How a push for more IPOs fueled a wave of scams

Subscribe to enjoy similar stories. The U.S. government has tried to address the long decline in stock-exchange listings by relaxing the rules for small public companies.

But this approach creates a persistent risk: more stock scams. The quandary is on display now at the Securities and Exchange Commission. Its chairman, Paul Atkins, is pushing to further ease the reporting obligations for many smaller companies under a 2012 statute called the JOBS Act.

The law gives special treatment to “emerging growth companies," or EGCs, including exemptions from many accounting, auditing and disclosure requirements. At the same time, Atkins is leading a fresh attack on stock frauds targeting individual investors. Since late September, the SEC has suspended trading in 12 companies’ stocks.

That is more suspensions than in the previous four years combined. The SEC cited potential manipulation that appeared to be aimed at inflating the stocks’ prices and volume. The critical link: All 12 are emerging growth companies under the JOBS Act.

Though the acronym stands for “Jumpstart Our Business Startups," these aren’t American companies. It is highly doubtful any of them could have gone public on U.S. exchanges without the JOBS Act and the regulatory relief afforded by their EGC status.

All 12 are based in Asia, including four in Hong Kong and one in China. Ten went public this year, and two last year, on the Nasdaq Stock Market. All 12 initially went public as “penny stocks," pricing their IPOs at less than $5 per share.

Yet most didn’t stay that way. QMMM Holdings, which is incorporated in the Cayman Islands and based in Hong Kong, had a $6.8 billion market value when the SEC suspended trading in September. Just a few weeks earlier, its