Reuters Investigates

With Chinese small caps, it’s buyer beware

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:

Let’s be ethical, economists say

Last month’s special report “For some professors, disclosure is academic” has been making waves in the academic world, as this story shows:

Economists urge AEA to adopt ethics code: letter

By Kristina Cooke

NEW YORK (Reuters) – Almost three hundred economists have signed a letter to the American Economic Association “strongly” urging it to adopt a code of ethics requiring disclosure of potential conflicts of interests.

The 135-year-old American Economic Association, or AEA, does not have a code of conduct for its approximately 18,000 members. Over half of its members are academics, according to its website.

“We strongly urge that the AEA create and then promote adherence to a professional code of ethics that at a minimum requires transparency with respect to potential conflicts of interest,” Gerald Epstein and Jessica Carrick-Hagenbarth of the University of Massachussetts, Amherst wrote in a letter sent Monday to the AEA.

“We believe this would be an important and necessary step toward enhancing the credibility and integrity of the profession,” they wrote.

An economic giant’s Achilles heel

A year ago, Nick Carey went on a road trip around America for a project called “Route to Recovery” that took him to places hit hardest by the recession. Nick went to Saginaw, Michigan, this time for a follow-up special report on the manufacturing sector and structural unemployment: “Is America the sick man of the globe?”

One of the characters he met was Olen Ham, a retired GM worker and UAW member who is among the last of those who took part in the historic “Sitdown Strike” in 1936 that he says helped create America’s middle class. You can hear from Olen in this video:

Manufacturing has borne the brunt of the lay-offs in recent years, as this graphic shows:

Here’s another graph that shows how unemployment and manufacturing are closely linked.

SAC Capital’s Steve Cohen yells fore!

Matthew Goldstein

Wall Street and golf have had  a long and storied love affair. And over the years, many a hedge fund manager has given up the trading game to spend more time on the links.

But the revelation that SAC Capital has hired a former institutional stock broker to spend most of his time on prestigious golf courses, schmoozing corporate executives and wealthy investors, is another stark example of what separates hedge fund managers from mere mortal investors.  As several securities experts told me, it doesn’t really matter whether or not a corporate executive says anything of real substance to Steve Cohen’s unofficial golf pro, Sam Evans. What matters is that Cohen and his traders are getting the kind of unique and intimate access to corporate executives that ordinary investors can never dream of.

The story comes at a time when regulators are trying to create a level playing field for investors. But as Donald Langevoort, a Georgetown University Law Center professor says, the notion of creating fair markets where all investors are treated the same is a “myth” and it is a “myth that a lot of people put to good use.”

To read this special report in multimedia PDF format, click here.

Flash crash fallout

From Europe to India, policymakers are grappling with the fallout from the harrowing, 20-minute stock market meltdown in May that was quickly dubbed the “flash crash”. Electronic markets are suddenly suspect. But will regulators try to reign in modern trading advances?

Jonathan Spicer examines the likely impact on exchanges around the world in our latest special report: “Globally, the flash crash is no flash in the pan.”