This Day On The Street
Continue to site right-arrow
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
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

China RTO Gets Bounced by SEC

Stocks in this article: CDGT WWBP CEU NEP FSIN

NEW YORK ( TheStreet) -- The investigation of a pump-and-dump scheme by federal authorities has spurred regulators to kick a Chinese reverse-merger company out of the United States.

On Friday, the Securities and Exchange Commission revoked the stock registration of China Digital Media (CDGT) as part of a settlement deal between the company and securities regulators.

According to court papers, China Digital Media's stock became wrapped up in a pump-and-dump scheme orchestrated by a number of American stock promoters, Chinese businessmen and purveyors of email spam, five of whom pleaded guilty to federal criminal fraud charges in June 2009. A grand jury in Detroit indicted another alleged conspirator on fraud charges unsealed in federal court last week.

Investigating Chinese Reverse Mergers

Also last week, a parallel civil suit filed by the SEC in a Michigan federal court sought to punish three companies and eight individuals, including company insiders as well as stock promoters. Among the people accused of pump-and-dump fraud in the SEC suit were Chi Shing Ng, who also goes by Daniel Ng, the CEO of China Digital Media, who wasn't indicted on federal criminal charges.

The cases began with an FBI investigation that started several years ago, apparently when the bureau began looking into the use of spam email to market the shares of micro-cap companies listed on the Pink Sheets or the over-the-counter bulletin board.

The suit filed by the SEC comes as the agency continues with a probe into fraud allegations that have beset the Chinese small-cap world. The agency is examining both individual companies as well as the gatekeepers who help find and bring Chinese businesses to U.S. capital markets through the reverse-merger process, including promoters, investment bankers, auditors and law firms.

The stocks named in the SEC's complaint are highly illiquid, and differ by an order of magnitude from the relatively well-capitalized Chinese stocks that are now drawing negative attention from short-sellers, the media and others. Those stocks trade on major exchanges such as Nasdaq and Amex, having uplisted from the Pink Sheets and OTCBB.

But there are some connections between the bigger reverse-merger names and the penny stocks. Based in Kowloon, a district of Hong Kong, China Digital, which purports to offer cable-television "operational support services" in the People's Republic, completed its reverse merger in early 2005. At the time, its auditor was Jimmy C.H. Cheung, who has performed audit services in the past for a roster of better-known Chinese reverse-merger companies, including China Education Alliance (CEU), China North East Petroleum (NEP) and Fushi Copperweld (FSIN).

1 of 3

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

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
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, 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
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs