Advanced Battery Technologies Inc. (fka ABAT)

[Ecomike]

Been reading up on China stocks, and this found this write up indicating the Chinese RTOs are safer than than the China IPOs!!!!

http://seekingalpha.com/article/247403-uncovering-the-real-problem-with-chinese-reverse-takeovers

Here is just a small piece of what is worth reading in the link!!!

According to NY Global Group, a leading China expert on Wall Street, "China-based companies with VIE (variable interest entity) structures are the single biggest “time bombs” in the U.S. Markets."

In a VIE structure, the public shareholders do not own the underlying assets in the operating entity – the actual business that generates revenues and earnings for common shareholders. Instead, all of the sales and incomes reported by the public company and filed with the SEC are booked through contractual agreements whereby a company’s management and founders agree to transfer their rights to sales and incomes from the operating business to the public company. The original founders retain the ownerships of the underlying tangible hard assets such as cash, factories, land use rights, machinery, customers etc. In theory and in reality, company management and founders can choose to walk away and leave the public shareholders with no legal claims to the assets of an operating entity. Doesn’t this sound crazy? It certainly does.

RINO was a good example of a VIE structure. RINO’s market capitalization was at one time approaching $1 billion. Shareholders that bought shares in RINO apparently did not realize the inherent risks involved since they perhaps did not bother to read the company’s SEC filings which disclosed risks associated with a VIE deal structure. In NY Global Group’s view, a public company in the U.S. with a VIE structure poses the single biggest risk to U.S. investors. Alarmingly, companies with the VIE structure represent more than 20% of the entire universe of China based, U.S. listed companies listed on U.S. stock exchanges, including almost all of the high flying internet stocks. The vast majority of them have become public companies in the U.S. through IPOs.

In contrast, China’s own domestic stock exchanges do not permit listing of any company whose revenues are organized under a VIE structure. The VIE structure was created by global law firms in the early 2000s to intentionally circumvent legal requirements in China that prohibit foreigners from owning shares in China based internet companies. That law is still applicable in China today. However, the “creative” VIE structure has become a main stream listing process for China based companies – with almost all of them listed through IPOs in the U.S. markets. What do shareholders own by buying shares of a company organized under a VIE structure? Legal professionals may argue that shareholders get sufficient protection through those management contracts. The reality is, in today’s China, a VIE structure is nothing but a piece of paper evidencing certain “right” that is next to impossible to enforce under Chinese laws. The New York Global Group avoids companies with VIE structures completely.