Nasdaq Inc has put the brakes on initial public offering preparations of at least four small Chinese companies while it investigates short-lived stock rallies of such firms following their debuts, according to lawyers and bankers who work on such stock launches.
“These were last-minute phone calls, just as we thought we were going to go somewhere with the deals,” Ellenoff said. It is not clear what action the Nasdaq will take once it completes its probe and whether all or some of the halted IPOs will be allowed to continue. A Nasdaq spokesman declined to comment.
The Securities and Exchange Commission and other U.S. financial regulators have yet to announce a case of successfully prosecuting such pump-and-dump schemes because Chinese companies and their overseas bankers have so far been effective in carrying them out secretly, the seven sources said.Nasdaq’s intervention underscores how liquidity standards it adopted in the last three years to prevent stock manipulation in small IPOs have loopholes that Chinese companies are exploiting.