This Day On The Street
Continue to site right-arrow
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!

Loopholes From Here to China

Stocks in this article: RINO CXTI ONP CGA GFRE BBCZ

"It's extremely difficult to police the small-cap market," said Jacob Frenkel, a former SEC attorney who is now a partner at Shulman Rogers Gandal Pordy & Ecker. "It would take assigning all of the SEC Enforcement division's resources for two years to make a meaningful dent. If you had 800 attorneys suddenly looking at the sector, things would change."

At the heart of the controversy over RTOs is the notion that Chinese companies are "cooking the books" to hold down taxes in China while simultaneously appealing to growth-oriented investors in the U.S. David Gentry, CEO of stock research firm RedChip Companies, says it is not unusual for Chinese companies to have two to three sets of books. "They have one for the banks, one for the State Administration For Industry & Commerce and, if they're public, one for the SEC," says Gentry, whose firm handles investor relations for Chinese reverse merger companies.

Requests for comment from China's State Administration for Industry & Commerce brought no response. A spokesman for the Chinese embassy in Washington said there is no systemic misreporting of business results in China.

"It's not true," said Wang Baodong, on behalf of the embassy. "Like any other country in the world, there may be some loopholes. But the Chinese government has been working hard to improve the tax system by focusing on building a mature market economy."

Baodong said that the People's Republic is encouraging Chinese enterprises to strictly abide by the local laws and regulations in countries where they do business, "to combine the pursuit of benefit with social responsibilities."

The SEC and its counterpart in China, the China Securities Regulatory Commission, signed a memorandum of understanding in April 1994 and then enhanced it in May 2006. The agreement calls for improved cooperation between the agencies, particularly in the area of enforcement, but has so far produced little in the way of concerted action.

Drew Bernstein, chairman of Orient Paper's audit committee and a partner with accounting firm Bernstein & Pinchuk, says the sheer complexity of compliance with two different regulatory systems in two very different languages represents a major challenge, both for small companies based in China and for regulators in the two countries.

3 of 7

Select the service that is right for you!

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 17,356.87 +288.00 1.69%
S&P 500 2,012.89 +40.15 2.04%
NASDAQ 4,644.3120 +96.4780 2.12%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

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