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Deal Wizard Meets His Match in China

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The same pitch is heard from a lot of Chinese stock promoters, repeated in deal after deal.

"We believe China's economic growth is poised to outpace that of the rest of the world for the foreseeable future and believe U.S.-listed Chinese stocks present one of the most compelling ways to participate in this trend," said Mark Tobin, co-director of research at Roth Capital, in a press release regarding Roth's "Fifth Annual China Tour" last April.

It was Byron Roth, CEO of Roth Capital, who brought Heckmann and Xu Hong Bin together. Heckmann was ripe for the approach. He had used his new special purpose acquisition corporation, called Heckmann Corp. (HEK), to raise some $400 million on the American Stock Exchange, telling investors the money would be used for acquisitions. His enthusiasm had brought former U.S. Vice President Dan Quayle to the company's board, along with famed football coach Lou Holtz.

Byron Roth -- native Iowan, son of a Mennonite farmer -- is a key figure in the world of Chinese small caps. His firm has underwritten public stock offerings and arranged PIPE financings (private investment in public equity) for dozens of reverse merger companies, prospectuses and SEC records show. The firm has a solid reputation in the investment business but has caught plenty of criticism in connection with China stocks. If there were league tables for reverse merger deals, Roth Capital would be close to the top, along with Rodman & Renshaw (RODM), Brean Murray Carret, Global Hunter, Maxim Group and Piper Jaffray (PJC - Get Report), a firm that occasionally handles the larger offerings.

According to Roth Capital's Web site, the firm has done $2.9 billion in China-oriented deals since 2003. The firm's office in Shanghai actively prospects for companies with good growth stories. Back at headquarters in Newport Beach, Roth's bankers and brokers build financial backing packages with private placements of stock among trusted investors. Later, when the time is right, they underwrite new equity issues to the investing public. Often, some early holders have the chance to exit with big profits after the public enters, TheStreet's review of the sector showed.

Among the early investors in China Water, Roth had some powerful allies. The first was Pinnacle Advisors of Plano, Texas, founded by Barry Kitt. Pinnacle frequently operates in tandem with Roth on reverse merger deals. The two companies have close ties. Kitt has sent his son and daughter to work in Roth's office in Shanghai. Pinnacle too regularly prospects for promising companies in China. Among investment pros focused on China -- dozens of them spoke to TheStreet for this series -- Kitt is known as the grand master of the China-based reverse merger.

Kitt declined to comment about China Water when contacted by TheStreet.
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