DOJ Charges 2 Chinese Men in $950 Million Pump-and-Dump Scheme
Udumbara
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The Justice Department (DOJ) has charged two Chinese men with inflating the share price of a Chinese company and inflicting a $950 million loss on U.S. investors.
Alleged Pump-and-Dump Scheme
According to prosecutors, beginning in April 2025, Zhao and Sen engineered fraudulent securities offerings that placed the majority of Ostin’s shares into the hands of their co-conspirators. At the same time, the pair allegedly launched an aggressive campaign to artificially inflate the price and trading volume of Ostin stock through social media and messaging apps, with some promotions impersonating licensed investment advisers and financial professionals to lure in retail investors.Within two months, Ostin’s market capitalization surged from about $22 million to more than $1 billion, according to the indictment. As the stock soared, Zhao and Sen allegedly arranged brokerage accounts for their associates, who then dumped millions of shares obtained through sham offerings onto unsuspecting investors.
On June 26, Ostin lost more than 94 percent of its market value in a single day, erasing $950 million in capitalization. Prosecutors say the scheme netted the conspirators more than $110 million, while leaving investors with heavy losses.
“[The DOJ is taking action] quickly to seize the proceeds of these crimes and mitigate losses for victims.”
Neither Ostin Technology nor the Nasdaq has been accused of wrongdoing. Nasdaq’s website showed that on Sept. 12, it halted trading of Ostin shares, pending the company’s response to a request for additional information.
Rising Scrutiny of China-Based Companies
The indictment comes as both stock exchanges and federal law enforcement intensify scrutiny of companies with operations based in China.On Sept. 3, Nasdaq proposed a new set of rules imposing additional requirements on Chinese listings. The exchange stated that it has conducted a proactive review of trading activity, particularly of the “emerging patterns associated with potential pump-and-dump schemes in U.S. cross-market trading environments.”
The case also underscores the risks tied to the variable interest entity (VIE) structure, in which an investor has a controlling interest in a company despite not having a majority of voting rights. This business structure has allowed many Chinese companies to bypass Beijing’s restriction on foreign ownership and tap into U.S. stock markets.
Typically, a Chinese company seeking to list in the United States first establishes a shell corporation in a third jurisdiction, such as the Cayman Islands. Through a series of contractual arrangements, the shell company gains a claim on the Chinese firm’s profits without directly owning the company.
As a result, when U.S. investors purchase shares in a Chinese company listed through a VIE, they are actually buying shares in that offshore shell corporation. In other words, they do not possess ownership rights over the Chinese company.
Ostin is registered in the Cayman Islands and used a VIE to list on Nasdaq. According to the U.S.–China Economic and Security Review Commission, as of March 2025, about 160 Chinese companies listed on major U.S. exchanges were using this VIE structure, with a combined market capitalization of roughly $1 trillion.
“These companies provide few protections to investors, facilitate the flow of U.S. investor funds into strategic industries in China, and can be used to facilitate fraud in the U.S. markets, including schemes such as ‘ramp and dumps’ and other market manipulation targeting U.S. investors,” a statement announcing the strategy reads.
