I was frankly speechless reading Harry Markopolos’ great book “No One Would Listen” detailing the amazing tale of the sharp Bernie Madoff whistleblower and how the Securities and Exchange Commission (SEC) was completely incompetent in following his lead to shut down his massive Ponzi scheme. Anybody hoping this organization has gotten it’s act together and is ahead of the curve will be disappointed by last week’s bulletin.
Behind The 8 Ball
Last Thursday, the SEC put out a bulletin warning about potential fraud regarding companies that came public via the reverse merger. This happens when a private company gains a listing on the U.S. Exchange by merging with a shell company, which allows the company to avoid full scrutiny and regulations.
This space has been a mine field of fraud and many investors have gotten burned, especially by the small cap Chinese reverse merger companies. Trading in at least 15 Chinese stocks has either been halted or been delisted recently. This is why it is so amazing that the SEC is only now putting out a warning about this after billions of investor dollars have already been lost due to fraud. ChinaMedia Express (CCME.PK) has probably been the highest-profile stock to implode due to fraud.
Several firms such as Muddy Waters and Citron Research have played detective and did what the SEC should have been doing in trying to uncover fraudulent activities. These research outfits took a lot of heat for their calls, but several have proven to be correct. Not even big auditing firms such as Deloitte could spot the fraud in time.
The SEC is supposed to be the watchdog that has investors’ backs, but this woefully late bulletin shows that it cannot yet be trusted to serve as a reliable protector of investor interests. The fact that reverse mergers are legal in the first place is a black mark on the organization in my opinion. I think the SEC has the potential to be a value-added organization, but late bulletins like this don’t help their cause.
The SEC: A Day Late And A Dollar Short Again is an article from: 
