Invisible Hands Unrestrained

Chinese Corporate Frauds and US Banks’ Chinese Underwritings Dramatize the Folly of the Supreme Court’s Anti-American, Anti-Consumer Morrison Decision

June 14, 2012   ·   0 Comments

JPMorgan Chase Building, Houston, TX

By Jeffrey R. McCord of The Investor Advocate
June 14, 2012

We are honored to be published in the June 13th Truth Out, the distinguished online newspaper that proudly displays the Newspaper Guild’s union label.  Our story, which questions how American investors can legally protect themselves from spurious Chinese stocks sold to them by American banks, appeared the same day JPMorgan’s CEO Jamie Dimon side-stepped Senate Banking Committee queries on how his London traders lost $3 billion plus on high-risk derivatives.  (US taxpayers had given his bank $20 billion during the meltdown caused in-part by bank trading and underwriting such derivatives.)

Truth Out publishes original stories by Robert Reich, Bill Moyers and many other thought leaders.   In its June 13 newsletter to subscribers, the editors asked for donations with this “call to arms”:

“In this time of abuse by corporate power and indifferent politicians, we must come together, take the gloves off and be unafraid to call it like we see it. Truthout can’t do this alone. We need your support to protect us and keep us powerful in the face of the brewing storm.” 

Below are the edited excerpts from our Truth Out story.

Fraud against US investors by companies listed on non-American exchanges is inevitable in a world of global financings where all roads seem to lead to US pension funds and retirees.  It is time for Congress to overturn a misguided, anti-consumer Supreme Court decision (Morrison v. National Australia Bank ) that eliminated US investors’ ability to take action in US courts against foreign companies that defraud them in the US.  Recent fraud and wrongdoing by Chinese listed companies and active trading in these companies by American banks and brokers underscore the need for Congress to take action now.

U.S. Banks Compete to Underwrite Stocks of Unaudited Chinese Companies

The unquestioned Chinese skill at fraud and abuse, first evidenced in consumer products – think seafood, pet food and toddler toy scandals of recent years — exported to the United States, has evolved from farm and factory floor to the corporate board room.  Yet, even as the SEC has launched a serious and overdue investigation of sham Chinese “reverse listings” on US stock exchanges, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Citigroup seek to ramp-up trading in stocks listed on the Chinese stock exchange at their mainland China affiliates.  And, Credit Suisse wants in on the action.

“The SEC crackdown on Chinese reverse mergers doesn’t surprise me. Everybody here knows that a Chinese company has four separate accounting books,” a China-based British merchant banker told the Financial Times’ emerging markets news service.

Another British investment manager based in Beijing told the FT, “I’m not surprised there’s fraud in China; it’s not whether it happens, but how to protect yourself against it.”    

Will Goldman or JPMorgan Sell Questionable Chinese Stocks to Americans?

So, on the one hand we have America’s largest banks happily trading in Chinese listed stocks and even underwriting initial public offerings of Chinese companies on China’s stock exchange.  On the other hand, we know fraud within Chinese listed companies is common, if not rampant.  Now, when Morgan Stanley or Goldman Sachs underwrites a Chinese listed company, who will they sell those freshly minted shares to?  Think they’ll flog them back home in the USA to pension funds and retirees?

To paraphrase that British merchant banker:  it’s not whether it happens; it’s how to protect yourself.  But, don’t bother looking for protection under US law.

Because of the Supreme’s Morrison decision, you’ll need to take that sham Chinese company (whose shares you likely bought from your US broker) to court in China. Who expects justice in China?

Prior to June, 2010, Americans had the right to protect themselves from foreign fraudsters by taking action against them in US courts.  In taking away that right, the Supreme Court ignored briefs filed by the Securities and Exchange Commission, the US Solicitor General and scores of American pension funds urging the Court retain US investors’ access to US courts.

For more on this under-reported (by mainstream media) story, see earlier coverage in The Investor Advocate.



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