Rames,
As to the second prong of your analysis, you are incorrect. A person who knowingly publishes a false hit piece in order to profit from a short sale is most likely violating SEC rule 10b-5, a rule that can be enforced in both civil and criminal proceedings. Until the wheels came off of CCME, a contingent fee law firm was prepared to proceed against Muddy Waters and Citron Research on just that theory.
So the problem is not that there is no legal remedy against knowing, false accusations of fraud. The problem is the the RTO space is dominated by frauds that are beyond the reach of the US courts.
Investing in China involves a leap of faith that the legal system there will protect foreign investors. If that were the case, one could get a judgment against a fraudulent RTO in the US and take that judgment to China to get it enforced. Such a process might well work in the EU. It surely won't work in China.
This can only be corrected at the highest levels in government. It is beyond the power of the NASDAQ to achieve. Until that happens, investing in China requires a huge leap of faith, a leap that I am very relucant to take any more. It seems safer to look for obvious frauds and short them. Sorry to say, but that's my take on the situation.
K
