{"id":21712,"date":"2011-06-14T13:00:44","date_gmt":"2011-06-14T17:00:44","guid":{"rendered":"http:\/\/www.investmentu.com\/?p=20267"},"modified":"2011-06-14T13:00:44","modified_gmt":"2011-06-14T17:00:44","slug":"backdoor-ipos-and-reverse-mergers-a-chinese-recipe-for-scandal","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/fx\/2011\/06\/14\/backdoor-ipos-and-reverse-mergers-a-chinese-recipe-for-scandal\/","title":{"rendered":"Backdoor IPOs and Reverse Mergers: A Chinese Recipe for Scandal"},"content":{"rendered":"

Backdoor IPOs and Reverse Mergers: A Chinese Recipe for Scandal<\/a><\/p>\n

by Tony D’Altorio<\/a>, Investment U<\/em> Research
\nTuesday, June 14, 2011<\/p>\n

Since 2007, more than 150 Chinese companies have been listed in the United States through reverse mergers or backdoor IPO listings.<\/p>\n

These types of listings happen when Chinese firms merge with a U.S. publicly traded shell company. Many of these listings are found on less regulated stock exchanges such as the Pink Sheets, the OTC Bulletin Board and NYSE AMEX.<\/p>\n

These reverse mergers and backdoor procedures allow Chinese companies to become public without the regulatory rigors involved in a traditional initial public offering (IPO).<\/p>\n

In recent months, short sellers have attacked a large number of these types of Chinese companies – accusing them of fraud or other wrongdoings. This has caused shares of these companies to tumble and have inflicted huge losses on unlucky investors…<\/p>\n

Investing in China Becomes Unsettling… <\/strong><\/p>\n

With so many of these reverse merger and backdoor Chinese companies now under a cloud of scandal, investors in China<\/a> are getting increasingly unsettled.<\/p>\n

Especially since the United States is at the center of this storm. In the past six months alone, more than 25 New York-listed Chinese companies disclosed accounting discrepancies or saw their auditors resign.<\/p>\n

Most of these firms are small and slipped onto the exchanges in the past few years through the reverse merger process described above.<\/p>\n

Regulators are now reversing that process.<\/p>\n