The China Hustle Page #3

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or George Bush

or Wesley Clark speak--

boy, oh, boy,

like you're going into

some inner sanctum of knowledge,

when, you know,

Kissinger's 90 years old,

talking out his ass.

You can see

what's happening there.

They're renting a name

for an hour or two.

These people all work

for fees.

That's how they make money.

When luminaries speak at it,

more power to 'em.

During the six years

that General Clark was chairman,

Rodman & Renshaw brought

over 40 Chinese companies

to U.S. markets,

with an aggregate value

of over $31 billion.

While Rodman and Roth

made fees

for bringing Chinese companies

to the U.S.,

the real paydays came

when the companies listed

on major stock exchanges

Their analysts would

recommend the risky stocks

as great investments,

and then their salesmen--

like Matt, would push them

on their investment network.

Once the stocks rose

high enough,

the banks and insiders

could cash out,

leaving others holding

the overvalued shares.

The catch was,

listing a company

on the stock exchange

normally required audits

and public vetting,

but the banks found a way

around all that.

They used a backdoor process

called a reverse merger.

It's dollar denominated.

It trades onshore,

the New York Stock Exchange,

the NASDAQ.

It's normally a shell company

that is a public-traded stock

that has no operations

underneath it.

You need to go to Nevada.

A lot of them were there,

that had started off as

mining companies or whatever,

and they were just sort of

sitting there, waiting,

you know, to find

the right partner

who could merge into them.

So you need the shell company.

Here's how

these reverse mergers work.

a Chinese company

looking for a way

into American exchanges

merges with the shell

of a defunct U.S. company

that no longer operates

but still legally exists

and has a listing

on a U.S. stock exchange.

The Chinese company then takes

the shell company's place

in the market.

Presto! You just appear.

You're a stock

that's trading in the U.S.,

and you've got a story to tell.

And no one asks any questions.

Between 2006 and 2012,

over 400 Chinese companies

listed on U.S. markets.

80 percent of them

were reverse mergers.

Our exchanges

are monitoring them.

Our banks are vetting

these companies.

You don't have

to worry about them

because they're

on the U.S. exchanges.

Oh, you're in Hong Kong?

Late on the 30th.

Between 2009 and mid-2010,

the average China-based

reverse merger

was up several hundred percent--

the average!

Could you tell me

what China did last night?

We stuck with

our value-investing approach.

And with that approach

and with our guidelines,

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