U.S.-listed Chinese companies are suffering from growing doubts on the market and from the public after two NASDAQ-listed Chinese firms were de-listed and an audit firm was fined for “improper professional conduct” in connection with a Chinese company accused of fraud at the end of 2010.

However, experts in finance and legislation pointed out that the censure actions taken against U.S.-listed Chinese companies were exaggerated, confusing U.S. investors and providing chances for short-sellers and speculators.

Firms de-listed

According to the U.S. Securities and Exchange Commission (SEC), the probes against China Energy Savings Technology Inc. were launched in 2006. The company was de-listed in the same year.

The SEC said in a statement that the firm Moore Stephens Wurth Frazer Torbet LLP “did not exercise professional skepticism and due professional care” in audits of the company and was not allowed to accept “any new issuer audit clients with operations located in China, Hong Kong or Taiwan for an unspecified time period.”

On Nov. 17, 2010, NASDAQ halted trading of China-based RINO International Corp. and de-listed the company. Another Chinese company FUQI International received last September a receipt of a determination letter from NASDAQ that the company’s common stock is subject to de-listing. Both RINO and FUQI were accused of providing unreliable financial statements.

Firms alleged of fraud are often hunted by short-sellers in the United States. RINO International, Universal Travel Group, BORN Group and Oriental Paper Inc. have all suffered hunting, and their share prices dropped 40 to 60 percent.

“Innocent” of fraud

In order to take a shortcut to enter the U.S. capital market, many Chinese companies chose reverse merger and backdoor listing, which provided convenience as well as hidden troubles.

Via backdoor listing, firms do not have to pass the SEC’s strict investigation, leaving higher possibility for problems, including providing unreliable financial statements.

Peter Siris, managing partner at Guerrilla Capital, said that the high executives lacked experience of U.S. capital market and they needed time to get familiar with the laws and regulations. They would make mistakes, but some were innocent, he said.

Siris’ funds have been invested in over 150 Chinese firms, and many of these firms chose backdoor listing.

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