Chinese Companies “Going Dark”: Finally Accountable to U.S. Hedge Funds and Other Shareholders

The Hedge Fund Law Report

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PUBLISHED ON: March 18, 2014

In the last two years, there has been a growing and insidious trend among valuable, operational and publicly listed Chinese companies in the U.S. to suddenly stop reporting and making requisite financial disclosures with the SEC. After raising millions of dollars on the U.S. capital markets, these companies have either informally, or formally through the filing of a Form 15 with the SEC, “gone dark” – in some cases, with the manifest intention to depress the value of their stock to facilitate an insider-led privatization. As Kathy Chu and Michael Rapoport reported in the Wall Street Journal on December 5, 2012:

[T]he era of reverse mergers – a back door route to the securities market that involves combining a private company with an inactive, publicly traded shell – may have ended. Another has begun: Chinese companies going private.

At the time of their writing, Chu and Rapoport noted that 25 U.S.-listed Chinese companies had announced plans to go private in 2012, compared with 16 companies in 2011.

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