Since 2007, more than 600 privately held foreign businesses have merged with U.S. listed shell companies to gain access to NASDAQ or the New York Stock Exchange. Using this form of “backdoor registration”, they are able to avoid the accounting scrutiny of a direct listing. However, researchers have revealed many of these firms to be a scam:
When Glickenhaus, 29, joined his family’s New York asset- management company in October, he wanted to bring its stock picking into the era of global warming. That led to a $4 million investment in China Agritech Inc., a Beijing-based firm listed on the Nasdaq Stock Exchange and 22 percent owned by Carlyle Group. It was, Glickenhaus said, a way to profit from the need to feed China in an environmentally responsible way.Or so it seemed. The same week in November that Glickenhaus & Co. bought most of its 326,130 shares, China Agritech replaced its auditor. Three months later, investors who had bet against the stock attacked the firm as a scam with no real operations. Shares tumbled to $6.88 on March 14, when trading was halted for failure to file financial data, from $15.87 on Nov. 8.