MaloneBailey's heightened rigor appears to have had an immediate impact. Before the controversy erupted, the firm had about 25 Chinese clients, according to Qin, who was born and raised in Liaoning Province. (That ranks the MaloneBailey the No. 4 auditor of U.S.-listed Chinese companies this year, according to the Web site AuditAnalytics.com, behind only Deloitte & Touche, PricewaterhouseCoopers, and the New York-based Friedman.)

By analyzing bank statements for possible forgery, Qin says, the firm uncovered evidence of fraud at nine of its Chinese clients -- roughly a third. He refused to name the companies. Most appear to be listed on the over-the-counter bulletin board and the Pink Sheets. (Presumably, some of these companies haven't yet publicly disclosed MaloneBailey's red flags.) A search showed that Heli Electronics ( HELI), whose stock is listed on the OTCBB, announced on April 1 that it wouldn't be able to file its 10-K on time because MaloneBailey had resigned back on March 11.

Investigating Chinese Reverse Mergers

The alleged chicanery has followed a pattern, Qin says. In many instances, "bank employees are colluding with clients. The bank employee would provide us with falsified bank statements." He said his firm developed methods to detect whether those statements are real. Among other things, the firm's auditors -- many with experience working at Chinese banks, Qin says -- examine the "chops" that every official document in China needs to carry. Like a seal, a chop is meant to certify that a document is genuine. According to Qin, MaloneBailey auditors are able to detect fraudulent chops.

All of which raises the question: Why hadn't MaloneBailey been auditing Chinese companies using this "method" from the very beginning?

"We didn't know there was so much fraud in China when we did the 2009 audit," Qin says. "We noticed this in 2010; that's why we designed those procedures. But you're right. From hindsight, if we have done the same procedures in the 2009 audit, we would have caught the errors of fraud last year."

That doesn't quite answer the question, however, when it comes to China Century Dragon, which started trading on the Amex only in February. As part of that public offering, MaloneBailey had signed off just months ago on China Century's financials, as filed with the SEC in its S-1 registration statement.

When asked about this, Qin reiterated that he wouldn't comment on specific companies. He also declined to comment on WestPark.

This is the first of a two-part series on Westpark Capital, accounting firm MaloneBailey and recent allegations of improper accounting at a handful of Chinese companies. Click here for Part 2 of this story.

-- Written by Scott Eden in New York

>To contact the writer of this article, click here: Scott Eden.

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Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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