Remember the global financial crisis of 2008?
The world economy ground to a halt because of pure greed. Namely, the greed of many financial institutions that sold questionable mortgage bond products based on an over-leveraged US housing market.
The result was catastrophic.
More than a decade on, you would think the world would have learnt its lesson. Netflix told me otherwise through a documentary called The China Hustle.
It scared me.
The China Hustle explores how some US investment firms are using Chinese companies to commit securities fraud.
The process these US investment firms used is simple. They would source small-sized Chinese companies before using them to perform reverse mergers with obsolete US companies, which in turn got them a listing on the NYSE. As a result, investors got excited and the share price rocketed, which in turn attracted more investors.
Sounds good, right?
Well, there’s one serious problem. These Chinese companies were nowhere near as valuable as their filing to the US Securities & Exchange Commission (SEC) would suggest. In fact, the companies’ real value (listed with the Chinese government) were often just 10% of what unsuspecting investors were led to believe.
Because of this action, US investors lost billions of dollars.
If you haven’t watched The China Hustle, I highly recommend that you do so. It’s a brilliant watch – and I’m sure the actions of these US investment firms will shock you.
Also – if you’re thinking about making an investment in a Chinese company, be sure to take extra precautions. This film has led many in our industry to call for greater regulatory transparency around Chinese securities.
Do you want to create your own investment fund with IFINA? Just email me and we can arrange a free Skype consultation.