China produces and exports many goods. However, the most intriguing among them may be stock fraud.
A new pump was put in circulation two days ago, 
promoting the stock of Chinese reverse-merger survivor Longhai Steel, Inc. (OTC:LGHS). The company, previously known as ACTN, is reporting hundreds of millions of quarterly revenue and speaks of huge production facilities.
There is more to this story that just the numbers, though. Researching LGHS reveals that its name comes up in articles dating back to the 2010 surge of reverse-merged Chinese stocks put up on big US
exchanges. Those same stocks that crashed so hard under their own pumped up weight they ended up delisted from the big markets.
The reverse merger of Longhai Steel in particular was facilitated by a Belmont Partners. The same Belmont Partners, led by Mr. Joseph Meuse, actually take pride in providing shell companies to their Chinese partners. Mr. Meuse was so tangled up in various aspects of his company’s reverse mergers with Chinese enterprises, that the SEC actually made Longhai Steel revise one of its 2010 proxies to explain a potential conflict of interest. It so happened that Mr. Meuse was both an investor in the Chinese company and a chief executive in Longhai’s US shell.
Even if potential investors overlook all those tell-tale signs, they may want to ask themselves why would a company that’s supposedly easily topping $100 million in revenue each quarter need a reverse
merger to go public.
Looking through LGHS filings, the last 10-K lists a certain Marcum Bernstein & Pinchuk LLP as the auditing company. Investors may want to take a look at the performance of current and past Marcum clients, who happen to list YTD figures of -60% to -98%. The reliability of LGHS reporting numbers and their hundreds of millions of revenue may appear a little less reliable, considering who is doing their auditing and how the auditor’s general clientele fares.
China is a high-risk region for stock traders for other reasons as well. The SEC is usually having a very difficult time inspecting and supervising companies operating out of China because of the PRC’s rigorous foreign intervention policies.
Yesterday, with the pump already going, LGHS gapped up, spiked further and then cooled down, drooping near its previous close. There is still much room to plop the stock in the hands of eager investors. Doing one’s own due diligence is always important but with companies that operate out of China, one should be especially thorough because of the specific reporting and monitoring risks involved. In the end, traders may want to watch out they don’t end up tangled in Longhai’s barbed steel wire.
