SEC Commissioner Takes Aim at China RTOs

WASHINGTON (TheStreet) -- A high-ranking securities regulator made the most extensive public statements yet about allegations of rampant fraud among hundreds of small Chinese companies that have raised capital in the U.S. in recent years through a "backdoor" process called a reverse merger.

In a speech in Washington on Monday, SEC Commissioner Luis Aguilar warned, however, that it will likely prove difficult for investors to recoup damages even in cases of clear-cut wrongdoing.

"Even though these companies are registered here in the U.S., there are limitations on the ability to enforce the securities laws, and for investors to recover their losses when disclosures are found to be untrue, or even fraudulent," Aguilar said.

Investigating Chinese Reverse Mergers

"While the vast majority of these Chinese companies may be legitimate businesses, a growing number of them are proving to have significant accounting deficiencies or being vessels of outright fraud," he said, adding that the SEC has been "working collaboratively and tirelessly with many others to investigate and shed light on this situation."

TheStreet reported in December that the SEC had launched a broad investigation into the Chinese reverse-merger phenomenon.

In the speech, Aguilar referred indirectly to several high-profile blowups of late, including the now-delisted China MediaExpress, Rino International and Fuqi International.

-- Written by Scott Eden in New York

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