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TheStreet Open House

With China Small-Caps, It's Shorts vs. Auditors

Stocks in this article: RINOONPUTAFUQINEP

I wonder if Mr. Cheng is aware of the fact that shortly before Christmas, then-New York Attorney General Andrew Cuomo sued the accounting giant Ernst & Young for assisting Lehman Brothers in its book-cooking scheme? This kind of thing has become so routine, and the Big Four firms' reputations are so frequently besmirched, that it only received modest attention.

The bottom line is that Chinese small-caps are ridiculously risky, and would be even if there weren't such a stench surrounding their accounting. Buying their stocks is an exercise in ignorance. Confucius said, "Ignorance is the night of the mind, but a night without moon and star."

I'd take Confucius (and a good international index fund) over Deloitte any day.

Gary Weiss has covered Wall Street wrongdoing for almost a quarter century. His coverage of stock fraud at BusinessWeek won many awards, and included a cover story, �The Mob on Wall Street,� which exposed mob infiltration of brokerages. He uncovered the Salomon Brothers bond-trading scandal, and wrote extensively on the dangers posed by hedge funds, Internet fraud and out-of-control leverage. He was a contributing editor at Conde Nast Porfolio, writing about the people most intimately involved in the financial crisis, from Timothy Geithner to Bernard Madoff. His book "Born to Steal" (Warner Books: 2003), described the Mafia's takeover of brokerage houses in the 1990s. "Wall Street Versus America" (Portfolio: 2006) was an account of investor rip-offs. He blogs at garyweiss.blogspot.com.
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