I thought I should put this on a new thread as it isn’t really about investing in Alibaba and Shop, but about investing in Chinese stocks.
Considering that two or three years ago, when Yahoo was a 40% owner of Alibaba, the CEO gave himself the most rapidly growing subsidiary as a present, and there was nothing Yahoo could do (even though they were a 40% owner), what in the world makes you think they can’t do the same thing to you? Just wondering.
My own experience in Chinese stocks listed in the US (most recommended by MF Global Gains, which is now closed down after the disaster of Chinese stocks) was that they were simply devices to enrich the CEO and his family, and stockholders were just considered suckers, and sources of the funds to enrich the principals. Eleven of thirteen of these companies, as I remember turned out to be fraudulent (bought nonexistent companies from CEO’s cousin for $25 million of stockholder money, didn’t have the factories and facilities they said they were building, but they just kept the money, etc.) All collapsed in price, often to pennies a share. This included several companies that the MF Global Gains leaders visited, and had glowing reports of how wonderful and honest the corporate officers seemed to be.
And as someone wrote earlier, you don’t really buy a share of the company, you just buy a piece of paper.
Here is a piece of an article from China Law Blog, China Law for Businesses, dated in March of this year, written by Dan Harris and entitled Buying Stock in China’s Publicly Traded Companies: Good Luck With That!
http://www.chinalawblog.com/2016/03/buying-stock-in-chinas-p…
On the author: Dan Harris
Dan Harris is internationally regarded as a leading authority on legal matters related to doing business in China and in other emerging economies in Asia. Forbes Magazine, Business Week, Fortune Magazine, BBC News, The Wall Street Journal, The Washington Post, The Economist, CNBC, The New York Times, and many other major media players, have looked to him for his perspective on international law issues.
I am a China lawyer.
That means I am not a China expert, not a China investment advisor and not a China stock analyst. So when I tell you that I have never invested in a publicly traded Chinese company and I cannot see myself ever investing in a publicly traded Chinese company, you should (and you probably will) completely ignore me and not change your behavior in any respect.
But I am going to ramble about China stocks in this post anyway.
What has spurred this post (and my rambling) is having just read a post on the always superb China Accounting Blog, by Paul Gillis, PhD/CPA Professor at Peking University’s Guanghua School of Management and the person who knows more about China accounting practices than pretty much anybody… He points out that the US SEC does a great job protecting Chinese investors from getting ripped off in… investor scams but pretty much nothing to protect US investors in Chinese stocks:…
…the only CEO to be jailed for defrauding US investors was Dickson Lee of L&L Energy. Lee, however, was a US citizen and was arrested on US soil, so Chinese authorities could not protect him…
…Perhaps the most egregious case was Ming Zhao of Puda Coal, who faces a $250 million judgment from the SEC for ripping off U.S. shareholders. But Chinese authorities have not helped the SEC to enforce the judgment, and instead elevated Ming Zhao to the Eleventh Standing Committee of the Chinese People’s Consultative Congress. I guess he is viewed as a model comrade…
…Gillis sees Chinese regulators as “playing US regulators for fools. They are protecting Chinese fraudsters and thereby creating a safe harbor for those who wish to commit fraud against US investors. At the same time, they welcome application of the rule of law in the US to protect Chinese investors. US regulators are letting them have their cake and eat it too…”
…Gillis then discusses how the “SEC has been unable to bring Chinese fraudsters to justice; as long as they stay in China they remain outside of the grasp of US regulators. China has shown no interest in prosecuting Chinese fraudsters for crimes committed in China that are clearly crimes in China, apparently on the basis that victims of the crimes were not Chinese…”
…It is very easy for Chinese companies to engage in stock fraud without repercussions. Our China attorneys see this all the time, as hardly a month goes by without someone contacting us to see if we might be interested in pursuing a stock fraud claim against XYZ Chinese company. The problem is that unless XYZ is still operating in the US…these just do not tend to make for great cases, because there is no money pot at the end of the proceedings.
So if you are buying (most) Chinese stocks, you are on your own. In other words, caveat friggin emptor baby. And that (plus the fact that we rarely see a Chinese company with fewer than three sets of books) is why I will not buy Chinese company stocks.
A word to the wise.
Saul