This Day On The Street
Continue to site
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

Loopholes From Here to China

"If these [Chinese] companies are having problems, how many problems do you think the SEC is having?" Bernstein said. "It's a combination of lack of resources and being overwhelmed."

Even the harshest critics of the RTO category concede that there are plenty of Chinese companies -- even small caps -- offering solid opportunities for investors. At the same time, the skeptics caution that individual investors will likely find it difficult to separate the good from the bad.

"The problem is that it's difficult for investors and U.S. regulators to bridge the language, cultural, and structural barriers to understand what's really going on in China," says Carson Block, the short-oriented researcher who started the stir over Rino.

Block argues that a lot of surprises involving RTO companies stem from inadequate research by American investors.

"Chinese companies disclose in their U.S. filings that they have internal control weaknesses," Block says. "Investors would do well to take these disclosures seriously."

The Challenge for the Exchanges

Investors like J.M. Hughes may be forgiven for assuming that a company's mere presence on a major American stock exchange guarantees some degree of integrity. Chinese companies unable to secure a domestic listing have found it easier to get listed in the U.S. by exploiting the RTO as a loophole. When the legitimacy of one of those companies is brought into question, the exchanges have no option but to delist the company.

"Companies falling below or failing to meet the markets' continuing listing standards are notified and dealt with swiftly, in a transparent process that ensures timely information and updates to shareholders and all other constituents," a spokesperson for the NYSE explained.

In that event, the damage to investors can be even worse than it was for Hughes. When the NYSE Amex delisted shares of Bodisen Biotech (BBCZ) -- a stock that had once traded as high as $21.30 -- the stock tumbled to a low of 45 cents.

The exchanges try to filter out problem companies with requirements for listing that might seem perfectly adequate -- at first glance.

To secure either a new or upgraded listing on either the Nasdaq or the NYSE, a company must have a board of directors that meets regularly and includes a majority of outside directors. Companies must also establish an audit committee, consisting solely of independent directors with financial experience. Under the Sarbanes-Oxley Act of 2002, audit committees have very specific legal responsibilities in the U.S., including adequate oversight of financial reporting, hiring external auditors and maintenance of regulatory compliance with accurate financial statements.
4 of 7

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

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
Stocks Under $10

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

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
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
CGA $1.31 0.00%
ONP $1.18 0.00%
AAPL $93.74 0.00%
FB $117.58 0.00%
GOOG $693.01 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs