The China Hustle

The China Hustle[1] is a 2017 finance documentary produced by Magnolia Pictures and directed by Jed Rothstein.[2] ("The China Hustle" may also refer generally to the ongoing phenomena of financial crime on Wall Street regarding Chinese companies with US listings. The term is used by some policy makers and law-makers when addressing the glaring issue of preferential treatment and unreliable audits of China-based companies that benefit from a lack of PCAOB oversight, inaccurate disclosure of material risks, inadequate or fraudulent audits[3] and non-enforceability[4] of US Court Judgments. Combined these issues give an unfair advantage to Chinese companies over US companies and may pose a National Security risk and be in violation of US Security laws.[5]. President Trump has said that the current Administration is "looking strongly into ways to force Chinese firms into adhering to US Accounting standards." [6]

The China Hustle
Poster
Directed byJed Rothstein
Produced byAlex Gibney
Mark Cuban
Written byJed Rothstein
Narrated byDan David
Distributed byMagnolia Pictures
Release date
  • September 8, 2017 (2017-09-08) (Toronto International Film Festival)
Running time
82 minutes
CountryUnited States
LanguageEnglish

The term China Hustle also sometimes alludes to a wider pattern of China-based crime networks, linked to crimes of deception, counterfeiting and human rights abuses, such as the confiscation of 20,000 "China-made" counterfeit US Driver's licenses[7][8] and also the confiscation of 13 tons of human hair that could be linked to forced labor camps in the Xinjiang region.[9][10] Presumptive Democratic nominee VP Joe Biden has so far been silent about the ongoing "China Hustle" and the crackdown on China listings due to systemic accounting fraud and the non-enforceability of US Court Judgments. [11]

As several Senators and Retired Military officers have been outspoken about crimes perpetrated by the CCP and alluded to "decoupling" the two economies, the CCP has begun sanctioning some Senators. [12][13] According to noted analyst John Solomon[14] “The fact that Chinese companies are not required to comply with federal securities laws and SEC regulations on material risk disclosure means that they are actually receiving preferential treatment over their American corporate counterparts in our capital markets.” Former Presidential Candidate General Wesley Clarke appears in the documentary and in the preview. [15] Recently Lieutenant General Boykin provided important background for the topic at hand by describing the threat posed by the CCP as “existential.” He underscored the stakes involved as a result if we continue to recklessly underwrite our enemy with Wall Street stock frauds and, thereby, make it (CCP) even more formidably dangerous.[16]

The widely acclaimed documentary/expose, now streaming on Netflix and Amazon Prime, reveals a systematic and formulaic decades-long securities fraud that continues to occur in the United States, wherein a variety of large and small Chinese companies with possibly links to the Chinese Communist Party,[17] [18]were hyped up and sold by American investment banks to U.S. based investors. The total loss in market cap so far for deregistered companies is over 500 Billion dollars. The market capitalization for remaining China-based companies is estimated at over 1 trillion dollars according to a report from the US China Economic and Security Review Commission. [19] A special report on the non-enforceability of US Court Judgments is forthcoming.

Many of the film's protagonists such as Dan David and Jon Carnes are activist shareholders and due diligence professionals who discovered the fraud including the fabricated accounting and brazen misrepresentations and subsequently short-sold the toxic stock in order to bring about the collapse of the fraudulent entities which often led to Class Action lawsuits, NASDAQ delistment and SEC deregistration..[20][21][22]

According to Stop The China Hustle, more than 200 companies have been deregistered by the SEC over the last 10 years that has resulted in a market cap loss of over $500,000,000,000 ( 500 Billion dollars) in the ongoing, systemic and formulaic stock fraud due largely to unverifiable accounting and lack of PCAOB accounting in China due to Chinese companies being protected by Article 8 and Article 177 of the State Secrecy laws of China.[23][24]

One outspoken shareholder activist who has been tracking the China Hustle since visiting China in 2011 is defrauded shareholder of Advanced Battery Technologies (9542-VCMR) is Joel Caplan[25][26] who continues his efforts to expose the lies, lobby Congress and the SEC to prevent further fraud from taking place until dozens of United States' Court Judgements are paid in full and until PCAOB oversight of Chinese companies is assured. Caplan's website helps to support legal efforts and to aid victims of "The China Hustle" and raises funds for ongoing legal battles.[27]

On July 9, 2020 after a decade of relative inaction, the SEC at long last held a "Roundtable on Emerging Markets" with a focus on China Accounting Fraud, lack of transparency, lack of PCAOB oversight, public traded companies which are sanctioned by the US government, some with known human rights abuses and other problems that should be considered "material risks" in a public companies prospectus but which are not. [28] The issue of non-enforceability of US Court Judgments was addressed. Several experts commented in the Comment section of the SEC's website. [29]

Thousands of shareholders who were defrauded in "The China Hustle" have not yet been paid for dozens of United States Court Judgments totalling over one billion dollars. Many of these Receiverships are under the supervision of US Prosecutor Robert Seiden[30] of the Seiden Law Firm[31]. To date, the Seiden law firm has not been able to attain justice for defrauded shareholders despite years and years of effort.[32] The China-based companies went "illegally dark" before getting deregistered by the SEC for not continuing to make required filings. According to Attorney Carson Block, a noted truth-teller on China Stock Frauds, "It is not a crime in China to steal from American citizens."[33]

Synopsis

After the financial crisis of 2007–2008, as investment firms in the United States look for ways to improve clients' investment performance while earning money for themselves, they chance upon the idea of selling opportunities to unsuspecting Americans who want to get rich by participating in the "China growth story" but do not know much about the country or its companies.[34] They do so by getting small nondescript Chinese companies (like Orient Paper and Advanced Battery Technologies (ABAT) to do reverse mergers with defunct American companies (like Buffalo Mining) and thus get listed in the NYSE overnight.[35] The hype that accompanies this is aided by paid guest appearances by the likes of Bill Clinton and Henry Kissinger at so called "investment conferences" organized by B level investment firms (Roth Capital is one such firm featured in the documentary), thus adding a garb respectability and reliability.[36] The stocks of these companies see spikes, investment firms goad their investors into buying them, siphoning off brokerages on the way. When the prices of these stocks crash to their real value, unsuspecting savers are left holding large amounts of worthless stock in their 401-Ks.[37]

The documentary investigates the collusion that occurred from 2008 to 2016 between second and third-tier US-based Wall Street investment firms such as Roth Capital Partners[38] and small companies based in China. Most of the companies featured in the film were listed in NYSE through reverse mergers.[39] The film reveals that actual revenues of Chinese firms (reflected in their filings with Chinese government entities) were typically one tenth of what was filed with the SEC.[40] Subsequent to investigations, most of the firms were de-listed from the NYSE resulting in losses of billions to US investors.[41]

Information on the frauds was published in Chinese newspapers in 2010 including the online edition of Sina, but American investors were unaware of these as the articles were mostly in Chinese.[42] Subsequently, the small research and investment firm Muddy Waters published translations of the Sina reports but they did not receive much attention.[43]

The film concludes with a closing sequence that highlights the continued lack of regulatory oversight in Chinese securities fraud - out of approximately 400 chinese companies, only 1 CEO in China went to jail for fraudulent reverse mergers - and alludes that Alibaba Group's and other existing Chinese firm's continuing claims of high growth rates might be just as fraudulent.

Interviews

The documentary features interviews with investment bankers, whistle blowers like Dan David who after reading reports by the due diligence firm Muddy Waters Research decided to short many hyped up penny stocks based in China.[44] It also features interviews with journalists from Wall Street Journal and New York Times, Mitchell Nussbaum who was the lawyer from Loeb & Loeb who represented the Chinese firms featured in the film, the investment banker who sold shares and issued "buy" recommendations on these stocks to his clients and retired U.S. Army General Wesley Clark, who was chairman of Rodman & Renshaw, another firm selling these stocks and Paul Gills (a professor at Peking University).[45] The documentary shows the issues that crop up when large accounting firms like KPMG and Price Waterhouse Coopers sign off audit reports done by their affiliates in China, which may not have completely been verified, but are the system that is followed by all large accounting firms across the world.[46]

One of the classic examples of the Reverse China Merger Fraud was Advanced Battery Technologies (ABAT), CEO Zhigou Fu. ABAT raised $89,000,000 in three separate offerings through Rodman and Renshaw and at one point had a market-cap of $250,000,000. ABAT was first delisted by NASDAQ and subsequently deregistered by the SEC and the company never communicated with the shareholders again. At one point ABAT continued to make false statements and press releases declaring that they would resume their financial filings in 2014.

ABAT also released several other press releases including that they were doing a 5,000,000 share buyback. Within a year the company was deregistered by the SEC. The company is currently in Receivership in Delaware Court of Chancery under 9542-VCMR (Or see C.A. No. 9542-ML (Del. Ch. Feb. 26, 2015) being overseen by Vice Chancellor Montgomery Reeve. The China Hustle mentions a number of other Chinese Reverse Merger Frauds like SCEI, CBEH, CCGY and CSGH. These companies collectively stole over $200,000,000. The entire matter was reported to the FBI. To date nothing has been done. New legislation has been introduced by Senator Rubio to stop the ongoing financial fraud on US markets by Chinese Nationals and a government that protects their companies from appropriate scrutiny.

See also https://www.wsj.com/articles/you-cant-trust-a-chinese-audit-11559687739

See https://www.rubio.senate.gov/public/index.cfm/2019/6/rubio-colleagues-introduce-bipartisan-bicameral-bill-to-ban-chinese-foreign-firms-that-flaunt-u-s-laws-from-u-s-exchanges

Reception

The film premiered in 2017 at the Toronto Film Fest and was released on DVD and shown at the International Finance Centre in Hong Kong in April 2018.[47]

Rotten Tomatoes gives the film rating of 74% based on reviews from 27 critics.[48][49] Mark Hughes, a contributor at Forbes called it "the most important film of the year".[50][51]

References
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