Short Sellers of Chinese Reverse Merger Companies

Some Chinese companies have managed to become listed on American and Canadian stock exchanges by performing a reverse merger.  In this transaction, a US company is bought by the Chinese company that then uses the US company's public listing.  A number of research analysts have exposed accounting fraud at a series of these companies or accused the companies of fraud.  Either way, the result is a precipitous drop in the stock price.  These analysts have erased $21 billion of market capitalization from them.  Many of the companies have been delisted by the exchanges.  Auditors have quit.  The SEC is investigating them and class action lawsuits are being prepared.  Some people say that they have gone overboard and are accusing legitimate companies of fraud.  Others say that they are co-conspirators with hedge fund managers and are front-running with their research.  Here are some of these analysts:

The most well-known research firm is Muddy Waters.  Carson Block has published research that has brought down the prices of Sino-Forest Corp, Orient Paper, RINO International, China Media Express and Duoyuan Global Water.  He and hired experts visit China to confirm company's claims about their offices and factories.  They include legal experts, accountants and private investigators.

John Hempton of Bronte Capital is another investor that has publicized fraud in these companies.  He is formerly of Platinum Asset Management where he managed $21 billion.  Bronte Capital has around fifty short positions globally.  In China, he has exposed Universal Travel Group, China Agritech, Longtop Financial Technologies and China Media Express.  The most recent one is Hollysys Automation Technologies.  He is an accounting expert.

John Bird has about thirty short positions including China Sky One Medical, Harbin Electric Inc, China-Biotics Inc and Deer Consumer Products Inc.  He is long some oil, gas and pipeline stocks.  He advocates comparing the SEC filings of Chinese companies to their local filings with the State Administration for Industry and Commerce in China.

Andrew Left of Citron Research has published reports on China-Biotics Inc, China Media Express, Deer Consumer Products Inc, Longtop Financial Technologies and Harbin Electric.  He hires private investigators in China to help him in his research and has someone translating Chinese documents and filings.

Rick Pearson is a writer from theStreet.com that is also an investor.  His pedigree is from Deutsche Bank where he was in convertible bonds.  He does research on the ground in China by counting employees and cars in company parking lots, checking factories and factory equipment, confirming SEC filings with local Chinese employees and old-fashioned networking.  He has short positions in China-Biotics, China ShenZhou Mining, Gulf Resources, Harbin Electric and Longtop Financial Technologies.

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