Pomdoctor lands in crosshairs of Nasdaq’s ‘pump and dump’ cleanup

The company has been targeted in an aggressive two-year-old campaign to delist suspicious Chinese companies from Wall Street

Key Takeaways:

• Pomdoctor said it has been notified by the Nasdaq that its shares could soon be suspended under an expedited delisting process
• The company’s stock has lost 99% of its value since it raised $20 million in its U.S. listing about a year ago

By Doug Young

Here today, gone tomorrow.

That could soon be the story for Pomdoctor Ltd. (POM.US), which has become the latest company to get snared in a cleanup of Chinese microcaps listed on the Nasdaq. The campaign began last year, and so far has targeted about a dozen Chinese stocks.

Most of these stocks share a common “pump and dump” story. The companies were all relatively large at the time of their listings on the Nasdaq, often with market values of $100 million or more. But the stocks all fell sharply not long after their listings, often losing 90% or more of their value in just a matter of weeks or even days, leaving unsophisticated mom-and-pop investors with huge losses.

After being criticized for doing little or nothing while this wave of Chinese companies bilked U.S. investors of millions of dollars, both the U.S. and China have taken steps to stop these companies from listing in New York. But the Nasdaq ultimately bears responsibility for getting rid of the several dozen companies that already listed at inflated valuations, only to see their shares sink deeply into penny territory.

The Nasdaq’s newest tool in the cleanup is its own relatively new policy, launched in October 2024, that expedites the delisting process for these rapidly shrinking companies. Pomdoctor cites that policy in its announcement last Saturday, saying it was informed by the Nasdaq that its shares could be suspended as early as Oct. 15.

Normally, the Nasdaq requires all companies to maintain a stock price above $1. Falling below that level for 30 consecutive trading days represents a compliance failure for the company, which then gets 180 days to bring its stock back above the $1 level. Most companies typically do that through reverse share splits.

But under the new policy begun two years ago, companies whose shares trade below $1 for 30 consecutive days are denied the 180-day grace period to regain compliance if they have already conducted a reverse share split in the past year. That’s exactly the case for Pomdoctor, a digital health company, which conducted an 18-for-1 reverse share split in June this year to bring its stock back above the $1 level.

But the stock continued to fall after that, and last closed at about $0.71 on Thursday, giving the company a meager market capitalization of just $6.6 million. In its announcement last Saturday, Pomdoctor said its stock would be suspended on Thursday this week unless it appealed the decision. The stock continued to trade on Thursday, meaning the company probably filed the necessary appeal by an Oct. 13 deadline.

But the Nasdaq has shown it will move quickly to suspend trading in shares of these fast-shrinking companies that don’t seem to offer any value to investors. Since rolling out the new policy two years ago, the Nasdaq has taken similar action against about dozen companies in similar situations to Pomdoctor. That’s resulted in share suspensions for a few of the companies, including Baijiayun Group, which was suspended in May last year, and MingZhu Logistics, which was suspended last December.

Shrinking company

Pomdoctor is quite typical of this group. It listed about a year ago after selling its American depositary shares (ADSs) for $4 each, raising about $20 million and valuing the company at nearly $500 million. The stock initially rose above $5 until one day last December, when it suddenly tanked to $0.50 from its $5.42 close the previous day for no apparent reason.

The stock has moved steadily downward since then, and without the 18-for-1 reverse split in June would currently trade at about $0.0394, about 99% below its IPO price. The company’s financials don’t look extremely impressive, but they do reveal it has a substantial business. Its revenue rose to 185 million yuan ($27.6 million) in the first half of this year from 174 million yuan a year earlier, according to its latest financial report. But its loss also ballooned to 238 million yuan from 20 million yuan over that time, mostly due to a huge jump in operating expenses.

While that might not win the company any awards for stellar performance, the plunge in its stock began well before it released those latest results. That means the slide probably owes to other factors, and many observers might guess that Pomdoctor was a classic case of “pump and dump” manipulation that benefited a few insiders when the price was artificially high.

In addition to its expedited delisting procedure, the Nasdaq also rolled out new rules last year to stop more companies like Pomdoctor from listing in the first place. Under those rules, all new Chinese listings must raise at least $25 million, and they must also maintain public floats of at least $5 million. Pomdoctor’s float is almost certainly below that level by now, meaning the Nasdaq could also target the company for delisting on that basis.

U.S. politicians are also taking steps to cut off these listings by targeting their sponsors that are typically small investment banks. In March this year, a congressional committee sent letters to three such underwriters, implying they could be held accountable if the companies they sponsored later turned out to be pump-and-dump cases.

China is also taking steps to cut off this flow of companies, which ultimately damage the country’s reputation when they conduct these suspicious listings. The China Securities Regulatory Commission (CSRC), which must approve all overseas listings by Chinese companies, has approved only one Nasdaq listing this year in April for DSC Holdings (DSC.US), which provides software and transaction services for the used car industry. DSC completed the listing in June, raising $51 mln. But its stock has moved steadily downward since then and is now 73% below its IPO price.

We doubt that too many people will miss Pomdoctor if and when its stock is kicked off Wall Street, which looks quite likely. The stock rarely trades more than 100,000 shares per day, which, at the latest price, translates to less than $71,000 per day. The biggest losers in this cleanup campaign will be the companies themselves and penny-stock traders. Meantime, the Nasdaq deserves credit for finally taking more aggressive steps to clear out this group.

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