A new documentary, “The China Hustle”, just released by Magnolia Pictures, reveals an ongoing and significant financial scandal relating to Chinese companies who, combined with U.S. banks engage in a scheme to defraud U.S. investors. The scam is significant and highly relevant given the ongoing concerns of trade and economic balance between the nations. It involves something called “reverse mergers” in which an active Chinese company merges with a formant shell company which is already listed on NASDAQ or another exchange here. The shell company is no longer operating and when the merger occurs, the Chinese company is suddenly trading on the exchange. The film is available On Demand or through Amazon video and Netflix.
Surprisingly, until recently, no one, including the Securities and Exchange Commission has looked closely at the Chinese companies to see if they are operational in accordance with their required SEC filings.
The Chinese companies are guided to the stock exchange by small investment banks, including Roth Capital Partners in California and Rodman & Renshaw in New York. This was done without the kind of audits or oversight usually attendant with U.S. companies entering an exchange.