Chinese firms on U.S. exchanges face fraud charges

By Claude Solnik The Daily Record Newswire After dozens of companies based in China went public in the United States over the past five years, regulators are uncovering fraud at some, cooling down what has become a hot sector of the stock market. Since March, more than 24 Chinese-based firms disclosed accounting problems or auditor resignations. This has increased Securities and Exchange Commission scrutiny and at least temporarily slowed the pace of Chinese firms going public here. "I don't want to say it stopped 100 percent," said David Bukzin, a partner at Marcum Bernstein and Pinchuk. "With all the accounting fraud, proven and alleged, combined with skittish investors, it shut it down pretty much." U.S. exchanges play host to at least 175 firms based in the People's Republic of China, more firms than any other nation outside the United States, followed by 145 from Canada and only 17 from Japan and Mexico, according to the Nasdaq. But in a rush to go public, regulators are finding that some companies filed financials that were flawed or fraudulent. Problems surfaced as Chinese firms went public through reverse mergers, buying listings instead of undergoing initial public offerings. "In the last year, there's been a significant amount of fraud uncovered in some of these Chinese companies for overstating volume and profits," said Bruce Madnick, managing partner at Friedman with Long Island offices in Uniondale. "There's been more scrutiny lately, especially related to these companies that do reverse mergers." The SEC over the past year suspended trading of China-based firms that underwent reverse mergers, including Heli Electonics, China Changjian Mining and New Energy and RINO International. Malone Bailey in March resigned as auditors of NIVS IntelliMedia Technology Group, based in Huizhou, Guandgdong, after finding what NIVS called "illegal acts involving the company's accounting records and bank statements and discrepancies in accounts receivable." Published: Thu, Sep 15, 2011