Friday 24 January 2020

The China Hustle

I just watched a documentary on Netflix called The China Hustle, it is about how small companies in China list themselves onto the stock market (NYSE) using a tactic called 'reverse merger'.

The show is about how companies with essentially nothing or small business in China was able to list onto the NYSE with documents that show them as huge companies.

They do this by having to merge with companies that are listed in NYSE but are no longer in business where most of these companies are located in Nevada.

I find this show very infomative and disturbing because throughout the show, they mention of big company names that help get these China companies listed as they go through audits and law firms help them as well but no one raised any questions when things were suspicious.

By listing the China companies in NYSE, retail investors like you and me can buy them and by doing so, we are essentially buying a business that has no value in China and not as advertised by the investment company that they are the biggest agricultural company in China.

In reality, the business in China for these listed China companies are close to nothing as researched by Muddy waters, a company that suspected what was happening.

So as retail investors and funds buy into these stocks, which are actually worth nothing, the CEOs of the China companies profited and when it was finally revealed that the companies were a hoax, the prices nosedived or even delisted.

As the stocks were rated well by the various companies, funds were able to buy into them and they had a promising outlook as they were marketed as huge companies. 

What was really upsetting were the numbers provided at the end of the documentary, public pensions and retirement funds lost about an estimated $14, 000, 000, 000 to the Chinese reverse merger funds.

There were a few other individuals who lost huge amounts with one old man wanting to grow his retirement fund and he bought shares priced at $9 each and he recouped them at $0.12 per share. He bought $26, 000 shares. Another had about half of his assets in and mostly became delisted and not tradable.

Its scary when you think about it, the companies that benefited from this whole thing and only one China company CEO went to jail, the rest were free and they all earned a huge amount of money by being listed.

After watching this, it just shows how vulnerable we are as retail investors, we need to make sure that our money is being put into places that are safe or at least true and real. But what if the regulators and companies rating gives a false impression, then it will be much more difficult to decipher what is real and what is not.

So do catch it on Netflix if you have the time during this CNY long weekend, take care as the first case of the Coronavirus has been detected in Singapore. 

1 comment:

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