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L.A. Firm's China Ventures Turn Sour (Pt. 2)

Every quarter, the company controller at China Electric's headquarters in Shenzhen would send to Fong in California the documents with which he would prepare the period's financial results, according to Fong.

The profit-and-loss figures contained in those documents "always make sense," he says.

He also says: "Every time I go to the factory in China , everyone is busy, it's full of workers." He said he initially agreed to join China Electric's board partly because Roth Capital underwrote the company's first public offering of shares, along with WestPark. "I thought, 'Roth must have done enough due diligence,'" Fong says. "If someone did good due diligence, my risk of going on the board should be low."

Fong planned to leave for Shenzhen this week, he said, in an attempt to sort out the crisis, alongside a special committee of the board's independent directors, formed to investigate the potential irregularities highlighted by MaloneBailey. (Fong spoke with TheStreet late last week.)

Fong himself has been involved with Chinese reverse-merger companies for nearly a decade. His bio lists a master's degree in accounting from the University of Illinois, and time spent as a CPA at Deloitte, Ernst & Young and KPMG. He was once an RTO promoter, helping Chinese entrepreneurs gain listings in the U.S. One of his clients was Fuqi International, recently delisted by Nasdaq and kicked to the Pink Sheets after an accounting scandal and amid a long-standing SEC probe. Fong, who took a job at Fuqi not long after it gained its listing here, said he resigned his post in 2008 after growing "uncomfortable" with the company's financial reporting. He says he gave up options to buy some 600,000 Fuqi shares. "Of the entire Fuqi management team, I was the only person with U.S. experience. My family is here; everyone is a U.S. citizen except me." He added, "If the company blows up, I'd be the only person in trouble. That's why I resigned."

RTO Innovator

WestPark, founded by Richard Rappaport in 1999, serves as a one-stop shop for small Chinese businesses looking to tap American capital markets. The firm says that it and its founders have taken "close to 20" Chinese companies public in the U.S. over the last 20 years. According to its Web site, the firm has offices in Beijing, Shanghai, Hong Kong and Taipei. From those offices, it shops the mainland for suitable companies to bring public in the U.S.

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