November 18, 2022

Fresh Regulatory Scrutiny in Connection with IPOs

This week, advisories were issued by NYSE Regulation, Nasdaq and FINRA in response to recent instances of unusual price movements following certain IPOs on U.S. exchanges. The focus appears to be on unusually high price spikes immediately following the pricing of IPOs, mostly with respect to small-cap companies with operations outside of the United States.

The advisories focus on the process for vetting companies seeking to list on an exchange, the role of gatekeepers such as underwriters in the IPO process, the potential for market manipulation and the use of nominee accounts in a “ramp-and-dump” scheme, as well as something disturbingly called “pig butchering,” which is the use of seemingly misdirected text messages to lure victims into a relationship that is then used to defraud that person.

The activities described in these advisories from the SROs sound to me like a blast from the past – the tried and true fraudulent boiler room activities that happened with penny stocks back in the 1980s and 1990s. It never ceases to amaze me how these kinds of things come around again and again – it is like we never learn!

– Dave Lynn