IPO Underwriters’ Role in Chinese Stock Fraud Probed by House

IPO underwriters in New York are under scrutiny from US lawmakers over their role bringing Chinese companies to market that were allegedly involved in stock manipulation schemes.

The “ramp-and-dump” schemes involving shell companies listed on US exchanges are directly tied to a “systematic assault” on US investors mounted by the Chinese Communist Party, the House Select Committee on China said in letters shared exclusively with Bloomberg Law announcing the investigations.

The letters were sent Sunday to executives at D. Boral Capital LLC, Dominari Securities LLC, and Revere Securities LLC. The House panel, led by Reps. John Moolenaar (R-Mich.) and Ro Khanna (D-Calif.), claims the underwriters—knowingly or through inadequate controls—enabled manipulation tied to small-cap IPOs by companies with variable interest entity structures that “provide American investors no actual ownership in the underlying Chinese businesses.”

The letters cite a Bloomberg News report estimating $16 billion in market capitalization has been erased since 2023 through apparent stock manipulation schemes.

Foreign companies targeted in the schemes have drawn more than a dozen trading suspensions by the Securities and Exchange Commission since the agency under Chairman Paul Atkins announced a cross-border task force last September. The House investigation takes aim at their New York-based underwriters.

The letters also highlight a “nominee account” infrastructure that allows individuals inside China to open brokerage accounts en masse funded by undisclosed third parties and “controlled by hidden PRC principals.”

The committee seeks detailed records dating back to 2020 covering underwriters’ due diligence, “know your customer” verification practices, and off-channel communications.

The underwriter executives contacted by the committee didn’t immediately respond to requests for comment Monday.

The panel last April sent letters to JPMorgan Chase & Co. and Bank of America Corp., demanding that they withdraw their involvement in the IPO of Contemporary Amperex Technology Co., designated by the US Defense Department as a “Chinese military company.” The committee has also asked Webull Corp. about the trading platform’s alleged ties to the CCP.