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Bye-bye to CTE, DGW

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denial_1 October 6, 2011 (Chinavestor) The list of Chinese reverse merger stocks go bust is growing. SinoTech Energy (NASDAQ:CTE) and Duoyuan Global Water (NYSE:DGW) are on the list of "Threshold Securities". This list is made of companies that haven't met listing requirements and are in serious danger of delisting.

Most investors are already aware of these two companies and are not trading. The reason why we still dedicate an article to these stocks is twofold. For one, we want to highlight a list of safe and not so safe list of Chinese stocks we identified months earlier. Please read our July Newsletter carefully and pay attention to the different categories of Chinese stocks. Chinese reverse mergers fail investors.

The other reason we mention these stocks is that some Chinese companies have deliberately abused the trust of U.S. investors. Take a look at SinoTech Energy (NASDAQ:CTE). This company did the following absurd steps: raised FY2011 revenue guidance on August 4, 2011 on top of a June 23 announcement of a USD20 Million Share Repurchase Program. By the way, the company raised FY 2011 guidance on May 6, 2011. And as if all were going well, Sinotech Energy (NASDAQ:CTE) appointed Ernst & Young as independent auditor on March 2, 2011.Eventually the truth came out by September 23 when the CFO and main auditor resigned after allegation surfaced.

These deliberate efforts to misguide American investors went on for a long time to raise concerns regarding other, AMEX then NASDAQ listed reverse merger Chinese stocks. We have to ask the following questions:

  1. How could any company upgrade to the NASDAQ and then be found a fluke in less then 12 months?
  2. How could a company have a "Big 4" auditor yet misguide investors?
  3. How many other names are out there doing just that?
Again, there are at least three important things to consider when it comes to Chinese stocks. As we just said in our latest Newsletter to clients and the general public, "We like stocks that have credible institutional ownership, sound corporate governance and quality auditors." Economic woes sink stocks globally


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