by Brian Mahany
The title of this post, “A Tale Told By An Idiot, Full Of Sound And Fury, Signifying Nothing” is a quote by William Shakespeare. When it comes to SEC “enforcement” actions, the title is often appropriate. Without criminal sanctions and an admission of wrongdoing, most SEC actions simply look important while being devoid of any true purpose. Nowhere is this more true than in the handling of recent investment scams surrounding Chinese businesses.
Recently we wrote about the proliferation of Chinese businesses engaging in reverse mergers with defunct or nearly defunct American companies. By merging into an existing publicly listed company, the Chinese company gets access to American capital markets virtually overnight. Many of these “new” public companies have turned out to be frauds and scams. And many of their victims? Members of the Chinese – American community.
Since I wrote the first story in February of 2011, the SEC and the Public Company Accounting Oversight Board have made a bunch of noise but from what we see, little progress.
Some of the problem has been the inability or refusal of the large accounting firms to turn over records needed by regulators. That’s a complex issue that warrants its own story. Suffice it to say, the defrauded investors really don’t care nor do they want to hear excuses.
This week the SEC announced it was bringing charges against Huakang “David” Zhou and his company, Warner Technology & Investment Corp. To read the press release from the feds is to believe that Zhou was public enemy number one. He certainly is a large player – a “gatekeeper” according to the complaint – but that’s where the complaint falls short.
The SEC says that Zhou engineered many of the Chinese reverse mergers, possibly the first. Along the way he is accused of defrauding many folks. The problem, however, is that the SEC is a paper tiger. It’s statutory enforcement powers are severely limited.
Pretty much the SEC only has the ability to tell criminals to stop defrauding the public. They can levy fines but can’t put fraudsters in prison and they have difficulty enforcing their own orders. Couple their lack of power with their willingness to permit defendants to settle with no admission of wrongdoing and investors are left with little hope.
The problems are especially great for Chinese American investors who often are here on special visas, don’t fully understand our legal system or have little confidence in the courts. That’s unfortunate. Although the SEC may not have the resources to help investors, there are remedies and help available.
The investment fraud lawyers at Mahany & Ertl help Chinese Americans and others who have been defrauded of their hard earned money. We have helped people across the United States and can often do so on a contingent fee basis meaning we don’t get paid unless you recover.
For more information, contact attorney Brian Mahany at or by telephone at (414) 704-6731 (direct). All inquiries are protected by the attorney – client privilege and kept in strict confidence.
Mahany & Ertl – America’s fraud Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and coming soon, San Francisco, California. Services available in many locations.