On this week's Stansberry Investor Hour, Dan and Corey welcome Edwin Dorsey back to the show. Edwin is the founder and editor of The Bear Cave newsletter, in which he conducts deep, investigative analyses of public companies for his 80,000-plus subscribers.

Edwin kicks things off by discussing The Bear Cave and his extensive work exposing corporate misconduct. He says, currently, his favorite companies to find for shorting purposes are those that are going to be hurt by technological innovations. Edwin gives education-support company Chegg as one example of a business that has already been disrupted by AI and has been employing questionable cancellation practices. And he discusses the growing market for lab-grown diamonds and how that will harm traditional retailers such as Signet Jewelers...

In 2022, [diamond prices] hit an all-time peak... Now [diamond prices are] really starting to free-fall. So when lab-grown becomes the standard and becomes endlessly cheap and... you can buy them online or at Walmart or anywhere, then that's going to put pressure on the price of natural diamonds... Signet, I think on all ends, is going to be hurt.

Next, Edwin talks about QMMM, a U.S.-listed Chinese company whose stock is being manipulated by overseas groups. He goes in depth on the manipulation tactics these groups use on social media to pump and dump shares of unprofitable companies, why it's so difficult to pinpoint the scammers and investors running this dark network, the investigative research he's doing to stay up to date on the scams, and how crowdsourcing from the community has helped increase awareness...

I estimate this is over $10 billion a year going from U.S. investors... to overseas stock scammers... These [scams] are so profitable, and all they need to do is just seem legitimate. So this whole dynamic people kind of have of, "Scammers are going to try to get me to transfer money to them" – that's kind of outdated. Now it's like they can just get the money by convincing you to invest in a Nasdaq stock that's going to fall 95% in a day. It's really funny how much it has evolved and how bad regulators have been at stopping it.

Finally, Edwin warns listeners that the overseas scammers will often engage in after-hours market manipulation, so the best time to short the companies is intraday. He further advises listeners not to take large positions because there is so much volatility in these scam companies. This leads to a conversation about why Edwin has never criticized electric-vehicle maker Tesla in his newsletter, the legendary saga of Netflix ex-CEO Reed Hastings responding publicly to short seller Whitney Tilson, and which sectors Edwin believes will be hardest hit by AI...

I looked at the earnings-call transcripts for a lot of major public companies and they all said call centers... [are] going to be a point of cost savings for us because we can use AI automation to get rid of a lot of the manpower there. I think it's something that's going to take maybe a year or two to play out, but I would not want to be long.

Click on the image below to watch the video interview with Edwin right now. For the full audio, including Dan and Corey's post-interview thoughts, click "Listen" above.

(Additional past episodes are located here.)

This Week's Guest

Shortly before graduating from Stanford University in 2020 with a degree in economics, Edwin Dorsey started a newsletter on Substack called The Bear Cave. He quickly gained a following and boasts more than 83,000 subscribers today. His newsletter focuses on corporate misconduct that he believes is misleading investors or harming customers. Unlike many others in the industry, Edwin doesn't make specific recommendations against any company he writes up. Rather, he just informs his subscribers and lets them use that knowledge to make their own investment decisions.

Dan Ferris:                 Hello, and welcome to the Stansberry Investor Hour. I'm Dan Ferris. I'm the editor of Extreme Value and The Ferris Report, both published by Stansberry Research.

Corey McLaughlin:    And I'm Corey McLaughlin, editor of the Stansberry Daily Digest. Today, we talk with The Bear Cave editor Edwin Dorsey.

Dan Ferris:                 We've had Edwin on before. He's not like anybody else because all he does is short sell research. And he's definitely somebody you ought to be reading if you're not doing so already. I know he'll have a lot of great things to teach us. Get your pens and pencils out and get ready. So, let's do it. Let's talk with Edwin Dorsey. Let's do it right now.

                                    If you like what you hear on the show, there's a free daily letter you'll love. It's called the Stansberry Digest. It's packed with our latest thinking on the markets and investing, written for folks who care about protecting their wealth, like you. And here's the best part. It's free, and it only takes a few seconds to sign up. Just remember this: StansberryDigest.com. That's it. StansberryDigest.com. Type it in when you're done with your drive or cleaning or whatever you're doing and we'll be waiting for you.

                                    Edwin Dorsey, welcome back to the show. Great to see you again.

Edwin Dorsey:            Dan, Corey, it's an honor to be back. I'm so happy to be back here.

Dan Ferris:                 All right. So, let's – before we get into specific stocks and whatever, let's remind our listeners who you are and what you're what you're all about.

Edwin Dorsey:            Yeah, absolutely. My main job is I write a newsletter called The Bear Cave that's broadly focused on exposing corporate misconduct. There's two elements to the newsletter. There's a free weekly recap where I summarize what's going on in the short seller world. I'll summarize new activist short campaigns, highlight suspicious resignations, and link to interesting tweets. And then, twice a month for the paid readers, I'll do these deep dives into companies that I feel are misleading investors, harming customers, or are on the wrong end of disruption. So, my publication is read by a lot of short sellers and investors who want to know what stocks to avoid, what's doing poorly in this market.

Dan Ferris:                 Okay. And let's – if we could, you mentioned people on the wrong end of disruption and other things. Do you have a favorite category of short? Every time I talk to somebody about shorting, they're like "Oh, I like to short stocks" and then they have this one idea. Do you have a favorite?

Edwin Dorsey:            So, I would say it's changed a little over time. Historically, I've been really good at the consumer protection angles where I'd be really great at seeing what consumers are complaining about to regulators. Under this administration, that's – this isn't the environment for those types of shorts, companies that – so, now I've shifted a little more to focusing on companies on the wrong end of disruption. So, I would say my favorite shorts right now are companies that I believe are going to be hurt by AI or some other form of disruption.

Dan Ferris:                 All right, so that sounds like a good idea to me.

Corey McLaughlin:    Me too. Yeah. I remember the first time you were here, the end of 2024. You talked about how you kind of got into this. And was it Care.com was one of the first ones that you were – that raised your eyebrows? And that's more of the consumer protection angle, right? Yeah.

Edwin Dorsey:            Exactly. So, Care.com, for listeners who might not remember from last time, was this billion-dollar publicly traded babysitting platform where babysitters could advertise their services to parents and parents could advertise their services to babysitters. And the big element of this platform is safety. You've got to vet the people and make sure they are who they say they are. And I saw that there was a bunch of lawsuits against the company. So, I decided to test out their screening myself and tried to sign up as Harvey Weinstein. I used a photo of Harvey Weinstein. I made up all the information. And lo and behold, at the end of the process, they said, "Do you consent to the background check?" I said, "Sure." And then, three days later, they approved me as Harvey Weinstein as a verified babysitter on their site. So, I knew they weren't doing their checks. And those are the types of shorts or diligence I've done historically, but now I'm focusing a lot on more of the disruption and a lot of U.S.-listed China scams. Those are kind of my two focus areas now.

Dan Ferris:                 I'm glad you mentioned both of those. Let's stick with the disruption while we're there. So, tell me about that. What does the diligence process look like for that versus looking for lawsuits on the consumer side?

Edwin Dorsey:            Absolutely. So, for disruption, it's going to depend on what it is. There's two big fields of disruption I'm looking at, which is AI and lab-grown diamonds replacing natural diamonds. We can talk about each of those. With AI, it's very company-specific. So, one of the companies I've criticized in the past that I was really proud of is Chegg. For those who don't know, Chegg was a multibillion-dollar homework help company where students would go, pay Chegg a monthly fee for help on their homework or getting answers. And right away, just as somebody who was in college not that many years ago, I knew this ChatGPT would be a perfect replacement for Chegg. It's giving you the answers right away. It's a lot cheaper. It's a lot faster. It's a lot more user-friendly.

                                    So, you don't want to just go off intuition; you want to find evidence to back up your claim. Now, sometimes it's in the financials, but if it's priced into the financials, it's too late and the market's reacting. So, I try to look at leading indicators before it appears in the financials. One easy thing you can do is that the customer base is on TikTok. You go on TikTok. So, this is very simple, but for Chegg all I did is I searched Chegg on TikTok and everybody's talking about deleting Chegg, which is not a good thing. And you'll actually find that students hate Chegg. They hate Chegg because it's expensive. They hate Chegg because in the past, Chegg has worked with schools to rat out students that were cheating, which might have been the ethically right decision but poor for the business because it doesn't engender goodwill. I found that students had a lot of animosity towards Chegg. They were excited to switch.

                                    And then, one final thing that is kind of consistent with the consumer protection angles that I talked about is I love it when companies try to make it a lot tougher to cancel. To me, that's a sign that the kind of end is near. And if you look at Chegg – and I document this in The Bear Cave – they made their cancellation flow from a simple just click to cancel to this really weird seven-step process. You cancel. "Are you sure?" "Are you absolutely sure?" "Can we give you a win back offer?" "A second win back offer?" Literally six stages. And then at the end they would say, "Oh, we're sorry to see you go." So, you think it would be canceled but you need to click one more time to confirm cancellation. So, you see those games, you see a lot of complaints to regulators about people getting billed after they've already canceled. You see the people leaving for a new product. So, that's one example on AI.

                                    A lot of other times it's just trying to be somewhat intuitive and understanding how the world's evolving. So, I haven't written about Shutterstock and Getty, two stock image platforms, partly because there's some complexity in that they're trying to merge with one another. But those to me are going to be obvious losers going forward. No one's going to pay $50 for a stock image if you can get an AI-generated one just as easily. I see this as a newsletter author myself. Substack has it embedded that we can just create AI-generated images super easily. So, that's kind of on the AI front and we can jump in a little more there and talk about call centers and call center software if you want, which are two other subsets of the economy I think are going to be hurt by AI.

                                    Now, the other area of disruption that I think is really prime for a short is the diamond industry. Especially if you talk to younger consumers, lab-grown diamonds are becoming increasingly popular. They're chemically, physically, and optically identical to natural diamonds, but a lot cheaper. And I think – and what the market is showing is that consumers are happy to shift to lab-grown diamonds, which is lowering the price of all diamonds. And I think it's going to upend the diamond industry and it's going to hurt retailers like Signet that sell a lot of natural diamonds.

Dan Ferris:                 Well, yeah, people have been talking about diamonds for so long. And finally, because they always said, "Well, it's a cartel and they have so many more diamonds than they're willing to release onto of the market, etc., etc., etc." and now, that dynamic, it doesn't matter anymore because you can grow them in a lab. I don't know anything about diamonds. Can I assume that you can –

Edwin Dorsey:            Well, I think historically the diamond industry is filled with misinformation and I'd love to talk about diamonds for a while. The diamond industry is built on marketing. I think historically people said "cartel." I think now it's maybe a little more loose than that where De Beers controls a lot. Alrosa in Russia controls a lot of diamond production. It's more that the lab-grown diamonds have been around forever, but only in the last two or three years have they gotten to such a quality that no one can really tell the difference between natural diamonds and lab-grown diamonds. They're the same thing, and they've gotten to a price point that is so much cheaper. And I think the traditional investor sentiments are "Well, guys might prefer buying lab-grown diamonds, but women will always want the natural thing." And you see what actual consumers are saying, especially the younger ones. The trade-off is simple. If you can get a bigger diamond that's higher quality, that's half the price, and spend more on your honeymoon, plus it's ethically sourced and doesn't involve any child labor negatives on the environment, that's a trade-off basically 9 out of 10 millennials will want to make and everybody's shifting towards lab-grown diamonds.

                                    So, this is an area of disruption that I think is going to continue. And if you look at some historical precedent, Dan and Corey, because I know you guys talked about metals and gold and stuff in the past, is in the 1800s, one of the most valuable metals was aluminum. Aluminum is actually at the top of the Washington Monument. People don't notice this, but 100 ounces of aluminum is the capstone of the Washington Monument because it was one of the most valuable metals at the time. And 10 years after it was built, aluminum lost 99% of its value because we were able to mass-produce it a lot easier. I think lab-grown diamonds are the same thing. We're – now that we have an influx of lab-grown diamonds, we're going to see the price of diamonds fall so much, it's going to become commonplace. And when something becomes commonplace, nobody wants it anymore. It used to be that women in the 1800s would have aluminum jewelry. Now nobody wears that. With diamonds, it used to be – people will have diamond jewelry in the future. It's so commonplace and so cheap, nobody's going to want it.

Dan Ferris:                 I understand the idea that Signet, for example, takes a hit on their natural diamond inventory. We get that part. But couldn't they become the biggest seller of lab-grown diamonds? Does this necessarily mean that they have to take a long-term hit to their business?

Edwin Dorsey:            That's a great question. And I think the answer is a little bit nuanced, which is screwing with the marketplace. Signet, in some ways, lab-grown diamonds are good for them because the margins are higher. So, even if it's a slightly lower price point, it's very cheap to produce, you can sell it – so, the margins are huge. I would say there's some evidence that Signet doesn't want a lab-grown diamond future, especially for engagement rings. Signet has kind of two divisions: engagement rings, which are about half the business, and fashion jewelry, like earrings and bracelets, is their other half. And we'll talk about each.

                                    So, for engagement rings, they very clearly do not want a lab-grown future and that's bad for them. And I'll explain why. But the indication that we know they don't want lab-grown is they've been launching new ad campaigns to push consumers back towards natural diamonds. They've added warnings to their receipts saying that lab-known diamonds may not hold their value, which is true, but natural diamonds won't either. They've said they put out initiatives to retrain their store employees to push people towards natural diamonds. So, for management and everybody, we see that they prefer a natural diamond future, which means if this lab-grown diamond trend continues, it's probably going to be a negative.

                                    So, even if the selling prices are lower, why does lab-grown hurt them for engagement rings if the margins are so much higher? And the argument I would make is even though it might be a temporary benefit if people's shift to lab-grown, in the long run, it's going to kill you because the history of lab-grown, and this is continuing, is just they get cheaper and cheaper and cheaper, and the selling prices go down and down and down. And this effect has been happening so much that it's also pressuring natural diamonds, where natural diamonds, for the longest time, were flat to going up-ish. They – even in 2022, they hit an all-time peak partly because of the Russia-Ukraine war and the supply being constricted. And only now are diamond prices really starting to free-fall.

                                    So, when lab-grown becomes the standard and becomes endlessly cheap and now anybody can retail it and you can buy them online or at Walmart or anywhere, then that's going to put pressure on the price of natural diamonds. It's going to put pressure on the price of lab-grown diamonds. And Signet's most profitable part of their business is selling warranties and extended service agreements on the engagement rings people buy. So, for a 10% markup, you can buy these warranties. That becomes less profit when the selling prices are lower. And if it's going to – if lab-growns truly become so commonplace, will people even want these warranties? So, in the short run, it might not hurt them this much because they're going to be going from a higher to lower selling point but with higher margins. But in the long run, if the prices just continuously decline, which the market's showing is what is happening and is what you'd naturally conclude, that would hurt them.

                                    Likewise, on the fashion jewelry side, so far it's a temporary benefit because now consumers can get really nice diamond jewelry for a lot cheaper. But in the long run, what we've seen historically is when these things become so commonplace, nobody will want them. And that's the bet I'm willing to make. And at the end of the day, if you're the world's largest diamond retailer, whether it's lab-grown or natural, if the price of diamonds continuously falls, that's going to hurt you. And you can even look at other lab-grown diamond companies like Brilliant Earth; they've done terribly since going public because it's tough to make money selling an item that's constantly losing its value at 2% to 3% a month.

Dan Ferris:                 My last thought about this is just that I could see somebody serving a very, very high-end customer surviving and absolutely thriving by selling only the super grade A natural diamond, whatever the highest rating of a diamond is. I have no idea. I don't know anything about diamonds in that regard. But that's obviously not a large market. And it's a guess that that might even occur. But, yeah, this sounds interesting and it sounds bad for Signet.

Corey McLaughlin:    Yeah, it does. Yeah. In addition to being that the short, I mean, it's also just a fascinating case study in technology meeting natural resources. And that's played out over time, over history. It's just – it's interesting to hear it about diamonds.

Dan Ferris:                 That was a great insight. Yes.

Corey McLaughlin:    Well, thank you.

Edwin Dorsey:            And to piggyback a little bit on what you said, Dan, which is maybe at the very high end people will stick to natural, part of me is a little hesitant when I hear that because there's really no way to tell the difference. Even jewelers cannot tell the difference anymore, where professional jewelers are being fooled. Now, that could be true. And if it is true that the high end sticks to natural, Signet doesn't cater to the high end. Signet caters to the lower- and middle-income consumer. They have the Jared, the Zales, the Kay. They're kind of mall-based. They have those commercials, "Every kiss begins with Kay." Their customer base is totally different, which is – even just being a mall-based company, that's a little dying. Typically, the independent jewelers give a much better value proposition than the Signet, which invests so much more in marketing.  I've been in a few of the stores. It seems a little outdated and old. So, there's CODI – C-O-D-I – is a publicly traded company that owns Lugano Diamonds, which is the very highest end and they only do natural diamonds. They're going to be the ones that if your intuition is correct will benefit. But Signet, I think on all ends, is going to be hurt. Yet we've seen the stock rally a ton recently, and it's just because this huge long-term headwind is actually a short-term benefit in a way. And I think that's befuddling the market.

Dan Ferris:                 Wait a minute, let's clarify. Huge long-term headwind is a short-term benefit how?

Edwin Dorsey:            So, lab-grown diamonds are a huge long-term headwind because they're going to drive down the price of all diamonds. But they're a short-term benefit because right now, you can sell them at a price point where you can still make a huge profit margin off them.

Dan Ferris:                 Oh, I see. Okay. Got you.

Edwin Dorsey:            Because if a consumer gets a lab-grown diamond ring now, it might be half the cost but it's going to be an 80% profit margin, but in the future, the natural diamonds and lab-grown are going to be much lower price points.

Dan Ferris:                 Right. The supply has not caught up yet. So –

Edwin Dorsey:            Exactly.

Corey McLaughlin:    Yeah, I'm looking at this chart now, and Dan, it's – this is one of the stocks that has doubled since March, that we were just talking about in another episode, but it's still, what, 10 price-to-earnings. So, yeah, there you go.

Dan Ferris:                 Not priced for it to do much. Yeah. All right. So, that's a pretty healthy disruption there, lab-grown diamonds. And – as is AI. Do you have – I know you've written recently about a couple of stocks like QMMM.

Edwin Dorsey:            Yeah.

Dan Ferris:                 And you – actually, let me talk – there's something I want to ask you about specifically with this one.

Edwin Dorsey:            Yeah.

Dan Ferris:                 I noticed in the first couple paragraphs of your write-up you mentioned that it – the stock QMMM Holdings is being manipulated by an overseas stock manipulation group, and it's a Cayman Islands holding company operating in Hong Kong. Now if you just told me, "Cayman Islands holding company," I'd say, "red flag." And if you told me, "operating in Hong Kong," I'd say, "red flag" or dark pink or whatever, you know what I'm saying? But when you tell me, "overseas stock manipulation group, Cayman Islands, Hong Kong," it's like, "red, red, red." It's just – and how do you know, though? How do you identify something manipulated by an overseas stock manipulation group? Most people probably don't even know this exists, I'm thinking.

Edwin Dorsey:            Yeah, so the way I first – I've known for a long time there's a lot of U.S.-listed Chinese companies that come onto the market through an IPO or reverse merger and tend to be overvalued or lie about their business and then collapse. This was documented in 2017 in The China Hustle. It's gone on for a long time. But it's actually evolved to something different. And what made me start looking at this phenomenon of manipulated Chinese stocks this year was one of your past guests. Herb Greenberg started writing a few stories about these WhatsApp groups using WhatsApp to manipulate stocks. And then there was a story by Dave Michaels in the Wall Street Journal about CLEU, which was a pump-and-dump that used Facebook ads to recruit people to WhatsApp groups and convince them to buy this worthless stock. And then that manipulation group made $400 million from the pump-and-dump, half of which was seized by U.S. prosecutors before it transferred to China. And seeing those two things, Herb Greenberg is talking about it and Dave Michaels is talking about it and there's a lot of money here, and there's publicly traded securities, it made me want to dive in headfirst and understand what is actually going on.

                                    So, the way these manipulation groups work is they typically take out ads on Facebook or Instagram to convince people to join WhatsApp groups. Sometimes it will impersonate big personalities like Cathie Wood. Sometimes it will make up fictitious brands. And then they control the floats of these stocks. They'll own 80%, 90% of the float. They'll send it up through wash trading. And then towards the end stage in these WhatsApp groups, they'll convince you, the average investor, to buy it. And it's usually not just "Hey, buy this scam stock." They'll spend months convincing you that they're legitimate by giving you good stock recommendations on legitimate stocks and then try to convince you to buy this scam stock right before it collapses.

                                    And I've gotten in a lot of these WhatsApp groups. I know a lot of people in the WhatsApp groups. I even made a website where anybody can upload screenshots from these WhatsApp groups into  a crowdsourced library. And that's allowed me to more accurately kind of predict how these scams are evolving and when they're going to collapse. So, I've written about four in The Bear Cave so far. Three have already collapsed. QMMM is in the process of collapsing. But it's definitely a huge focus area for me that I love to talk about.

Dan Ferris:                 Okay. Have you ever shorted Canadian stocks?

Edwin Dorsey:            No. I know there's a lot of –

Dan Ferris:                 A lot of manipulation.

Edwin Dorsey:            – scammy ones there. And they do more paid stock promotion. The WhatsApps are slightly different and I think on a much larger scale too.

Dan Ferris:                 Okay. Interesting. And so, specifically QMMM, which I didn't tell the listener what they do, it says "Digital media advertising service, virtual avatar, and virtual apparel technology company," whatever any of that means. I'm not sure what all of that means.

Corey McLaughlin:    Virtual apparel technology. All right.

Dan Ferris:                 Yeah. Virtual avatar. I've got to get me one of those. I don't know what it is, but I've got to get me one of those. So, this stock is being manipulated by – on WhatsApp or whatever, plus it's in the Cayman Islands, plus it's operating in Hong Kong. Do you think there's a real business there operating?

Edwin Dorsey:            Typically, all these stocks have a really small underlying business. So, QMMM is – as far as I can tell, they produce commercials for small and medium-sized businesses in Hong Kong. So, there's a real business doing a few million dollars in revenue. It's declining. It's an unprofitable business. At the core of these stock scams, which reach hundreds of millions of dollars of market cap, is just these small and medium-sized businesses.

                                    Another one was CUPR that had eight employees. That had $50,000 in annual revenue. $50,000. Okay? Less than $100,000.  It's a very tiny business and they did maggot-based health care. So, they're – I'm dead serious. They would sell you maggots that you could put in a wound that would clean up the wound. It is just the weirdest business in the world. And the thing that makes these stock scams so different now is historically with these Chinese companies you would be lying about the revenue and profits and business model. What the scammers have figured out is "We don't need to lie at all. We can say we're a small business. We can say we're unprofitable. We can say revenues are declining. As long as we have a ticker, we'll be able to manipulate it and dump it onto these WhatsApp groups." And I mean, there are hundreds of these stocks that are being manipulated with one or two crashing every week. And I'm trying to get really good at predicting which ones are about to collapse.

Dan Ferris:                 Right. So, if you know – I don't want to be too specific here. Let's say there's a North American city where a lot of people are just printing up shares for really suspicious reasons. And let's say if you know a lot of people in that city, you know the next time person XYZ puts out an offering and starts a company or whatever, you know at some point, this thing's going to pump and crash and dump. So, it would seem to me that if you knew who the actors were in China or Cayman Islands or wherever they actually physically are –

Corey McLaughlin:    It's like you're talking about Washington, D.C. Dan. Geez.

Dan Ferris:                 Yeah, that's right, Washington, D.C. Yeah, DJT. You could just look for their next thing. I mean, do you – so, do you look actively for the people who tend to be behind these things or do you not have to worry about that because – for whatever reason?

Edwin Dorsey:            I think your intuition is dead right. And in the U.S., I do a lot of that. I try to track board members from one failed company to another or the underwriters or whoever. With these Chinese companies, it's not really that simple because the businesses, I think, are unconnected and the boards are unconnected. I think the way it kind of works is these scam operations based in Southeast Asia find small businesses that are legitimate and convince them, "Hey, go public. Look, look the other way. You don't need to do anything. You have possible deniability and we'll guarantee you you'll get $20 million in your bank account." So, it's not actually like the business – it's like there's this dark network that I haven't been able to fully figure out that's going to each of these businesses. And so, it's not that –

Dan Ferris:                 That was my next – Edwin. Edwin. That was my next question. Are they starting scam businesses or are they doing what you're saying? So, they're approaching real small businesses –

Edwin Dorsey:            They're approaching legitimate businesses. Yeah. And then you – so, they do issue them – so, typically – it's so insidious. There's a pump-and-dump right after the IPO where the kind of insiders will sell. And then usually they repump them. So, if you look at QMMM, just look at the stock chart, you'll see it initially went from $4 to $12 and then collapsed to a dollar in November 2024. And now it's slowly been pumped again to about $5. And it's down a lot today. But – so, it gets repumped.

                                    And what people don't realize is a month and a half ago or two months ago, they sold 40 million shares of stock, more than doubling their shares outstanding, at $0.20 a share through a [private investment in public equity ("PIPE")]. And you might wonder who are these investors? And the investors are – and these PIPEs are all the same. They're the scammers but they don't disclose who the scammers are. They never say the names of the scammers buying all the stock at $0.20 that's now going to be dumped at $5 in these WhatsApp groups to people before they collapse. So, it's not easy for me to track the individuals because the ones who we do get disclosed are kind of irrelevant and a byproduct of the scam and the ones who actually matter are hiding their identity. It's easier for me to track these WhatsApp groups and just – I'm in a lot of them. I spend an hour a day talking to scammers and FaceTiming them. And I'm really trying to get in the weeds of the infrastructure here. So, I pretend to be a victim and a useful idiot to them to actually see how they're operating.

Corey McLaughlin:    That's awesome.

Dan Ferris:                 Yeah. So, just to let the listener know what we're looking at here, since January 1, the low in this stock was April 11, $0.65, the high was August 26, $5.17, and it doubled in the month of August. The stock did. It doubled from, what, August 11 to August 26, not even the whole month. I mean, just breathtaking. Amazing.

Edwin Dorsey:            Yeah. It's crazy. And because the scammers are being issued a ton of stock at well below market, they're making a killing. I estimate this is over $10 billion a year going from U.S. investors being promoted stocks in WhatsApp groups to overseas stock scammers. And the back-of-the-envelope math is we know from the Wall Street Journal article CLEU and the kind of indictment there made $400 million. And there's more than 25 of these every year. Twenty-five would come out to about $10 billion a year.

                                    Something funny, though, is you join these WhatsApp groups, like I do, and they start telling you to try to build trust "Buy Rocket Lab, sell it two days later. Buy Palantir, sell it two days later." So, they give you a bunch of legitimate recommendations, but this enterprise is so profitable they can invest in things to make the scam seem more legitimate. So, one of the fake WhatsApp groups I'm in is called F&C Asset Management. And there's a real firm called F&C but these guys are impersonating that. And they told me "Do these trades" and I'm pretending to do the trades. And they want screenshots to verify you're doing the trade so they know you're real and following their advice. And they said, "You're such a good person. You're following our AI-driven plan. We're going to send you some gifts in the mail. We're going to send you a mug and you can get –" And I'm like "There's no way this mug arrives. They're not going to actually send it." And they're like "Check your mail." And I checked it and it's not coming. And they're like "Oh, it's probably delayed." But I checked my mail and I actually got a real mug from the scammers. So, this is a scam group impersonating a real asset management firm, sending me branded tumblers to encourage me to continue to be part of the scam. This came from a scam group spending $50 to ship me tumblers and stuff because these are so profitable and all they need to do is just to seem legitimate. So, this whole dynamic people have of  "Oh, scammers are going to try to get me to transfer money to them," that's kind of outdated. Where now it's they can just get the money by convincing you to invest in a Nasdaq stock that's going to fall 95% in a day.

Dan Ferris:                 So, Edwin –

Corey McLaughlin:    They're so elaborate. It's crazy.

Edwin Dorsey:            It's really funny how much it's evolved and how bad regulators have been at stopping it.

Dan Ferris:                 Yeah, what I'm wondering is these people are sophisticated enough to run this scam on WhatsApp or wherever, they're sophisticated enough to use the Internet, but they can't use the Internet to look you up and know that you're the Bear Cave guy looking for scams? I mean, it's just like what? It seems crazy to me.

Edwin Dorsey:            There's so much craziness. One of my favorite things I'll tell you, Dan and Corey, is sometimes they impersonate legitimate asset management firms. Sometimes they make up firms and say, "We're part of whatever, XYZ Asset Management." Other times they'll impersonate social media accounts. So, if you look on X, you'll often see in the replies, people are saying like, "Hey –" trying to impersonate the account and then they'll have a WhatsApp link. You click on those; it'll bring you to the scammers. There's one scammer who's even impersonating me. So, I'm talking to a fake Edwin Dorsey and he's giving me stock recommendations and I'm talking back. And it's just –

Dan Ferris:                 I love it.

Edwin Dorsey:            There's just nothing stopping these guys. It's super profitable. It's getting worse.

Dan Ferris:                 It's surreal.

Corey McLaughlin:    And so, you said you've put together an open-source repository of all these scams. Is that in your newsletter or is that available elsewhere?

Edwin Dorsey:            No, it's – this is freely available for everybody. Everyone should – I'm going to put this – it's called StopNasdaqChinaFraud.com. That's what the website is called. And you can go to it and basically anybody can upload screenshots from these scam group chats. StopNasdaqChinaFraud.com. And it has a little bit over 500 uploads so far. It's getting about 50 a day. So, if you're in these scam group chats and you come to this site, you'll see "Okay, everybody else is being scammed. This is how they work." It gives me and anybody else who goes to the site a near-real-time look into what stocks the scammers are promoting so I can track and see in real time what they're doing.

                                    So, it's partly investor awareness, partly a useful tool for me. And I hope one day it'll help law enforcement shut all these accounts down. And what I've found is when you free up information and try to bring transparency to issues, then that leads to unexpected insights. So, right now, I have 600 or so, 500 or so screenshots from all these WhatsApp groups that I and others have submitted to the site. Somebody e-mailed me last night saying, "Look, I was on the site and I work in the telecom industry and I realized all the phone numbers used by the skimmers are from T-Mobile." And I'm like, "How do you know what carrier?" And it turns out you can actually easily find out what carrier every phone number is associated with. And what we determined is T-Mobile has the easiest way to get multiple eSIM cards per telephone. So, all these scammers are using T-Mobile because that's how they can impersonate U.S. numbers the easiest. And literally 100% of them are using T-Mobile. And that little insight you can only get when you crowdsource information, but that's really useful. Now law enforcement can one day go to T-Mobile and say, "Why are you doing all this? Give us the payment records for these numbers." And it becomes slightly easier to shut these down and understand the infrastructure.

Corey McLaughlin:    That's great. That's a great resource just for people in general. And then, the fact that you're doing the work and then – yeah, hopefully it reveals all of it. That's awesome.

Dan Ferris:                 Yeah, and there are posts every day. I mean, there's screenshots every single day and a lot of them on each of the recent days.

Edwin Dorsey:            Yeah, thanks for that.

Dan Ferris:                 So, it's really cool. You're building something there. That's really great.

Edwin Dorsey:            And it's not just the U.S. Something that surprised me is I thought it's going to be a lot of U.S. and really old people. It's not. It's international. There's posts in Arabic and Hebrew. And I talked to somebody in Qatar who lost $270,000. It's very much international, even though the companies are always listed on the Nasdaq. And it's really sad because a lot of these people are just honest, hardworking people with a low degree of financial sophistication that are convinced to buy it. And even after they get scammed, what the scammers will often do is they'll say, "Oh, we have another stock to make back the money for you." And that stock will always be a scam. It never ends. And then towards the end, you'll be pitched recovery services. They impersonate regulators. So, they'll make it seem like they're from the SEC or FBI and they want to talk to you and they say, "Look, we're investigating the scammers." So, the scammers will impersonate regulators investigating the scammers and say, "Hey, we know you lost this much, and if you pay us 10% of that we'll recoup the money and add you to a lawsuit." And so, they scam you a third time. There's no limit to the craziness that goes on. And it's just affecting ordinary people. And part of the reason I think it hasn't been shut down and we've seen no regulatory scrutiny was if it was affecting really wealthy people, I think there would be a lot – there would be lawsuits. They would be getting shut down fast. But it's just affecting ordinary Americans who lose $50,000 to $100,000 in these schemes. And usually they're a little bit at fault, so they feel embarrassed, they don't want to come forward. But I hope with enough attention, it can change.

Dan Ferris:                 Yeah, I do too.

Corey McLaughlin:    Yeah, me too.

Dan Ferris:                 Oh, man. It's a sad state of affairs, but I don't know, that's the way a lot of things in this world are. It's no surprise to me that there are just legions and legions and legions of people on social media who have enough money, like you're saying, $200,000, that one guy $270.000, and yet know so little that they can't detect an obvious scam right from the get-go. That's just sort of the way it goes, isn't it? I mean, if you wipe them out here, they pop up over there. It's impossible to get rid of them almost. Or not.

Edwin Dorsey:            I mean, that's part of the reason I think podcasts like this that just bring at least some level of education to everybody, it's so important because it can give you useful insights, but it can also just teach you how the world works to avoid these pretty obvious scams. It's just crazy.

Dan Ferris:                 Yeah, yeah, there's just – the older I get and the more I think about this sort of thing, it's like levels of awareness. It's not merely forest for the trees. It's like – you're young and it's like tree, two trees, 10 trees, 20, and then you get to be 60 after doing this for almost 30 years, and it's like forest. Finally. It's like you've got to hike backwards 10 miles to see the forest. And that takes years. And there's no substitute for it either. And it – and educating people, which I think is a large part of what you do, really, you're educating people about this, whether they realize it or not, you're teaching them what to look for. And then you have StopNasdaqChinaFraud.com, and that is an explicit tool for that type of education. And yet, you can learn to short these things, can't you? You can turn it around. You can turn the tables.

Edwin Dorsey:            Yeah. So, well, there's just two sides to it. There's the education and awareness side, which is great. And one criticism people give is "Well, they're only going to see your posts after you've written them." Okay. So, people love to criticize me for all sorts of things. They'll say, "Well, it doesn't help them because they only – they see it after you've written it." And I say,
"That's true in most cases. But that's still good because it prevents them from being re-scammed." Once you get scammed, you lose the money, and you come to my post because you wonder why the stock is down. You understand how the scam works and you're not going to invest another one of these. These people frequently just get pitched the second scam. And some people do find it before it collapses.

                                    Now on the shorting front is – these things – so, somebody made a joke post. This isn't real. But somebody on Reddit said they lost their entire net worth shorting the companies I highlighted as scams because they took these huge positions and then it squeezed after hours. And what the scammers will do is they'll often try to manipulate the stock after hours up 200%, 300% just to drive out any short sellers who might not be aware. So, really, if you do short these, it needs to be small positions. The way professionals tend to short these is they take big positions in the morning and then cover right before the close. That way, if there's manipulations in the after hours, it won't affect them.

Dan Ferris:                 Yeah, after-hours manipulation is a global industry.

Edwin Dorsey:            Yeah. Especially for these where they love to harm the short sellers and they kind of control the float. So, you only want to short them when they're being promoted in the WhatsApp groups, which means the float is more distributed. You typically want to do it intraday. And historically, these things collapse most frequently around 3:00 p.m. For whatever reason, 3:00 p.m's on Wednesdays and Thursdays are the favorite time of scammers to let these things collapse. So, once you – I think the free part of my newsletter I want awareness and warning, and then for the more paid professional readers, I'm like "Let me tell you the nitty-gritty of how these like to do it." But the big salient point I want to say is nobody should take huge short positions in these because manipulated stocks can be manipulated more. It's a risky thing.

Dan Ferris:                 That's right. It's worth pointing out. Shorting is hard. Most of our listeners probably shouldn't do it.

Edwin Dorsey:            Yeah.

Dan Ferris:                 But that – but what I'm really just kind of figuring out here as you're talking, as we're talking, is that shorting is hard, most of our listeners probably shouldn't do it, but you should really read good short research.

Edwin Dorsey:            Yes.

Dan Ferris:                 You really, really should. I mean, there's just no substitute for it. What we do with lots of due diligence and good analytical work on the long side, that's great and it goes quite a way. It's good as far as it goes and it goes quite a way, but there's a piece there that's missing if you don't read some good short research at least now and then. There is definitely a place, even if you never short one stock. Just saying.

                                    So, I have a question for you here.

Edwin Dorsey:            Yes.

Dan Ferris:                 One of the better guys over the years who I've gotten the odd short idea from directly or indirectly is Whitney Tilson.

Edwin Dorsey:            Yes.

Dan Ferris:                 And he famously was shorting Netflix, I think it was, and met with the CEO and then turned around and went long, which was the thing to do. Do you ever – I mean, you're looking, you're not looking at Netflix here, or maybe you are, but you're looking at these god-awful China frauds and other things. Do you – have you ever once – has it ever happened that you are looking through the – basically the scum of the market earth, have you ever found a situation like that where you said, "Oh, not only is this not terrible; it's a decent long idea?"

Edwin Dorsey:            I've never – so, I don't short the companies I write about in my newsletter. I really try to make it clear to my readers I make money from reader subscriptions and not trading it. So, if – I've done a lot of times where I start the research process digging into something that seems like a consensus narrative and the company is terrible, but then I can't reach that conclusion and maybe then it's a good long. That has happened a lot. But if I'm at the point where I'm writing about it in my newsletter, usually I feel like the issues are so multifaceted, there's a problem with the business and there's a kind of ethical aspect with the management team that's wrong. I'm not going to just write about it if there's an overvaluation which can be corrected or a single issue.

                                    So, because there's usually some big underlying integrity issue with the businesses I write about, it's not one of those that a little bit of a governance switch can fix. Maybe in one or two cases, there were ones that were very CEO-focused. Like, I wrote about Six Flags because they had a really bad CEO, but now that the CEO's gone and they merged with someone else, maybe then it can do a little better. But most of the time – like, Signet is going to, I think, suffer regardless of who the CEO is, regardless of what they announce. I think it's just kind of really going to...

                                    So, I don't do that a lot. Sometimes, I see these short – I think sometimes the most consensus short ideas can be to me some of the worst ones. People love to rail against Tesla. Tesla has had so many short sellers for so long. And I'm really proud of the fact I have not once criticized Tesla in my newsletter because I just – if I don't have an opinion on whether the stock is going to go higher or lower, I just think there's so many worse people – companies out there. Tesla's doing useful things. Elon Musk, you might hate him, but he is a smart individual who's good at building businesses.

                                    So, to me, I'm proud of avoiding that one. Even though it may be a good short, it's not my favorite thing. And I give a ton of credit to Whitney Tilson. So, Whitney wrote that Netflix short. And then, what happened is – so he – Reed Hastings, the old CEO founder, he had the best response ever to a short seller. And I encourage you and every listener to look at this, and this is part of the lore is usually they love to threaten to sue the short sellers or call the short sellers idiots or ignore the short sellers. Whitney Tilson wrote a detailed blog post – sorry, Reed Hastings wrote a detailed blog post to his friend Whitney Tilson publicly just going point by point by point on why he thought the short thesis was wrong. And I think the stock is up 100X or something since then.

                                    And that spoke to me because you never see executives do that. And I'm just amazed more people haven't copied that Reed Hastings approach of "Here, in a neutral tone of voice, not being accusatory or threatening, just let me politely lay out the future." And ironically, Whitney Tilson was a little right in the short term because Netflix stock did dip a little. But in the long run, Reed Hastings totally, totally was right. And that's what's missing in the market, is respectful disagreement, being measured. And if I ever saw a CEO respond like that to an activist's short report writing a detailed, respectful, non-inflammatory blog post, to me, that's the one sign that'll make me think "I want to get long this heavily shorted stock."

Dan Ferris:                 Yeah, that is – yeah, we've had Whitney on and he told that story. It was a great story. Yeah.

Corey McLaughlin:    He did tell that story. And he'll also tell you that the mistake he made was not holding onto Netflix long enough and letting the winners run as well. And so – but yeah, I think you're right. If you're – if you believe in your business, if your CEO believes in your business and think you're doing all of the right things and have a good strategy, why would you not kind of publicly at least even acknowledge some criticism and just address it head on? When they don't, that's a signal too, right? So – or various levels of denials and going silent, that's a signal too, right?

Edwin Dorsey:            Yeah.

Dan Ferris:                 Right. No, Edwin, though, you make – that's a great point. Every – overwhelmingly, overwhelmingly, the responses are even like cussing the guy out in public or what – the CEOs just – they just go off. They go off. They say, "This person's an idiot. They don't know what the hell they're talking about." A pretty famous conference call, Jeff Skilling called a guy a profane name and it was  a hot mic kind of moment. And it would be – even if they were a good short, they could probably really coast for months or more if they just handled it right. If they just got – did that credible point-by-point response, if they could pull off anything like that, they remained polite and respectful and just said, "No, no, no, we disagree" and didn't go off. But they don't do that. You think they'd figure it out. You think people would figure many things out. I guess you could say that with a lot of things. But I don't know, it seems like low-hanging fruit for the heavily shorted CEO to me.

Edwin Dorsey:            We've got to start an advisory for the companies that get hit by short reports, saying "This is how you respond." Like the Lehman Brothers CEO, he literally said, "I want to rip the short sellers' hearts out." And it's like "Come on guys, we have a pretty good precedent here with Reed Hastings. Literally just copy that and you'll get a 10% bump just from people believing."

Dan Ferris:                 Right. Just from that little extra doubt. Because right now, as it is, boy, you get the right guy putting out a short report on you and the day he puts it out, you are just crushed. So, yeah, that'd be nice. Well, I don't know if it'd be nice, but it would be logical.

Edwin Dorsey:            Yeah.

Dan Ferris:                 And who knows? If you got more people to behave reasonably, maybe there would be some kind of self-fulfilling prophecy. Maybe we could educate people to the point where some of them might see the error of their ways. And if it's 1 in 1,000, it's worth it.

Edwin Dorsey:            Yeah.

Dan Ferris:                 Just prayers, hopes and prayers is all that is. I just want to put it out there. I've got to – I'm getting older. I've got to put this stuff out in the universe because you need to leave as many good vibes as possible behind you. But yeah, I figured out the answer would be basically "No, I'm not having Netflix moments with Whitney every 10 minutes" or whatever but it's a question worth asking.

Edwin Dorsey:            Yeah, that was a long way of answering, "No."

Dan Ferris:                 Yeah. Yeah, sure. No, and it's a good way of answering no. And it's – the Whitney/Netflix example is a really great case study and I think we've established that. You could probably go and Google the blog post.

Corey McLaughlin:    Yeah. Before we get out of here, I do want to go circle back to the AI sector that you're looking at just briefly, on the companies that are viable to be disrupted or the sectors – or, the top, I don't know, one or two that you're looking at right now.

Edwin Dorsey:            I think the biggest – so, there's homework help companies like Chegg and Nerdy. Those are  already priced in. There's the AI stock image companies because AI can generate images more easily. That'd be Shutterstock and Getty. That's a little complicated because they're trying to merge. Beyond that, I think the three areas that are most prime for AI disruption are call centers, by extension call center software companies, and then business process outsourcing, which is also often – that gets synonymous with calls centers. Basically, these businesses that employ huge numbers of people in countries like India, the Philippines, developing world economies where you can get labor really cheap to do historically pretty monotonous tasks. Some of these business process outsourcers, they all say, "We're not going to be hurt by AI," but I like looking at their customer case studies. What have you actually done for customers?

                                    And one of the business process outsourcing companies said, "We work with the bank and we transcribe 500,000 hours of recorded audio from their customer service departments." I'm like "AI is perfect for that." " We have humans approve or deny accounts based on risk metrics." I'm like, "AI is perfect for that." Even now with call centers, increasingly we're going to see calls – customer service issues being prevented before a phone call by AI. We're going to see AI – a lot of times in call centers, the work is a human answering and then routing you to the right person. We're going to see AI do that more. I think the future of customer service is going to be more in-app-based. People solve their own issues, and then when you can't, you go to an AI and you explain the issue. And if they can't solve it, then it goes to a human very briefly who has all the context they need to make decisions.

                                    I looked at the earnings call transcripts for a lot of major public companies, and they all said call centers, contact centers, whether it's a bank or a telephone company, these huge organizations that have big call centers, they said, "This is going to be a point of cost savings for us because we could use AI automation to get rid of a lot of the manpower there." I think it's a little bit – it's something that's going to take maybe a year or two to play out but I would not want to be long any call center, business process outsourcing companies. Teleperformance is a big one in France. Concentrix, CNXC, is a big one in the United States. Those are ones that I just think the headwinds are so strong, this is not a business primed for the future.

Dan Ferris:                 All right. Well, thanks for that. I mean, I'm writing all that stuff down. I'm writing down every ticker, every company, everything so I can avoid it all, if nothing else. But it is time for our final question.

Edwin Dorsey:            Awesome.

Dan Ferris:                 It's the same question for every guest, no matter what the topic, even if it's a non-financial topic, same identical question. If you've already said the answer, by all means feel free to repeat it. The final question is: For the sake of our listener, if you could leave them with one takeaway, just one thought today, what would you like that to be?

Edwin Dorsey:            My one takeaway, circling back to the beginning of the call, is don't buy natural diamonds. They're going to lose all their value. Don't buy natural diamonds. This is not the time to buy a natural diamond.

Dan Ferris:                 All right. Sounds like sound advice if you're worried about the value of that thing sitting on your finger there for a year after year.

Corey McLaughlin:    Not a store of value anymore.

Edwin Dorsey:            No way.

Dan Ferris:                 Right. Well done. So, thanks for that. And thanks for being here, Edwin. It's been a pleasure to talk with you again.

Edwin Dorsey:            Absolutely. Thank you guys so much for having me. I admire the show and I'll continue to be a listener.

Dan Ferris:                 All right. Well, you will continue to get a call every now and then to be on it. So, there's that too.

Edwin Dorsey:            Thank you, guys.

Dan Ferris:                 Edwin is a lot of fun to talk with, isn't he?

Corey McLaughlin:    Yes.

Dan Ferris:                 He's great. And I would like to reiterate what I said. Most people should probably not short stocks, but you really should read some short research, even if you don't do it every week or even every month. If you're a serious investor who's buying stocks for themselves, individual stocks, doing bottom-up work or whatever, you should see some good short research. It's a totally different way of looking at things. And it melds well with the person who's looking for a good business that's well run, that's more than legit, generating cash flow, doing all the wonderful things that a good business does. It's a nice – it's the other side of the coin, almost. But yeah, I really enjoyed that. He's a lot of fun to talk to. I mean, just that alone.

Corey McLaughlin:    Yeah, great talk. Great to talk to. Great interview again with him. I – yeah, on your point about just the short research, to me, it's like – at its heart, it's just journalism. It's like financial journalism, where you're – that is worth reading because if for nothing else, if you don't do a single trade, you're aware of what these companies are doing and that these things like these Chinese scams or – in WhatsApp groups exist, which that alone from this interview, I feel like hopefully will be a benefit to a lot of people, that the scale of that even exists, and his website for it, which I'm going to check out right after this. So –

Dan Ferris:                 Yeah, that is a great point, Corey. It's like some of the best financial journalism you'll ever read. And people wonder – they open up – I know I look at – after 30 years, I'm looking at the Wall Street Journal going, "Okay, which of these 900 news stories do I want to read today? Or the Financial Times, New York Times, anything. And one of the sort of must-read – I think that's a good way to think about short research. It's like must-read journalism for serious investors buying their own individual stocks. So, that idea alone, I think, just getting that insight from Edwin made this a really great fun interview for me. And I hope it was fun for all of you too.

                                    And that's another episode of the Stansberry Investor Hour. I hope you enjoyed it as much as we really truly did. We do provide a transcript for every episode. Just go to www.investorhour.com, click on the episode you want, scroll all the way down, click on the word "transcript" and enjoy. If you liked this episode and know anybody else who might like it, tell them to check it out on their podcast app or at investorhour.com, please. And also do me a favor, subscribe to the show on iTunes, Google Play, or wherever you listen to podcasts. And while you're there, help us grow with a rate and a review. Follow us on Facebook and Instagram; our handle is @InvestorHour. On Twitter, our handle is @Investor_Hour. Have a guest you want us to interview? Drop us a note at feedback@investorhour.com or call our listener feedback line, 800-381-2357. Tell us what's on your mind and hear your voice on the show. For my co-host, Corey McLaughlin, until next week, I'm Dan Ferris. Thanks for listening.

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