This Day On The Street
Continue to site
ADVERTISEMENT
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

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.

Shanghai

The charges were the result of a three-plus-year FBI investigation, which appeared to begin with a probe into the use of spam to market stocks to potential investors.

Five of the conspirators pleaded guilty more than a year ago, in June 2009. Several of the accused, including the CEO of one of the companies named, were sentenced to more than four years in prison. In a press release, the FBI said that one of the conspirators, Alan Ralsky, "was at one time the world's most notorious illegal spammer."

The fresh indictment on Tuesday brings wire-fraud charges against Gregg Berger, a broker who worked at two investment firms during the period of the alleged pump-and-dump. Berger is reportedly fighting the charges. His lawyer, Mark Satawa, a partner at the Michigan firm Kirsch & Satawa, wasn't immediately available for comment Thursday. He was quoted by Reuters on Tuesday as saying that his client "fully intends to fight the criminal case, and looks forward to the court system vindicating his role in this scheme."

The SEC's civil complaint, meanwhile, went beyond the Department of Justice's cases. In its civil suit, the SEC is also charging four company insiders -- who were not named in the DoJ's actions -- as complicit in the scheme. They include executives and board members of three companies, including the CEO of China Digital Media.

1 of 2

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
Submit an article to us!
SYM TRADE IT LAST %CHG
WWBP $0.01 0.00%
AAPL $128.95 0.00%
FB $78.99 0.00%
GOOG $537.90 0.00%
TSLA $226.03 0.00%

Markets

DOW 18,024.06 +183.54 1.03%
S&P 500 2,108.29 +22.78 1.09%
NASDAQ 5,005.3910 +63.9670 1.29%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs