This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Short-Seller Cuts Through China Red Tape

Shortly after Bird posted China Sky One Medical's SAIC documents on his Web site, he took his information to the SEC. Company executives soon conceded in a public statement that Bird was right, and that the company's filings were in fact inconsistent. The only defense offered was that records filed with the SAIC aren't meant as an accurate picture of a company's total operations, or understood that way in China, but rather are commonly understood to be accurate only in respect to paid-in capital and ownership. Paid-in capital refers to the amount shareholders have invested.

A little less than a year later, in August, the company disclosed that the SEC had started a formal investigation focusing on accounting issues. Recently, China Sky One Medical announced disappointing revenue projections, explaining that suppliers were withdrawing to avoid entanglement with the SEC. The stock was selling for $16 a share in August 2009, when Bird first posted the SAIC documents. It's now at $8.

When TheStreet sought further information regarding SAIC filings from the SAIC, the agency didn't respond. Crocker Coulson, who handles investor relations for China Sky One Medical, offered a comment about SAIC documents from his own perspective.

"They're absolutely worthless as a signpost as to whether a company is a fraud," Coulson said.

Several investment professionals involved with RTOs on the long side -- among them Benjamin Wey, head of New York Global Group -- have suggested that discrepancies between financials statements filed with the SAIC in China and the SEC in U.S. are accountable to concern over tax payments, particularly China's value added tax, which amounts to 17% on most commercial transactions. The experts say that Chinese companies underestimate revenues in statements to the SAIC -- or delay the filing of accurate statements -- to hold their taxes down.

The notion that SAIC filings are largely meaningless finds little support among some experts. The Shanghai-born-and-raised Gerry Wang, CEO of a containership company in Vancouver, says his extensive network of friends and colleagues in China view accuracy in SAIC filings as an imperative.

5 of 6

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,915.07 -70.54 -0.42%
S&P 500 1,964.68 -8.15 -0.41%
NASDAQ 4,396.2040 -22.83 -0.52%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs