Anyone responsible for financial decisions on behalf of investors should be aware of the alert issued on June 9, 2011, by the Securities and Exchange Commission (SEC). The Investor Alert warned investors of the risk of investing in foreign companies who enter the U.S. markets through reverse merger transactions. This alert appears to have been prompted by the significant numbers of China-based operating companies that have recently been suspended from trading by the SEC as a result of discoveries of false or misleading financial statements and the resignation of a number of auditing firms that have uncovered misrepresentations by company management and oftentimes the companies’ Chinese bank branches. In fact, there have been more than 40 China-based companies that have stopped trading, been subject to securities fraud allegations from the SEC or private investors, and/or had auditors resign citing lack of confidence in or actual knowledge of misstatements by company management. For at least the past six months, the SEC has been engaged in a large-scale investigation of companies whose primary assets were Chinese operating companies that went public through a reverse merger. ...

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