Chinese Firms Defrauding Foreign Investors

Some Chinese firms have seen the opportunity to take part in stock offerings on international exchanges as a chance to make quick profits through shortcuts and tricks used to fool investors.

On June 21, 2023, the Shanghai Composite Index fell below the key psychological level of 3,200 points, closing at 3,197.9, essentially returning to its early 2023 state. The image depicts an illustration of the stock market. Mandy Cheng/AFP PHOTO

SEC SUSPENDS TRADING: A flag flies in the wind in front of the U.S. Securities and Exchange Commission building in Washington, DC in this file photo. In 2011, the SEC suspended trading in a number of Chinese Reverse Merger companies for misstatements in public filings. Chip Somodevilla/Getty Images

Some Chinese firms have seen the opportunity to take part in stock offerings on international exchanges as a chance to make quick profits through shortcuts and tricks used to fool investors. The latest trick is that a Chinese operating company merges with an existing U.S. shell company that has been legitimately set up and gone public for access to the investment community. This is called a reverse merger.