"Hunting" in the stock is gradually industrialized short sing empty one-stop

Since the "Fish in Troubled Waters" (Muddy Waters) June 2 issued a short report on the Sino-Forestry, the two sides around the report of the comments and accusations, launched a number of rounds of verbal confrontation. The Fitch rating, a third party agency, said 9th that it would decide whether to take any rating or ratings action on 14th, after the first-quarter results of the year.

The short report, however, will be cooled even after Fitch's "verdict" is available. It is also hard to stop the discussion and debate that has been triggered, and to hide the awkward and even dangerous situation that small and medium-sized Chinese companies are facing in a foreign land: on the one hand, companies that have been short are growing rapidly; The interests of the short and the speculative are more significant.

There are growing signs that an industry that relies on shorting China's concept stocks to gain substantial benefits is quietly forming and growing in the context of a massive move by Chinese companies to overseas capital markets ...

Set the "short" situation in advance

The reputation of rating agencies has been widely questioned during the financial crisis, so it is not clear whether Fitch's "verdict" on short reporting was convincing.

But to be sure, the current state of the Sino-Forest stock market is very bad. As of June 10, the shares traded on the Toronto Stock Exchange dropped to $4.47 a share of $18.21 per share from the day the short report was released, plunging 75.4%. Paulson, a well-known hedge fund manager who is the biggest shareholder of Ka-Han forestry, faces nearly 600 million dollars in book losses.

It should be noted that, as early as the "fish in Troubled Waters" issued a short report the day before June 1, the Sino-forestry stock price fell per share of 1.11 Canadian dollars a day. In response to the small probability of the share price falling more than 1 Canadian dollars a day, the local underwriters of the Sino-Forest sale, Dundee Securities, said "fish in troubled waters" privately informed several hedge funds of plans to issue short reports five weeks in advance. Subsequently, these funds generally for the Sino-Forestry implementation of large-scale short layout.

According to the data, in the week of June 3, the Canadian market for the Sino-Forest shares in the short operation of the proportion of up to 35%, far higher than the beginning of May this year 17% and late last 13%. At the same time, Ka-han forestry is the highest-grossing stock in its index of the Toronto Stock Exchange, with a yield of 4.8% per cent for its short profit.

"Fish in Troubled waters" short and unambiguous

However, Bullock appears to be dissatisfied with the effect of the "fish in Troubled Waters" report, saying it will issue more details about the financial and asset conditions of the company in the coming week, "lest fraudulent companies absorb more money from investors".

Just five years ago, only 29-Year-old Braddock was a common member of the foreign youth who came to the Chinese market to "gamble". "After graduating from law school in China, because I found that this will give me more entrepreneurial opportunities," but he has not been a big improvement in his career, until last June launched the "Fish in troubled waters" online services.

"Troubled Waters" provides a platform for Bullock and his belief in the short strategy. The company's website not only explains the contents of "good fish in Muddy Waters" in Chinese saying, also directly used the "fish in troubled waters" four of Chinese characters, and in the company's home page prominent position, there are more than one sentence tendency to short quotes alternate, including: "Securities are used for what?" is used to sell;

Last summer, Bullock found a chance to persuade people to short stocks, and he "stumbled upon a major fraud, through a reverse takeover of a borrowed stock," and published his first study, saying that the oriental paper had inflated revenues and embezzled money. Subsequently, he published a report on the green technology, multivariate global, China's high-speed channel and southeast of the company, such as the negative reports. Among them, the green snow technology stocks were delisted last fall. This makes "in troubled waters" reputation and continue to "pick" Chinese enterprises.

"Industrial chain" gradually systematization

In promoting the short strategy, Brock also admits that it "in the report before the corresponding investment operations." Investors who sold the shares of these companies shortly after each "troubled fish" report received more than 10% of the returns, according to US media. In other words, it is by virtue of the Mandarin-speaking advantages, the company specifically "intercept" small and medium-sized Chinese enterprises Overseas listing plan, and with the speculative institutions to make a significant profit.

In fact, regardless of the advance layout disclosed in the latest short case, or the fact that Braddock is blunt about the objective facts of profit, it shows the objective of the strategic layout of shorting the Chinese concept stocks to gain investment benefits, and the increasingly systematic and open nature of this benefit chain.

At present, shorting China concept stock seems to have formed an "industrial chain". Hunters are mainly third-party research institutions, law firms, hedge funds and so on. In a system where U.S. capital markets allow shorting, they first short the company's shares, then expose the company's own potential problems and release the company's negative reports.

The strategy is not good, as the size of the overseas listed Chinese companies that Bullock and his partners are targeting is growing exponentially. In the previous several companies "small", "fish in Troubled Waters" locked southeast intermediation company scale of more than 1 billion U.S. dollars, and the latest case of the protagonist of Sino Forestry is more than 5 times times the scale of southeast intermediation.

China concept stock "acclimatized"

The "acclimatized" and its own problems of Chinese enterprises under the supervision environment of overseas listing also objectively provide the soil for the development of the "short China concept stock" industry. The phrase "China", which attracted more investors in the past, has, to some extent, become the "fatal ID" of the Chinese concept stock.

Under the background of "shorting Chinese concept stocks", China's overseas listed companies will collectively "pay" for fraudulent behavior of some companies. Once Chinese companies are branded with financial fraud, they are bound to affect companies that are preparing to go public in the US or other overseas markets.

A more transparent model of audit reporting will be introduced this summer, with the hope of reaching a cross-border regulatory agreement with China in the second half of the year to conduct on-site inspections of Chinese companies listed in the U.S., the Accounting Oversight Board for listed companies (PCAOB) said.

8th, the United States Securities brokers on the website said, because of fear of further increases in risk, the agency "to prohibit customers from using borrowed money to buy 132 Chinese listed companies shares." Investors point out that the tracker statement itself does not have much market effectiveness; What's really scary is that a strategy to sell short Chinese companies can make money, making it harder for US agencies with empty sheets to expect the financial problems of Chinese companies to be more serious. "Once this situation becomes a reality, the industrialization trend of shorting China's concept stocks will be further deepened and even finally difficult to clean up." ”

In the last 3 months, 19 Chinese listed companies in the U.S. were suspended or delisted. In the latest week, the US Securities and Exchange Bank, the largest Non-bank brokerage in the United States, has listed 132 Chinese concept stocks as a blacklist of margin-lending operations; As of June 10, 8 of the major U.S.-listed Chinese concept stocks have hit a 52-week low.

In the face of the Chinese concept stocks, the Austrian Ruijin seed industry, Sohu, Youku and other Chinese concept stocks enterprises, not all Chinese concept stocks have problems. In fact, American investors ' misunderstanding of China's economic development, as well as the estrangement of Chinese culture, has become a pawn in this short mechanism. A number of investment and business circles have called for more channels to enable overseas investors to understand the Chinese concept stocks more comprehensively and objectively.

Distance creates estrangement.

Facing the Chinese concept stocks, especially through the reverse takeover of the stock market, in the United States by investors and "hunting" phenomenon, the Austrian Ruijin seed Industry chief Financial Officer (CFO) Irving Kau said: "There are some ' bad fruit ', there are ' good fruit '." All companies have plunged, which is not an effective market. "The Austrian Ruijin seed industry fell by as much as 57% per cent this year because of the crisis of trust in the Chinese concept stock. The company points out that corporate finances are fine, but because of distance and language barriers, it makes it hard for companies to get the attention of investors, "most investors don't speak Chinese and they don't often visit companies and plant facilities." ”

"Only the Internet shares, the first is the U.S. investors to Chinese companies because of cultural barriers are not used to feel, there is no other relevant reference knowledge." Zhang Charles, chairman and chief executive of Sohu's board of directors, also believes that many Chinese concept stocks, especially internet stocks, are likely to be killed by American investors.

Zhou, chairman of Qihoo 360, told the China Securities News Reporter: "Long-term changes in stock prices represent the value of the company and don't look at the share price every day." "But he also believes that the U.S. stock market has a short mechanism, now this phenomenon requires listed companies through their own efforts to reverse."

Some Chinese concept stocks even timing repurchase. The company's chairman and chief Executive (CEO) will be distributing to outstanding employees in the next three months, in the open market, a $2 million worth of US depository shares (ADS) in the public marketplace, according to Mr Boehner's June 10 announcement. The plan has been approved by the company's board of directors, benefiting from the news that the company's shares rose 8.76% on the day.

Dragged down by America's economic trend

In the Chinese concept stocks encounter credibility crisis, the rice Net landing NYSE, thunder also submitted to the United States listing applications, 58 with the city, happy net wait in line waiting. Panshaochang, a securities strategist in Dongguan, said that the issue of financial fraud in China and the United States will have some impact on Chinese companies ' listing in the US, as the US may step up regulation, but that will not change the trend of Chinese excellent companies to go on the U.S. market.

Koo, the founder and chief executive of Youku, also said that good companies don't have to rush to a time window, that any time window will open for you, and a rush to pack a listing will eventually weigh on the "Chinese concept" and harm itself.

Another analyst pointed out that the U.S. investors will gradually return to rational rather than simply suppress the Chinese concept of stocks, the first day of the first rice network on the Chinese concept of credit crisis impact break, but the second rising 24.06% reported 10.21 U.S. dollars, more than 9 yuan of the issue price.

Industry expert Lubberg wrote: "China's internet industry is still in a stable growth process, there is no reason to doubt the overall operating performance of the Chinese concept unit." He believes that the fall in the share price of China's network shares is basically not related to performance. If the US debt problem is resolved, and worries about a global recession can be overcome, Chinese companies ' share prices will continue to go up and may soon return to their levels a few months ago.

The recent reverse takeover in the United States of China concept stocks suffered serious trust crisis, performance fraud, illegal operation of news. In this respect, KPMG, a partner of Jiang Haoming, and a long-time director of the Securities and Futures Commission (SEC) Office of General Accountants of the United States, and the incumbent partner of China's public policy and regulatory Affairs of KPMG Zhenhua, said, The challenge for Chinese companies that have been listed in the US by reverse takeover is largely due to the unfamiliarity with the US regulatory system, which could lead to regulatory policy on reverse takeovers.

China Securities Daily: Why did China's concept stocks begin to focus on allegations of fraud at the end of last year?

Ruihui Ripple: In November 2007, the SEC introduced rules that allow foreign companies to use the international accounting system when they are listed in the U.S. According to the SEC survey, foreign companies listed in the United States generally use international accounting standards, but in addition to large state-owned enterprises, China's listed companies in the United States more than 90% continue to use the U.S. accounting system. As a result, the SEC has no intention of discovering that hundreds of Chinese companies have been listed in the United States through reverse takeovers and become American companies.

American accounting systems are much tougher and more complex than international accounting systems. It is doubtful whether these companies have the ability to provide statements of American accountants ' standards. And the Chinese securities market is different from the audit system, the United States is the regulation. When the reverse takeover, the listed companies only to the U.S. Securities and Futures Commission to declare, the file can be submitted. But the SAL Act stipulates that listed companies are required to submit earnings reviews every three years. Chinese companies have been listed in the United States by reverse takeover in 2007, every three years to review earnings, the problems of Chinese listed companies in the focus of 2010 years or so appear, the crisis slowly exposed.

China Securities Daily: There are reports of four major accounting firms have stopped the reverse takeover of the financial project, this information is true? How to evaluate the reverse acquisition financing mode?

Jiang Haoming: I don't think the big four will make a clear statement to stop the reverse takeover, but it is a sensitive time. In fact, the four major accounting firms involved in reverse acquisition project is relatively small. If the company has good performance, management credibility, meet the needs of investors, we will still consider, now is to wait for the right time.

Chinese companies that have been listed by reverse takeover in the US are encountering some problems, the main challenge being that companies are unfamiliar with the US regulatory system. If private companies want to get into the U.S. market, it usually takes 2-3 years for a successful IPO to be launched, and a much quicker way to go on a reverse takeover or buy a shell. Because IPOs require more legal and financial due diligence from investment banks, accounting firms, and law firms. A reverse takeover does not require due diligence, and submitting the material directly to the regulator is OK. Because the procedure is relatively simple, more and more Chinese companies are listed by reverse takeover in the United States, but they need to undergo a variety of compliance reviews. Some intermediaries want Chinese companies to go abroad from a commercial perspective, but many Chinese companies are not ready to enter the U.S. market, companies need to conduct self-assessment, and if they do not do well, no matter who will help, there is a problem.

China Securities Daily: In this crisis of confidence, a lot of shorting people on the side of the Chinese concept of the negative research report, one side of the big Short, how to look at these actions? Should it also attract the attention of regulators?

Jiang Haoming: Yes, some speculators stare at some less transparent companies, grabbing some small ones and making a fuss about selling negative reports and shorting them. This is mainly the use of listed companies in the disclosure of information opaque weaknesses.

Ruihui: If Chinese companies do not understand the need for transparent disclosure of the regulatory framework in the United States, it would be very uncomfortable to go public. The SEC guidelines allow investors and the market to determine whether a business is successful, but only if the business is transparent, whether good news or bad news is disclosed, and investors decide how to value it. In fact, many Chinese companies have not done any bad things, but many things have not been disclosed. This is used by short people, they will spread some small negative news, the release of negative reports, as if the Chinese companies have serious problems, but people are focused on these things.

China Securities Daily: When will the Chinese concept stock crisis last? What's the result?

Jiang Haoming: In the coming year, there may be some corporate financial problems exposed. After the incident, some regulatory policies on reverse takeovers may be introduced.

Ruihui Ripple: May be a little longer, each listed company every three years to review the financial situation, there may be some listed companies have not been reviewed, the SEC review will be more careful. In addition, because most of the audit firms that do reverse takeovers are relatively small, the Accounting Supervision Committee (PCAOB) of the U.S. listed companies will also check whether in the process of reverse takeover, the auditor firm has violated the reverse takeover rule or the auditor's independent law. This will be reviewed separately by regulators from their respective perspectives. In my experience, when two regulators talk about the same problem, the problem may be magnified. In addition to the media, short sellers have to be regulated, this issue is not only the reverse takeover of Chinese companies, accounting firms are also the quality of the U.S. stock market transactions supervision.

In addition to the founder Cassen Block's surname "block" in English there is a "blocking" of the accident, there is no evidence that the market research company "in Troubled Waters" (Muddy Waters) has the "ruling" the legality of the listed company's rights.

But it is a company that has hunted 6 Chinese concept stocks in a row by "shorting the report" and the target company's scale is bigger and larger; it is a company that, after every time with the law firms and speculators to the Chinese listed companies to implement "Hunt", can get more than 10% of the return, make a bowl full.

Why is this "both an umpire and an athlete" in the developed North American capital markets?

As noted above, "Fish in Troubled waters" as a market regulator's qualification is not clear. The company is able to play the role of "referee" to a certain extent, benefiting from the concept of "universal supervision", which is advocated by the North American financial market, and focuses on official and private view to ensure that there is no "dead end" in the market.

As the North American region's "universal surveillance" wave in the aftermath of the financial crisis, such as "Fish in troubled waters" such as the short report issued by the main body is gaining more and more public opinion, and the official regulators need to be issued for these agencies to bear the responsibility of verification. In other words, with more regulatory power at the same time, "Fish in Troubled waters," the burden of responsibility has not increased. It is the gap between the above two, for the folk "referee" conclusion of randomness and inaccuracy of the enhancement provides space.

With the North American capital market to allow shorting system, and the official "referee" to confirm the verdict, "Fish in troubled waters" are more willing to fish in the capital market, "short profit" of the industrial chain in this environment formed. From this perspective, the so-called "referee" is actually in the field to find scoring opportunities "athletes", but "referee" signs, so that their scores too easy.

It should be noted that in almost all of the world's capital markets, institutional investors and even some individual investors have a habit of anticipating the company's performance while implementing individual investment. But these investors on the performance of the listed companies more than expected to stay on the surface of the stock price trend, and "fish in troubled waters" often with fraud allegations, "direct access to the key" approach has a fundamental difference.

In this context to stifle "short profit" behavior, first of all, we must look forward to the North American capital market "universal supervision" in the implementation of the concept of perfection, clear the civil "referee" to make the conclusion of the responsibility, will greatly compress the "short profit" implementation space.

Of course, more important and more controllable method, or China's overseas listed companies can actively learn Chinese and foreign regulatory system and content differences, will be overseas "referee" the possibility of misunderstanding to the minimum. At the same time, China's overseas listed companies also need to be in the financial information dissemination link strict self-discipline, to avoid luck and pay attention to the company's interests and the overall reputation of the Chinese company closely linked.