Stock Market Scams EXPOSED | Edwin Dorsey

I became a little obsessed with these Chinese pump and dump. Chinese companies would list on the US markets. It used to be through reverse takeovers, now it's through IPOs. I found their websites, I found, I joined 50 of the WhatsApp groups and I became good. At least I thought good.

These companies typically perform horribly, typically are having their share price manipulated and historically have lied about their financials, although that's become less important. A lot of this manipulation occurs over WhatsApp. I even made a website, stopnasdaqchinafraud.com. If you're publishing information, the scammers like to punish those who publish on them. So if you criticize publicly, those will be the ones they just decide to manipulate even higher. It's really, really bizarre and there's this kind of total underworld that is like very targeting very unsophisticated investors, but it's huge and it's like moving tens of billions of dollars a year to these US listed Chinese companies. But it's terrible.

Jonathan, thanks for having me on Two Blokes Trading. I'm really excited to be here.

Yeah, I—

So, Jonathan, I've been passionate about stocks from a really young age. Like second grade. I was all about the stock market and very obsessed with it. My transition to the short side happened the freshman year of college when by coincidence I got introduced to two of the big short sellers out there. One is named Mark Cohodes and he's an independent short seller who used to run a big short only fund. The other early mentor was Jim Carruthers who ran a billion dollar short only fund called Sophos. I met him beginning of freshman year because he was reading an anonymous blog I was writing and I started interning for his fund and I interned for him on and off all four years of college. That kind of provided a baseline for me to get into this type of research. I also briefly interned in the SEC enforcement division. I started writing about companies a little bit on my own. Funny enough, one of your past guests, Gregory Zuckerman, played a big influence in my career because he wrote a story about safety issues at care.com, which was an angle I was exploring as a college student. And his story gave me a lot of credibility for highlighting these issues early on. And ultimately I decided to launch this newsletter my senior year of college mainly as a way to get attention and get hired because the fund I'd interned for, Sophos, was in the process of shutting down. So I started this newsletter February 2020.

Really a way to like show people I'm smart and hopefully have someone hire me. But it quickly grew on its own. And now it's my full time job writing this newsletter that's read by a lot of the short—

Yeah. So I started it senior year, February 2020, and I really lucked out on the timing. The best time ever to be writing an email newsletter in human history is right before the pandemic. People were online, people were bored, people were looking for stuff to read. They had so much time. People were on Twitter, which was my like early way of getting people to check out the publication. People had extra money to spend on newsletters. So the best time ever to be launching an email newsletter was during the pandemic. And Substack had just started to take off. So I, I really kind of lucked out with the timing there. Originally, it wasn't, it originally was less me doing proprietary research and me just organizing and recapping that week's news. Because there's a lot of activist short sellers and it's tough to track all of them and there's a lot of like, news on companies. So it started really as an amalgamation of the week's news and summarizing activist short reports. Because I just remember when I was interning at hedge funds, it was tough to track all these and that kind of just took off and then that kind of became the free product. And I say, hey, if you like my recaps of the week's news, you might like my own independent research into public companies. And that's more the paid tier today.

Awesome. So that's a very broad question. A lot of angles. Let me like maybe say a few things. So it's not all pump and dumps that I write about. In fact, I would say the vast majority of what I write about is not pump and dumps. Typically, I like to stay above a billion dollar market cap. My sweet spot, I like to say, is 1 to 10 billion dollars. Public companies below a billion dollars, there's a lot of great shorts and there's a lot of misconduct. It's just my readership and hedge funds tend not to care because there's not enough liquidity or there's not borrow. Above $10 billion, hedge funds love those. But typically those type of companies, if you've been around a long time, if you pass the 10 billion dollar market cap threshold, I think your problems tend to be less egregious or might be in a division, but not applying to the whole company. So 1 to $10 billion is kind of my sweet spot to look at for companies because it's big enough that hedge funds will care, but small enough that there can be real issues. And you still see like big share price movements and they can fall 80% if there's real issues. So that tends to be my sweet spot. And I say I tend to focus on three types of companies, companies that are harming consumers. And typically what I'm doing there is I'm sending a lot of FOIA requests to state regulators to show how companies are harming consumers. Maybe it's overbilling, maybe it's making it tough to cancel. There's some issue that's relevant to the business. Companies that are misleading investors. And that can be a little bit like a pump and dump. Or sometimes you just see these SPACs go public and the companies have no substance, it's just overly promotional. And then the third, which is a major focus for me now, is companies that are on the wrong end of disruption during the Trump administration. These consumer protection issues are a little less relevant. So I'm really trying to think who's going to be hurt by disruption. So Signet might be hurt by lab grown diamonds, call centers are going to be hurt by the growth of AI. DraftKings might be hurt by the growth of prediction markets. Thinking like that and trying to be a little ahead of the curve, that's a big focus.

Now I have had a little bit of a detour in which I became a little obsessed with these Chinese pump and dumps. And basically for a long time Chinese companies would list on the US markets. It used to be through reverse takeovers, now it's through IPOs. And these companies typically perform horribly, typically are having their share price manipulated and historically have lied about their financials, although that's become less important. And a lot of this manipulation occurs over WhatsApp groups. And I kind of read a Wall Street Journal story about it and an Herb Greenberg story, and I said, let me like figure this out and try to join all these WhatsApp groups. So I kind of figured out how the scammers operated. I found their websites, I joined 50 of the WhatsApp groups and I became good, at least I thought good, at tracking these pump and dump schemes in which they tell people to buy legit stocks, then they'd say everybody buy this manipulated stock and then it would collapse. I even made a website stopnasdaqchinafraud.com which is up today, which has like 800 screenshots from these WhatsApp groups where anybody can upload screenshots, we can track what all the WhatsApp groups are promoting in close to real time.

Now, unfortunately, I think these stocks are so manipulated that it can be even tough for me to like accurately predict when these will collapse. So for the first three I wrote about, they collapsed 90% plus a week after I wrote about them. And then for one, I have a ton of egg on my face because I criticized it and it went up something like 10x two weeks after I wrote about it because they just continued to manipulate it and it showed me something so wrong that I think I had to time correctly. It just made me feel very embarrassed and ashamed. So I'm kind of moving on from that or saying, you know, these things are just so dangerous. Maybe traders shouldn't be touching them because even though you know they're going to collapse, it's just the timing is so difficult. Even if you're in these WhatsApp groups, I think at least publishing on them is not a smart idea.

So we're seeing with this Trump administration that they're actually really trying to focus on it. They announced a task force which is like, who knows how effective that will be. But they are prosecuting the executives of one of these pump and dumps. They are asking for more victims to come forward with information. I know they have started interviewing some victims who've also reached out to me. So it definitely seems like they're trying to care a little. I think partly because all the people sending these scam text messages are based in China or Cambodia. It's tough to track them and the money goes overseas. So it's tough to like bring the enforcement there. But yeah, it's crazy egregious. And what I found is there's a lot of small ones in which you're just manipulating, saying the share price is going to go up and down or whatever.

But for the bigger ones, which tend to reach, let's say, 500 million to a billion dollar market cap, these essentially non-substantive small businesses that list and then get promoted up in these WhatsApp groups. What the WhatsApp groups will do is they'll say, hey, buy this stock. Because we essentially have some inside info that a big US company is going to either invest or merge or acquire them. And what they'll do is they'll say the merger date, the acquisition date is going to happen on August 31st and it's going to happen at $55 a share. So if you know that information, you kind of know how to trade it because it's going to collapse before August 31st and it's not going to hit $55 a share and it might go to, you know, it's probably going to go to about 30 and it's probably going to collapse a week before the merger date or up to the day before the merger date. But after the fake merger date, they just lose all credibility and everybody would sell on their own. So you know it's going to collapse before then and you know it's not going to hit the target price because if it does, everybody will— I think if you can get this information, it can be, you know, possible to trade around it. It's just tough with the smaller ones. And I think if you're publishing information, the scammers like to punish those who publish on them. So if you criticize publicly, those will be the ones they just decide to manipulate even higher.

You think that once they dump it, it's over. What often happens is, you see, it pumps and it dumps, and then one year later, they issue a ton of shares to themselves again at like 10 cents a share, and then they'll pump it and they'll dump it again. So sometimes they do it a third time, like just every year they're like reusing the same tickers because their ability to pump and dump is only limited by the amount of tickers they kind of have under their control. And these are like huge operations. And the last thing I would say is it's really important for them to control the float. And once they start dumping it on people, like, how do you control what they do with the stock? And typically when you're in the WhatsApp groups, they'll— first, they'll only allow people to get in these operations if you've followed their trade picks in the past and done exactly what they said. And what they'll do is they'll make you send daily screenshots to confirm you still own the stock. And if you don't do that, you'll be kicked out of the group and not part of the scheme going forward. And if you don't do the screenshots, they'll threaten to report you to a regulator, say you're working with short sellers or— It's really bizarre and there's this kind of total underworld that it's like very targeting very unsophisticated investors, but it's huge. It operates through Facebook and Instagram ads, but it's like moving tens of billions of dollars a year through these US listed Chinese companies. So I'm optimistic it'll be shut down in the next year, or at least curtailed. But it's terrible.

Yeah. I'm not too familiar with the meme coins. I'm more familiar with like, you know, whatever meme stocks. I would argue that the level of sophistication here in the US listed Chinese companies is perhaps worse than basically anywhere else in terms of the investor base. Because with meme coins there might be a little bit of information asymmetry. With the US listed Chinese companies, you can look at the filings. There's a stock Caprina Holdings, CUPR. I think it's dumped already. If you just look at the filings, it had a 200 million dollar market cap. It does $50,000 in annual revenue. Most of these businesses are really small. They're like just small businesses based in Singapore or East Asia and $50,000 a year. And I kid you not, they did maggot-based healthcare. The idea is that they'd sell you maggots you could introduce into wounds and the maggots would like eat up like bacteria. It's just crazy. All these are like revenue declining, not profitable, few employees, just— And you can get those from the filing. But with the meme coins there's probably— there's not a clear SEC filing you can read and some of them do work. I think there's— the level of sophistication in the US listed Chinese companies, it's got to be worse than whatever's going on with the meme stocks. Sometimes there is at least what seems like a reasonable case. Like, you know, GameStop did have a real turnaround aspect and the market probably underpriced it at $3 a share. With these, it's just— I read it and it's crazy. I literally have people who lost money buying one stock and what these scammers do is they'll pump and dump one stock on you. Okay, it'll collapse 90% in a day and then you lose all your money. And they'll say we were attacked by short sellers, we got a second stock to make your money back. And then they'll recommend the second stock and people will literally email me and say is this stock a scam? And I'm like I can't give you investment advice but here's the 10K, 50,000 in revenue, 3 employees, never profitable and 200 million dollar market cap.

So Jonathan, I love that question because I want to be as tech-focused and future-leaning as possible in every part of my research process. Your past guest, Gregory Zuckerman, you asked him a similar question and he said he uses AI a lot to help edit his writing. And that resonated with me because I do the exact same thing before I publish any article. Now I will upload the draft of my article to ChatGPT and I'll say please read through this and critique the three or four worst paragraphs and tell me why they're bad and how to improve them. So AI isn't writing it, but it will always zone in on three or four paragraphs where I'm clearly being too wordy or, you know, and help suggest edits. And I don't always agree, but sometimes it does find useful things. So that's kind of on the back end with the editing and then in terms of research process, all the time. So one of my favorite things to do now is on a monthly basis I'll go to ChatGPT. I pay $200 a month for the pro plan. I only use o3 and I try to use deep research as much as possible. And I'll say please look through a list of all IPOs and SPAC mergers done in the last month or two months and find ones for me that have high levels of consumer complaints or pattern of consumer complaints. And maybe I'll tell it a few websites to look at, you know, and look at Reddit and whatever and it'll think for like 20, 30 minutes and come back to me with a list of 10 companies that have high levels of consumer complaints. And a lot of the time it's just not relevant. Some companies just naturally have high levels of consumer complaints or in industries with high level consumer complaints. But usually three or four will stick out to me and I'll do a little research and two will really be interesting and then I'll start filing FOIA requests on two. And it has led to me, like this early stage idea generation, finding companies I probably would have not followed. So now I can kind of get eyes on or do a little bit of research on basically all companies that are going public with high levels of consumer complaints. So I love that for AI. I just find myself asking it a ton of questions. So I use it a ton in the research process. I don't use it to write anything for me and I'm typically not using it at the end stages, but just early stages asking a lot of questions and trying to find companies that I might not have otherwise found. Very useful.