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Auditors Play Defense on China Stocks

Stocks in this article: CGA CHNG RINO CEU HRBN CVVT

The way Kabani sees it, his firm blew the whistle in the Bodisen deal, by disclosing in a footnote to a financial statement that Bodisen had hired Wey as a promoter.

Attempts to reach Bodisen Biotech for comment were unsuccessful. The company's Web site lists Joseph Visconti as the company's U.S. representative, but the Florida telephone number provided has been disconnected.

Wey defended his company's role, saying everything he does is "by the book, fully disclosed publicly.

"That's how I do things," Wey said in an interview. "Our firm's name was disclosed in Bodisen's public filings seven different times. Do I need to teach people to read from A to Z? Seven times! Seven times! One more time: Seven times! This is public information. How many more times can I tell people to read facts and not perception?"

Referring to class action lawsuits brought against Bodisen, Wey noted that he and his firm were not named as defendants. He said his firm did not earn large commissions from the $15 million in sales of Bodisen stock, calling any such suggestion "totally false."

"We had customers who were regional holders in Bodisen shares," Wey said. "When those customers wanted to sell stock, we simply handled the Form 144 sale on behalf of the existing holders of Bodisen shares. New York Global Group at the time had a broker-dealer subsidiary that fully executed trades on clients' behalf."

Wey praised Kabani as "a good auditor. He did exactly what he should've done. If I were an auditor, I would have disclosed it as well."

Wey does offer his own explanation as to why the numbers that Chinese companies report to Chinese officials often do not match those mentioned in SEC documents.

"Under U.S. GAAP, revenue is booked when products are shipped out of the company's warehouse," Wey says. "In China, however, revenue is recognized when the receiving party issues you a government-issued receipt. But there's a 17% tax incurred. There are many companies in China that do not necessarily want to pay that 17% upfront. So they delay asking for the receipts. That doesn't mean that revenue is not properly booked."

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