With Chinese small caps, it’s buyer beware

May 11, 2011

Today’s special report “Chinese stock scams are the latest U.S. import” shows again that when it comes to a bargain, it’s buyer beware. In this case, when a small-cap Chinese stock seems to promise outlandish growth, it might be worth finding out more before you buy.

Some of the questionable companies made their way onto U.S. exchanges via reverse mergers — a private company buys enough shares of a public firm to essentially become publicly traded.

NYSE and Nasdaq have delisted several companies and have a veritable “skid row” of more than a dozen firms that have been halted for weeks or months pending requests for information about accounting problems and late regulatory filings. (For an up-to-date list, see: http://www.nasdaqtrader.com/Trader.aspx?id=Tradehalts)

Of the more than 600 companies that obtained entry to U.S. exchanges via reverse mergers between January 2007 and March 2010, a total of 159 were from the China region, according to the Public Company Accounting Oversight Board (PCAOB). While many are legitimate, some turn out to be outright pump-and-dump schemes and other scams.

To read the story in PDF format, click here.

Here’s what happened to the share price of one company in the story:

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I knew China’s communist owned stocks were too good to be true!

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