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The office of Benjamin Wey, head of New York Global Group, a company that has for years been at the center of promoting Chinese reverse merger stocks, was searched by the Federal Bureau of Investigation (FBI) on Jan. 25.
The news of Wey’s office being raided was first reported by Roddy Boyd, publisher of The Financial Investigator, on Jan. 26, and was confirmed to The Epoch Times by the FBI.
Peter Donald, a spokesperson at the Office of Public Affairs at the FBI’s New York Field Office, said that “These searches were conducted in relation to an ongoing FBI investigation… when the time is appropriate we can potentially disclose additional information.”
A reverse merger, also known as a reverse takeover (RTO), is a way for a private company to go public without going through the lengthy process of an initial public offering (IPO), which demands greater scrutiny and higher costs.
The technique has been used extensively by stock promoters like Wey, who would find publicly traded “shell” companies in the United States—called such because they are usually no longer operating—and have a Chinese company perform a merger with the shell, providing a fast, cheap, and convenient way of giving the Chinese company access to the U.S. capital markets.
A number of Chinese RTOs have been plagued by allegations of fraud in recent years. Because of the structure of the reverse merger process with Chinese companies in particular, investors have little to no legal purchase on the underlying assets of the company they are investing in, unlike when they invest in a publicly listed company based in the U.S.
Chinese company bosses are also protected from litigation by shareholders who may wish to sue them when revelations surface of fraudulent land transactions, inflated margins, or entirely non-existent business operations.
The market for Chinese RTO stocks collapsed precipitously in 2011 after a series of high-profile scandals brought to light by short sellers such as Citron Research, Alfred Little, Muddy Waters, among others.
