China RTO Pump-and-Dump Scam Alleged
NEW YORK (TheStreet) -- As more and more Chinese small-cap companies come under attack as fraudulent, an alleged pump-and-dump scam involving Chinese reverse-merger stocks came to light earlier this week.
According to an indictment unsealed in U.S. federal court in Detroit -- and a parallel civil suit filed by the Securities and Exchange Commission on Tuesday -- a group of promoters, stockbrokers and company executives conspired to ramp up prices in the thinly traded shares of Chinese businesses that had come public in the U.S. via reverse mergers, then dump the stocks for a profit.
Court documents claim that the conspirators made $33 million between 2005 and 2007.
Several of the stocks still trade on the over-the-counter bulletin board, where most Chinese reverse-merger companies begin life as U.S.-listed entities. Those companies include China Digital Media (CDGT), which purports to provide cable-television "operational support services" out of Kowloon, and Worldwide Biotech (WWBP), which says it's a drug developer based in the city of Xi'an.
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