor.
If at the first sign of illness you start eating medicine,
you're likely only going to complicate the problem.
What else have we got, Louisa? She says that it worked and she
recommends it. Oh, but look at that, it tastes
bitter. I mean, the whole point of this
is that it should taste good. I'd maybe put a bit more vanilla
in, but don't listen to me, I'm not a a doctor.
She says the night bottle can make you feel slightly drowsy.
Now I'm not sure if the night bottle is referring to this
medicine or something else that she's drinking.
I'm not really sure how reliable a witness Louisa is.
I would have left a few of these off the website if it was me.
Well, there you go. Anyhow, the guy with the
motorbike and all these other crackpots seem to say that it
works, so it probably does. No wonder this stock went up
60,000%. If they sort out the flavor,
it'll be even better. What else have we got here?
Well, they seem to have a foundation, a non profit they're
giving back to the community. This is great.
They probably give a percentage of the profits to the
foundation. So, yeah, let's, let's check out
those profits, Investor relations, financial data, 2024.
Let's see where the accounts, oh, it looks like they lost $4.3
million in 2024. But on the bright side, it's
better than the $6.1 million that they lost the prior year.
Now, as impressive as this deceleration of losses is, it's
still a little bit hard to see how this justifies a $38 billion
market cap. I mean, how are they even losing
money? For God's sake?
You're selling a bunch of stuff from the supermarket as medicine
and somehow still losing money on it.
What are they doing? I'll be furious if this was all
blown on R&D. Let's see, here we have
operating expenses, a breakdown of expenses.
Wait, where is the income? What's going on with these
accounts? Are revenues on another page?
Ah, no, you have to be joking. There's a footnote.
We've not generated any revenue from the sale of any products
for the years 2024 and 2023 respectively.
I mean really, can you have a cost of goods sold if you
haven't sold any goods? I mean, they have a line for
selling and marketing expenses when they clearly didn't sell or
market anything. How do you have customer
testimonials when you don't have any customers?
You know, I've kind of changed my mind.
This might be the best meme stock ever.
I don't mean to buy for me, meme stocks aren't something that you
buy. You'd never do that.
They're about entertainment value.
And whatever this one is called, it's just excellent. 60,000% the
Chinese have put the Americans to shame.
Anyhow, now you know. With Chinese meme stocks, that's
now a thing. Obviously don't invest in stocks
that you've only heard about from a stranger in a WhatsApp
group or on Reddit. And watch out for the fake
comments on their videos on YouTube where a bunch of bots
are talking about their amazing broker or where they're
impersonating Youtubers and telling you to contact them.
If you think you're being contacted by me in the comments
section, it's a scam. No one reputable will ever pitch
an investor listening to strangers on social media
platforms. While I have some help deleting
scam comments that are posted under my videos, it's still hard
to catch them all, and we can't always delete them as quickly as
we'd like to. My friend Richard, who runs the
Plain Bagel YouTube channel, recently discovered that someone
was using an AI deepfake to impersonate him and pitch crypto
to his audience. Obviously, anyone who's watched
his videos would know that he wouldn't pitch anything like
that. The scammers video also looked
about as fake as the audience at a Will Smith concert.
But we should remember that the scammers are growing more and
more sophisticated, and there doesn't appear to be any law
enforcement around fraud. So you really have to look out
for these scams yourself and equally warn friends and
relatives if you hear them talking about a great
opportunity that they came across online pitched by a total
stranger. Thanks for tuning into this
week's podcast. The podcast's really been
growing in leaps and bounds and I have to thank you guys for
recommending the podcast to your friends as that's how podcasts
grow. Have a great week and talk to
you again soon. Bye.