China stock Pheton plunges 90% in minutes after pump-and-dump warning

[NEW YORK] Pheton Holdings, a Nasdaq-listed Chinese health care company, lost 90 per cent of its market value in a matter of minutes on Tuesday (Jul 29), hours after a Bear Cave research report said that it may be the target of a pump-and-dump scheme.

The shares closed trading on Monday at US$30.96 and opened on Tuesday at US$31.25, drifting slightly higher. Then, around 12.26 pm in New York, they suddenly sank 11 per cent and triggered a volatility halt. When trading resumed 90 minutes later, the stock’s plunge reached 89 per cent before trading was halted again.

Over the course of Tuesday afternoon, Pheton resumed trading and was halted at least eight more times, as it extended its decline to 95 per cent. The shares ended the day at US$1.65, with a market capitalisation of US$40.8 million, down from US$765 million on Monday.

Bear Cave’s report, released just after 8.00 am in New York, urged US regulators to stop trading in Pheton’s stock because it appears that overseas groups are manipulating the price, putting it “at risk of a near-term, severe stock collapse”. The report alleges that “scammers” have used false rumours that Gilead Sciences will acquire Pheton or agree to partner with it as soon as Aug 6 to boost the shares.

Pheton Holdings shares had surged more than 600 per cent this year to Monday’s close.

The company did not respond to a Bloomberg News request for comment outside of its normal business hours. A spokesperson for Gilead declined to comment on the report, saying that “it’s our practice not to comment on market rumours or speculation”.

“These unsubstantiated rumours match a familiar pattern in which overseas stock scammers promote tightly held US-listed Chinese companies on the basis of spurious M&A rumours, only for them to later experience sudden intraday stock collapses, often falling 90 per cent or more,” Edwin Dorsey, the report’s author, wrote.

The stock is just the latest example of wild trading moves seen in Chinese companies that trade on Nasdaq.

Ruanyun Edai Technology, which was listed in April, shed 91 per cent on Jul 14. Park Ha Biological Technology, a skincare product developer, lost 93 per cent on Jul 8. Jayud Global Logistics shares saw a record 96 per cent plunge on Apr 2. China Liberal Education Holdings shares shed 98 per cent in one day in January, and then in June, the stock was suspended from trading by Nasdaq, which also denied a company request to continue its listing.

In June, shares of Regencell Bioscience Holdings extended a rally from a February low of 82,000 per cent before tumbling 87 per cent in a nine-day streak of losses. The company, which has reported six consecutive years of net losses, blamed the surge on a short squeeze, a phenomenon where short sellers rapidly buy back borrowed shares to exit a trade, sending the stock even higher. BLOOMBERG