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.