Early 21st-century Chinese reverse mergers
[3] With the staggering population and a large majority of state-owned enterprises becoming privatized by the early 2000s, China was poised for substantial economic reform and growth.
[citation needed] The sped-up process also helps the company cut many costs and avoids underwriting fees of an investment bank that is involved with an IPO procedure.
The plan was focused toward large manufacturing and civil infrastructure projects all with the ultimate goal of recovery growth when in presence of slowing exports.
China approved subsidies and increased credit that stimulated private investment, showing the country was ready to rely less on government participation to encourage growth.
A US-based accounting firm cannot officially open an office in China, so they run the business through a foreign affiliate under the cover of a multinational enterprise.
Further research displays that over 150 Chinese reverse merger companies on U.S. stock exchanges have exercised unethical/fraudulent business and accounting practices.
[1] For investors who have been exposed to the negative news and accusations that surrounded the CRM companies, their mistrust was a cause for large losses and price volatility of these stocks.
[2] As the problems in these CRM companies began to appear, a number of whistleblowers and accusers were prominent, mainly investment institutions, research groups, and individual analysts.
The lack of strong internal control by upper management, less than standard audit reports, and low levels of managerial shareholdings of these CRMs made them a target for short sellers looking to do financial investigative research.
Resulting from the halted trading and delisting of the various CRM firms from 2010 to 2011, all US-listed Chinese companies (both IPOs and CRMs) lost roughly 72% in market capitalization.
[citation needed] As for the legal repercussions surrounding CRM companies, the SEC wrote a notice highlighting the potential dangers to investors accompanied with investing in CRMs.
