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Short Sellers Take Fight Against Chinese Companies to the Big Screen

September 11, 2017

Deep-pocketed U.S. investors trying to expose fraud they allege among companies in mainland China have found a new way to promote their cause: a feature film.

[ Steven Russolillo and Vipal Monga| September 10, 2017 | The Wall Street Journal]

A documentary called “The China Hustle” premiered Friday at the Toronto International Film Festival. The 84-minute film features prominent American short sellers including Carson Block of Muddy Waters LLC, who in 2011 undertook an aggressive crusade against Chinese timber company Sino-Forest Corp., and James Chanos, one of Wall Street’s most vocal naysayers on China.

The film, written and directed by Jed Rothstein, took about two years to produce. Its backers include American documentary filmmaker Alex Gibney and billionaire investor and entrepreneur Mark Cuban.

 

Mr. Cuban, who helped finance the film through his media company, 2929 Entertainment, said in an interview that he got involved in part “because I’m not a big fan of the job” the U.S. Securities and Exchange Commission does. In 2008, the SEC charged Mr. Cuban with insider trading after he sold shares in an internet company, but Mr. Cuban was cleared years later by a federal jury in Dallas.

The new documentary profiles a cast of U.S. investors trying to expose and profit from irregularities and alleged fraud at many Chinese companies by shorting, or betting against, their publicly traded stocks. It takes aim at audit firms and investment banks that helped engineer transactions such as reverse mergers that took certain Chinese companies public. It also says the SEC has been largely unable to go after Chinese citizens who run the companies.

In 2015, the Chinese affiliates of the Big Four accounting firms settled a yearslong disputewith the SEC over their reluctance to give the regulator documents about Chinese companies that were under investigation. Other than that, few Chinese executives have been charged or sued by U.S. enforcement agencies.

An SEC spokesperson declined to comment.

The film also calls into question the reliability of information from companies such as Chinese e-commerce giant Alibaba Group Holding Ltd. , whose initial public offering in 2014 was the largest on record. An Alibaba spokesperson didn’t immediately respond to a request for comment.

It also claims that U.S. pension plans and retirement accounts have so far lost an estimated $14 billion from investing in Chinese companies such as Orient Paper Inc.,Puda Coal Inc., and China Agritech Inc., whose shares plunged after short sellers targeted them.

Mr. Rothstein, the film’s director, said in an interview: “We’re trying to make people aware that short sellers are blowing the whistle about a larger fraud that is still brewing.”

Dan David, an American hedge-fund manager who has been betting against Chinese companies for nearly a decade and is featured in the documentary, said regulators’ inability to police the market has left investors like him trying to do the job. “I’ve been lied to. I’ve been cheated. They stole from me, and they’re not going to do it again,” said Mr. David, in a question-and-answer session after the film’s premiere.


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