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Can you expand on the actual mechanism of how going public in the US helps one funnel money out of China? The way I understand it, going public gives you liqui

Can you expand on the actual mechanism of how going public in the US helps one funnel money out of China? The way I understand it, going public gives you liquidity, but I don't fully understand how this is a method of getting money out in a subversive way.

GioM 8y ago
Am by no means an expert, but I believe it's something like: Invest in company in china -> company builds in valuation (pump) -> company IPO in america -> sell ownership share in america for american dollars (dump) I imagine there are rules to prevent this, but I also imagine that there are loopholes...
baybal2 8y ago
That is a very simple variation of pump and dump scheme. Basically, the same old pump and dump, but the "pump" and "dump" are split, and are done in different countries: 1. A rich guy in China goes and makes a back room deal with a new wiz kid on the block with a promise to prop up his hot startup, thus initiating a "pump" part in a pump and dump. Usually the capital is injected through legal shells and one day funds to obscure the origin. 2. PR companies are hired to hype up the co as the next big thing since sliced bread 3. More back room deals are made with institutional players, to have them add more seemed legitimacy to the operation: investment funds, big name underwriters, 3rd tier American VCs, all kinds of other big name boys. 4. Then, a complex shell structure - VIE is built around the company in an offshore heaven country. That is to give the co. a material constitution outside of China's legal reach. 5. The co. goes for IPO in USA 6. The original Chinese rich guy dumps his stock of a VIE in USA, cash gets sent to his US account, completing the "dump" part of the scheme. Whatever happens next with the company, does no longer matter.
- jayliew 8y ago
  I don't have any experience with passing the SEC's muster for going public, but if this was a scam, attracting the SEC's scrutiny would not be in their interest, because it may trigger the interest of other agencies (FBI/CIA?) Are there examples of when the SEC cleared a company to go public, that was really in hindsight an elaborate money laundering and/or pump-and-dump sham? Because it seems to me like that would be exactly why the SEC exists: to protect the avg non-sophisticated non-professional retail investor from such things. I guess it's hard to tease apart a pure pump and dump from a money laundering operation from one another.

GioM 8y ago

Am by no means an expert, but I believe it's something like: Invest in company in china -> company builds in valuation (pump) -> company IPO in america -> sell ownership share in america for american dollars (dump) I imagine there are rules to prevent this, but I also imagine that there are loopholes...

baybal2 8y ago

That is a very simple variation of pump and dump scheme. Basically, the same old pump and dump, but the "pump" and "dump" are split, and are done in different countries: 1. A rich guy in China goes and makes a back room deal with a new wiz kid on the block with a promise to prop up his hot startup, thus initiating a "pump" part in a pump and dump. Usually the capital is injected through legal shells and one day funds to obscure the origin. 2. PR companies are hired to hype up the co as the next big thing since sliced bread 3. More back room deals are made with institutional players, to have them add more seemed legitimacy to the operation: investment funds, big name underwriters, 3rd tier American VCs, all kinds of other big name boys. 4. Then, a complex shell structure - VIE is built around the company in an offshore heaven country. That is to give the co. a material constitution outside of China's legal reach. 5. The co. goes for IPO in USA 6. The original Chinese rich guy dumps his stock of a VIE in USA, cash gets sent to his US account, completing the "dump" part of the scheme. Whatever happens next with the company, does no longer matter.

jayliew 8y ago
I don't have any experience with passing the SEC's muster for going public, but if this was a scam, attracting the SEC's scrutiny would not be in their interest, because it may trigger the interest of other agencies (FBI/CIA?) Are there examples of when the SEC cleared a company to go public, that was really in hindsight an elaborate money laundering and/or pump-and-dump sham? Because it seems to me like that would be exactly why the SEC exists: to protect the avg non-sophisticated non-professional retail investor from such things. I guess it's hard to tease apart a pure pump and dump from a money laundering operation from one another.