One in ten Chinese- US companies engaged in fraud

| 18/03/2011

(CNS): At least 10% of Chinese companies that have gone public on stock exchanges in the United States are engaged in fraud. The deals often involve establishing offshore holding companies in the British Virgin Islands, Cayman Islands, Samoa or another offshore jurisdiction in order to conceal illegal conduct, according to, an investigative news web-site controlled by well-known American businessman Mark Cuban. The claim was made to OffshoreAlert ahead of next month’s conference in Miami. Chris Carey, Editor and President of will be sharing the findings from the research conducted by the site in one of the conference presentations.

"Upwards of 400 Chinese companies have gone public on U.S. exchanges through reverse mergers," says Carey. "We’ve identified at least 40 deals – or fully 10 percent – that have involved some degree of fraud or deception. We recently turned up two Chinese reverse mergers in which the U.S. shell companies were controlled by close relatives of people who previously operated boiler-room brokerages that defrauded investors of millions of dollars. Given those connections, why would anyone want to invest in those companies?"

Investors who have been flocking to buy Chinese stocks on U. S. exchanges need to up the quality of their due diligence to avoid losses, Carey warned. “The presence of so many middlemen with previous SEC or FINRA violations should be an obvious red flag for investors and regulators. Just because a stock is listed on a U.S. exchange does not mean it has been thoroughly vetted, or that it has any sort of seal of approval.”

During the session guests will learn how to spot red flags, how to perform deeper research on the Chinese companies, and how to acquire and analyze Chinese tax filings and other documents to compare reported sales and earnings in SEC filings against reported sales and earnings for the underlying businesses overseas.

The conference takes place at the Ritz Carlton Miami 4-6 April.

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