Not everyone is left holding the bag. Goldman Sachs (GS - Get Report), for example, which has had its run-ins with alleged fraud in China before, was able this time to get out while the proverbial getting was good.
Goldman's money-management unit acquired, on the behalf of clients, a batch of convertible bonds issued by a company in Shangdon Province that said it had a technology to turn limestone into "nano precipitated calcium carbonate" -- an additive for the chemical industry -- and sell it at great profit.
That company, ShengdaTech (SDTH), emerged as a U.S.-listed entity through a reverse merger orchestrated by reverse-merger pros like the Dallas firm Halter Financial. But Wall Street nobility also helped the company raise capital; Morgan Stanley (MS - Get Report) underwrote the $130 million private offering of convertible notes in late 2010.Four months later, in April, ShengdaTech saw its auditor, this time KPMG, resign after raising questions about the company's accounting. The auditors also had problems confirming customers, according to filings. ShengdaTech's stock listing was revoked by Nasdaq last week. The shares now trade over-the-counter at about 66 cents. Goldman, however, sold the entire block of bonds -- convertible into some 7% of ShengdaTech -- about a month before the company's problems came to light, according to a Goldman spokesman. -- Written by Scott Eden in New York >To contact the writer of this article, click here: Scott Eden. >To follow the writer on Twitter, go to http://twitter.com/ScottEden. >To submit a news tip, send an email to: firstname.lastname@example.org.