Exposing Scams That Steal Billions with Edwin Dorsey of The Bear Cave

What are these Chinese liquidation plays or Chinese pumps or puppet nuts, whatever however people want to describe them. So, it's kind of changed a lot over the years. We've seen for 10 years plus Chinese companies list on US exchanges and be heavily promoted or mislead investors about the state of their business. And then they say with 100% of your funds, we got this great near-term, short-term trade. You really got to go in and they're really going to be pressuring you to buy more and more. They're going to be asking you for daily confirmations of your holdings every day to make sure you don't sell. And the endgame is they own a lot of stock, the scammers. They dump it on retail investors. And then out of the blue, we see these stocks collapse 90% in a day.

I'm excellent. Thanks so much for having me on the Investors Underground podcast. I'm really excited to be here.

Yeah absolutely. So, I've been passionate about stocks from a really young age. Like second grade, I had the stock market bug. My transition to the short side didn't happen till later. Really, my freshman year of college, I got introduced to two of the best short sellers out there. One is Jim Carruthers, who ran a billion-dollar short-only fund called Sopos, and another is Mark Cahot, who's this fiercely independent kind of activist short seller. And I interned at Sopos on and off all four years of college. That's how I learned the ropes. I met a lot of activist short sellers. I learned how to do the deep diligence there. And my senior year of college, I wanted to work for that hedge fund, but they were in the process of shutting down. So, I needed to get a job. And I started the Bearcave newsletter as a way to get attention from all the hedge funds and hopefully get a job. And then the pandemic happened. The Bearcave kind of took off in the pandemic. That was the best time ever to be writing an email newsletter. And for the five years since, my full-time income has been reader subscriptions to the Bearcave. I do weekly recaps of what goes on in the short world, suspicious resignations, interesting tweets, and twice a month, I do these deep dives into companies that I feel are misleading investors, harming customers, are on the wrong end of disruption, and increasingly these China liquidation plays I try to time and predict.

So, it's kind of changed a lot over the years. We've seen for 10 years plus Chinese companies list on US exchanges and be heavily promoted or mislead investors about the state of their business. Today, overwhelmingly, what's going on is you just have a ticker listed on NASDAQ. The actual business is irrelevant. And these scammers have huge operations through Instagram and Facebook to run ads to recruit average ordinary Americans into WhatsApp groups and essentially in a month-long process trick them into buying a lot of stock in these close to worthless US-listed Chinese companies at inflated prices. And the endgame is they own a lot of stock, the scammers. They dump it on retail investors and then out of the blue we see these stocks collapse 90% in a day. So we see this over and over again, once a day, twice a day, and I estimate in aggregate that these scams are transferring $10 billion plus a year from ordinary US investors to overseas stock scammers.

Yeah. So, it's remarkably kind of easy to spot these companies. I just open a filing and you see they have less than 10 employees. One, CUPR, I think, had less than $50,000 a year in revenue, and the revenue was declining, yet they had a $200 million market cap. So to anybody with even the basic level of sophistication can see right away that these valuations and companies don't make any sense. The thing is and this is kind of a departure from what you saw 10 years ago in the China Hustle documentary is they don't need to lie about their business at all because nobody, the people, type of people investing in these China scams and liquidations aren't savvy enough to even look at the financials. They're paying no attention to it. If you look in the WhatsApp groups how they're promoted, typically they'll just say, 'Look, the stock is at two and it's going to go to five. Trust us, it's the momentum. It's the Apple of China.' It just makes no sense. Or they'll spread false rumors of an upcoming M&A deal. And this is usually for the bigger ones like PTHL in the months towards its runup, they said Gilead was going to acquire it for $75 a share on this date. So, they're kind of tricking you into thinking you have inside information when you don't. But it's enormously profitable for the scammers who I believe work with management. Often they'll get, you know, half the shares outstanding at a really low price, like 20 cents a share, and they can dump it at two, four, $8 a share. So, it's kind of pure profit for them. What we've seen is NASDAQ almost has a financial disincentive to take these down because they earn money from the listing and they earn money from the volume. Regulators have been extremely ineffective at stopping this, even though the Trump administration at this time has shown some indications they're working on it slowly. But what people don't understand and what I'm laser focused on in my newsletter is trying to figure out the recruitment mechanisms, what these scammers say at different points in the scam because it's not as simple as, hey, buy this stock right before it collapses. There's a lot more sophistication to it now. And ultimately, I want to get really good at predicting these right before they liquidate. So I can go to my readers and say, 'Hey, avoid this stock. It's about to fall 80% in the next week.'

Yeah. So, so far the track record with the Bearcave on identifying these has been quite good. I've published on three of them with dedicated articles in my newsletter. PTHL, which collapsed 90% on the day I published, FlyHai, which collapsed about 90% two days after I published, and RAY, which looks like it's collapsing now, and you know, we'll see, but that one's taking a little longer. But, you know, so far the track record's really good, and I obviously want to get really good at identifying it. Now, there are a lot of risks. The biggest risk, and I don't think this is really understood by people on the outside looking in, is you don't want to trade one of these, at least in my view, you don't want to trade one of these where the float is completely controlled by the scammers and there's no retail investor participation. So RGC is one that just went up crazy amounts. And you see a lot of these where they just completely control the float. And this, even if you had a 1% position, it would be a complete mess. You don't want to do that. So, I really want to avoid the ones where they have complete control over the float like an RGC and I think another one is like NAOA. I think this is one where it's gone from four to 40 and can still go higher because they control 99% of the float. They can just manipulate it on low volume to whatever valuation. So, those are the type of ones you really, really need to avoid. And then how do you avoid them? Especially when all the filings say that insiders control the whole company. The key is, you know, you need to be in these WhatsApp groups or tracking these WhatsApp groups is once they're promoted in these WhatsApp groups and they're telling retail, buy it at $2, buy it at $4. You know that they're selling to retail and the float is starting to become somewhat distributed. And once they sell a lot of their stock to retail individual investors, they can't pump the price up 10x because then retail would sell back to them and they'd be losing money. So the number one thing you need to do is avoid the situations where it's extremely tightly held. To me, that's by far and away number one. Number two, and this kind of goes hand in hand when you're doing something risky, is you got to size it appropriately. I saw somebody made a fake Reddit post saying they took 10% positions, short positions, at each one of these and they blew up when the stocks were manipulated after hours. And 10% is way too high. Like all shorts, you know, the key is kind of position sizing. And now once you start studying them, you start to realize patterns, which is sometimes they're manipulated during the day. Oftentimes the biggest manipulation happens after hours. It's very common for these, especially right before they collapse to have a 200% or more spike in after hours trading and especially if you don't want to be at your monitor after hours or you're afraid of that, I think the kind of workaround is to trade it more intraday and these things pretty consistently — it's kind of become more distributed over time — tend to collapse in the afternoon. So I think the kind of key is you find ones that are being distributed through the WhatsApp groups where insiders don't control it. I think it's best to trade them intraday and then it becomes how can you time them properly and that's going to be a long-winded answer that I'm happy to talk about and that's what I'm really focused on in my newsletter.

So I encourage the best thing to do is live through experience. If you're going to trade these, just get in the WhatsApp groups. The way you do it is you go on Instagram, you go on Facebook. If you don't have those platforms, make a fake account and say you're really old because the scammers prefer older people over younger people. And you'll quickly see on Instagram these ads for WhatsApp stock groups, especially if you're searching for stocks. You join a bunch and it'll always be the same thing once you click these ads to join. They'll say, 'Do you have experience? Do you have a US brokerage account? Can you tell us one or two of your stocks? And how much money do you have?' And they basically just want to make sure you have a brokerage account with some money so you're someone they can scam. That's the kind of tier one or qualification. Then once you do that, they'll offer to add you to a WhatsApp group. Okay, but this is not the VIP group that matters. The first thing they add you to are these screening groups, which is will you listen to what they say? And they'll usually say they have a fake professor or somebody impersonating a legitimate asset management firm and they'll say we have an AI model that can recommend stock picks and they'll say buy Rocket Lab or buy Apple at this price and sell tomorrow and you know you'll just do five or 10 trades and they'll want you to send them your trade confirmations to confirm you're listening to them, that you're following their orders when to buy and sell and that you have money and are a person to be scammed. So, there's this whole kind of qualification process that lasts a month. And something people don't realize is they've actually invested a lot of money in this. They have fake branding. They have fake videos. I even brought a little prop for this podcast. One of these fake firms is called FNCAAI. And they told me I was doing such a good job following their fake trades. They were going to send the members a gift. And they were going to send us a premium mug. And they said, 'Check your mail.' And I said, 'Okay.' And I checked my mail and it didn't arrive. And I'm like, 'This is just classic scammer stuff. I'm never going to get the mug.' And then lo and behold, I literally got a mug from the fake asset management firm. The scammers are literally spending like $50 to FedEx people like nice mugs for their fake brands. They invest a lot of money to try to make it seem legitimate, unlike a normal scam. So, no money's leaving your account. You're just sending trade confirmations. And I talked to a lot of victims and I'm like, 'Didn't you get a sign this was a scam?' And they're like, 'I was suspicious, but the fact the money was never leaving my account and you know, I never needed to send money to anyone made it seem legit.' So, if you do that a bunch over the course of a month, they'll invite you to either a VIP group chat or core group chat. And there's hundreds of these with tons of different brands and whatever. And I'm in a lot of them. And once you're in those, that's where kind of the scams will go down. And then they really just start promoting you these US-listed Chinese companies. And typically if you look at these scams, you know, they kind of go up and to the right and collapse. So they might say, 'Oh, you know, buy this stock at two with 50% of your funds and then you sell it at 250 to some other investor.' So you made money at first, so you feel good. And then you do another one where you make a little 10% profit in a week. And then they say, 'With 100% of your funds, we got this great near-term, short-term trade. You really got to go in.' And they're really going to be pressuring you to buy more and more. They're going to be asking you for daily confirmations of your holdings every day to make sure you don't sell. And those are the ones where you can kind of get a sense that it's closer to collapsing. So that's more or less what you're looking for. Oftentimes before you're added into these VIP groups which kind of contain their valuable intellectual property, they'll ask to do a FaceTime call with you or they'll ask you to send a photo of yourself to make sure you're legitimate, you know. So I've had a lot of FaceTime calls with the scammers. Sometimes they use AI filters. Sometimes it seems like they're in some sort of forced labor situation. But it's really interesting and a lot more — it's not like Wolf of Wall Street where you're getting a phone call saying buy this worthless stock. It's kind of a three-month intro process gaining their trust and then you get all this good deal flow. And you know, and that's another thing that kind of provides a complication is in order to get their trust, you need to be sending them trade confirmations. So, a lot of journalists stop at the point of needing to trade real money or that kind of becomes a hindrance. A lot of people have gotten good at kind of faking trade confirmations so I can convince the scammers I've lost half a million dollars and I want to earn my money back. But that's broadly how the recruiting pipeline goes. Instagram, Meta ad and they have a series of fake websites. You go in, you answer some basic questions, you earn their trust over the course of a month or two doing trades on legitimate stocks, and then you're promoted the fake stocks. But even when you're promoted the fake stocks, it takes work to figure out exactly when they're going to collapse.

Yes. So should we talk about timing now?

Okay. So, first, it's tough to predict the timing. Even if you know all the tricks, even if you're in these groups, I talked to somebody who trades these professionally who says he's earned tens of millions shorting these and even he says I can never pinpoint it to a day. The best I can do is a week. I'm trying to get really good at the timing aspect, but it is a little hard. Now there are some things we can look for, which is there tends to be three types of US-listed China stock promotions. There's ones that are promoted straight from the IPO which is usually $4 a share and it goes straight up and usually those peak at 8 to 10 and collapse. Then there's ones that IPO at four and they languish for a bit and then they're promoted really hard and they typically get between 20 and $40 a share like PTHL. Those are the biggest ones and then those collapse. And then there's a third type which I think is easiest to trade called these secondary pump and dumps, which is after these things collapse they often reuse the tickers six months later in another pump and dump and those are the kind of easiest to predict. So let's talk about the secondaries first, these secondary pump and dumps. The general rule of thumb I found is there's these primary pump and dumps and they're really easy to see on a stock chart and then the secondary one. And the secondary ones never reach the peak of the primary one and they typically don't even come close. So, you know, I'm going to maybe pull up one stock chart here. So, this STFS is one I wrote about and you can see here it had this huge peak in January, right? And then it kind of got pumped again to about $2 and had trouble pumping it and then it kind of collapsed. And here's another one. FlyHai. It had this big pump and dump. Okay. And it collapsed from 31 to 5. And then more recently it's pumped again from two to seven and collapses. And so you remember the original pump — the secondary pump never even comes close to the original pump. And there's a lot, you know, like these, I think WCT was another one. It got pumped and then there was the secondary pump. And the kind of general rule of thumb I found looking at these secondary pumps is they almost never approach more than 40% of the original pump price. They typically, you know, it changes a little over time. These never really go more than halfway to the original price and typically like they kind of collapse when they get near 35% of the pump price. So one, you know, ticker that's really relevant now is QMM because that one peaked at around $12 in November 2024 and then collapsed and now it's about $4 today and it's starting to flatline and it's collapsing. So on these secondary pumps, it's kind of simple. You can just look at the share price once it's at about 35%, you know it's going to collapse and then typically in the very end stages of the pump and dumps they love to just tell everybody to line up limit orders. So on the day or two days before collapse you see it really start to flatline. It's either flat for the entire day or flat and then in the last 15 minutes of trading they'll move it up. So on these secondary pump and dumps, if you see it kind of approaching 35% of an original peak, if you see it kind of flatlining and there's a lot of volume while it's completely flat where they're telling you to buy through limit orders and if you're seeing it being heavily promoted in the WhatsApp groups, those are all signs that it's going to be close to collapse. QMM is an example of that today. Now on these really big pump and dumps where you're seeing them go to — these are the ones that have the highest volume, that had languished for a few months and they're being promoted. These ones typically have an element of a false M&A rumor. It's very, very common for these scammers on these really big pump and dump operations to say, 'Hey, we've got a US-listed China company with now $200 to $600 million market capitalization. We're moving it up originally through wash trading then through telling gullible retail to buy in.' And what they'll say is we expect our company to be acquired by a bigger US competitor like OLED, like Gilead Sciences, like whatever, on this date at this huge price. And those two pieces of information, the date the acquisition is going to go down and the price of the expected acquisition, are hugely important because they can never really delay — like the day of the acquisition is kind of the end date for the pump and dump scam because if it goes on longer than that, they lose the trust of all the retail investors participating who are just going to sell. So, you know, pretty confidently that that end date is the end date for the pump and dump. And what I found is it's typically a week before the M&A deals when they finish dumping all their stock. And you know that the ceiling for the price is what the M&A target price is going to be because if they're telling you, hey, this stock is currently 30, it's going to get acquired for 75. If it does get manipulated higher than 75, all the retail investors are going to start selling it and it's going to be depressed down. So just by having those two coordinates, the date and the target price, you kind of understand your risk framework with these. So then it's more just when is the target date? It's going to be usually about a week before. You look at the volume. You look to see when it's flatlining. They're really pushing limit orders and starting to promote it hard. Then you can kind of get a sense of it's going to get closer. It helps to be in the WhatsApp groups, but that's kind of the best way to predict those, which are the biggest ones. And then the first type I mentioned where just manipulated straight out of the IPO gates, those are a little tougher to predict. I found that they usually get to about $8 to $10 a share before collapsing. I haven't gotten really good at predicting those yet. Again, it helps to be in the WhatsApp groups, but broadly speaking, those are kind of some of the things I'm looking for in the pre-collapse indicators. And one of the most obvious pre-collapse indicators is when they manipulate it after hours up and down 200%. Almost always it collapses within a day or two of that, too.

Yeah, because I think to a lot of investors, they just look at this and they say, 'Oh, China names. Some collapse, but some go up 100x. I just want to avoid it. Avoid the headache.' And to be honest, I don't blame you. There's a lot of ways to make money. But if you take a more thoughtful approach, I think it's really easy to avoid the ones that are manipulated up 100x. You can't manipulate up 100x if you don't control the float, and you don't control the float if you're offloading onto retail. So that simple nuance there saves you from the worst cases and makes these things a lot more tradable. A lot of people also

People complain about the borrow cost, which is—there's usually borrow. People I talk to are able to get a lot of borrow. It's just the cost can be measured in the hundreds of percent a year, which I think to some people on the outside say that's ludicrous. But if you can get good at timing these down to the week, which I think you can with a lot of effort or reading my newsletter, or at least down to the month if you're following some of the WhatsApp groups, you know, paying 10% to get a 90% collapse is very, very much worth it. So these things can work, and I think you can also just trade them intraday. Short them at 10 a.m., cover at 3:45, and you lose a percent a day that you do that with some slippage or borrow cost. But you're going to have days in which you make 90% plus a lot of the time.

So something I will say with my newsletter is—and this comes as a surprise to a lot of people—is I don't short the stocks myself. I only make money from reader subscriptions to my newsletter. I don't short, I don't partner with a hedge fund for a profit-sharing agreement, I don't do consulting. I only make money from reader subscriptions to my newsletter. So I hope readers sign up and then they can profitably trade these and, you know, it helps with their own research process. But I'm not shorting them myself. And I think the long-term goal is—we're probably going to see at least 20 of these for the remainder of the year. This is a perfect time to be doing this podcast because typically these pump and dumps happen more in the second half of the year, July to December, than in the first half of the year, partly because there's so many Chinese holidays in the first half of the year. So we're going to see a lot of these, and if you can make 1% on each collapse, there's going to be at least 20 of them. You know, there's going to be a lot of opportunities here. But long-term, what I would love for the newsletter is to get a reputation for spotting these the day or week before collapse, eventually getting mainstream media attention on it, and then exerting some pressure on NASDAQ or the SEC to say, 'What are we doing?' because this does hurt individuals the most. And I see it with my newsletter and website dedicated to stopping this—tons of people reach out to me saying they've lost 20, 30, 40k, and these are like the working-class people of the world, and it's just sad to see, and it's so meaningless.

The scammers were definitely aided by regulatory inaction and from doing this all in China. So like, you know, you're kind of untouchable, or Southeast Asia. They're also aided a lot by—I think there's a loneliness epidemic in the country and especially among older people. Yeah, a lot of people just want connection, and so that makes it easy. A lot of these scammers pretend to be younger women who will flirt with you. I've literally had FaceTime calls with the women, and it's just like these AI filters, and I can tell it's a fake AI person, but a lot of people probably couldn't. And, you know, they'll send you voicemails saying, 'Please buy the stock. I trust you. We're friends.' So there's loneliness, AI helps them, and then these huge technology platforms that allow them to recruit in huge numbers also aid them. And, you know, one criticism I've been getting a lot online from people—and I don't love this criticism—is, 'You know, you're not actually helping anybody by writing about this because they'll find your website after they've been scammed, not before they're scammed,' which is frankly largely true. You know, most of the people who reach out to me after a stock collapses find my article and they say, 'I wish I found your article sooner.' But what it does help do is it helps prevent people from getting rescammed. Because what almost always happens with these scammers is you buy it, you lose your money, and they say, 'Look, our stock was attacked by short sellers. That's why it fell 90% in the day. Someone leaked it to them, and we have another stock to help you make your money back.' And amazingly, so many people just buy the second stock hoping to get it back. So by highlighting this and how it works, you can prevent the rescamming. I'm not kidding you. I had a woman email me who said, 'Look, I lost 50k buying this one stock, but now they promised me CUPR, Caprina Holdings, which had 50k in revenue, $200 million market cap, is going to go back up. Like, should I invest in it? Is it a scam?' And I just say, 'How can you make it this far in life?'

Yeah. And, you know, it's because they convince you you're making money and you are often making money because if it's going up and to the right, you've made money off their picks that they've given you randomly, but some of those are going to be really profitable. I talked to somebody who was in Qatar who lost his entire life savings, $270,000, on PTHL before it collapsed. And I said, 'Well, didn't you think it might be a scam?' And he said, 'I was suspicious, but I'm never sending money outside my account.' And the way we're conditioned to think is don't give the money to strangers, but if it's in your account in NASDAQ stocks, you think it's safe. And then he said, you know, 'I was worried, but it kept going up.' At one point, he had over $130,000 in paper gains that he could have sold, and he didn't. And, you know, so it's very much like—I think these things are way more sophisticated than people realize. They're so good at keeping you in the game. They're so good at having excuses why you can't sell. They're so good at pressuring you to have more. So on the onboarding, they love for you to send a screenshot of your account so they can give you good advice. And they give you like a ticker-by-ticker analysis of your entire portfolio. And what they'll do is they say, 'You need to sell half of these. They're bad. These are the reasons why.' And they'll actually—like they must be using ChatGPT to do these reports. But they do that so you'll have more cash freed up so you can be scammed. There's whole elements to this.