Foreign Media Look At The Scandals Of Chinese Companies Overseas Listing

In recent months, the short sellers have launched an attack on the unprecedented number of overseas listed Chinese companies, accusing them of fraud or other misconduct.

This has led to a sharp fall in share prices of these companies, making some very famous ones.

"It seems that the degree of hysteria has been fermented to the extent that it has cast a shadow over all Chinese enterprises seeking to raise funds in the US market," said William Mcgovern, a partner in Kobre & Kim law firm in Hongkong and a former law enforcement officer of the SEC (SEC).

"Now the situation has become difficult for investors to distinguish facts from false appearances."

Sino Forest, a Chinese forestry group listed in Toronto, has evaporated more than 2/3 since last Thursday.

Previously, Muddy Waters, founded by Carson Block, a short seller, alleged that Sino Forest exaggerated the value of sales and its woodland, Bullock said.

In response, Sino Forest counterattacked last Friday.

The company issued a strongly worded statement denying the allegations, and said it was "selfish" to fish in troubled waters, but the company

Paulson is not the only big player involved in the storm.

Carlyle, the largest foreign investor in China Forestry listed in Hongkong, has been suspended since its chief executive was arrested on suspicion of embezzling $4 million 600 thousand in public funds in January.

But while the two big companies have attracted the most coverage, dozens of smaller Chinese companies listed overseas are also in trouble.

The United States is the center of the storm.

In the past six months alone, more than 25 Chinese companies listed in New York either disclosed their accounting problems or saw their auditors resign.

"Although the vast majority of these Chinese companies may be legitimate enterprises, it is proved that more and more companies have significant accounting problems or blatant frauds," said Lewis Aguilar, Luis Aguilar, at an Investor Forum in April.

Most of these Chinese companies are small, and in recent years, they have entered the American stock exchange through the way of shell buying and listing, which has enabled them to avoid the initial public offering (IPO) review process.

Nasdaq and New York Euronext have suspended the licensing of at least 21 small and micro Chinese companies in the past year and have delisted 5 of them in.

In the face of strong protests from investors, the SEC has conducted an investigation into these companies and American auditors and intermediary networks that sell them to the public.

But due to the lack of cooperation between Chinese regulators, the SEC's investigation has not progresses smoothly.

Investors are increasingly worried about whether they can take many Chinese companies' financial statements seriously.

In 2007, China's software company Deutsche, an initial public offering in New York and a $210 million Chinese software company (Longtop), was alleged to have "very serious flaws" in its audit firm DDT (Deloitte) last month, including forging its bank statements in 2007 under the arrangement of Deutsche Goldman and Goldman Sachs (Sachs).

Southeast Finance said an internal investigation has been launched.

With the increasing number of such cases, many investors began selling Chinese stocks listed overseas.

They fear that the share price will go down further, or worse, they will be locked up because they are suspended.

Peng Bo's (Bloomberg) China stock index, which is listed in the us through shell buying, has plummeted nearly 40% this year and its market value has shrunk by more than 10 billion dollars.

But for some stocks, the trend may be reversed.

Yongye International, a Chinese fertilizer producer listed on Nasdaq, is a prominent example. Its share price fell 20% last month, because the hedge fund Absaroka Capital Management, headquartered in Wyoming, accused its fraud.

In response to these allegations, Yip has defended himself.

Last week, Morgan Stanley's Asia Private Equity Department injected $50 million into Yong Yip, calling it "an outstanding company" by Morgan.

This prompted Yat Yip's share price to soared by 40%, causing short sellers who had opposite positions to suffer.

Violet Ho, China head of Private Investigation company Kroll, said that most Chinese companies listed overseas are fundamentally reliable, even though they sometimes fail to meet American disclosure and corporate governance standards.

But he warned that there are also some cases of deliberate deception -- the whole enterprise is a carefully constructed fraud.

Like Enron Bernard and Bernard Madoff, Chinese companies that cheat are likely to be popular for years after being exposed.