Jon Christian Ryter -- China Peddling Worthless Stocks in The U.S.

CHINA PEDDLING WORTLESS STOCKS IN THE U.S.

By Jon Christian Ryter

August 6, 2004

NewsWithViews.com

In the big bull market of the 90s the People's Republic of China was allowed to penetrate the U.S. Capital markets by exercising loopholes in the Securities Exchange Commission [SEC] regulations that should have been caught or at least flagged by the SEC. The SEC answers directly to the Treasury Department and, ultimately, the Federal Reserve (and not the reverse as you might believe).

The Clinton Administration's State and Commerce Departments naively believed that growth in the Chinese economy was somehow indicative that China was willing to become a peaceful member of of the global free market system and, if everyone was making money, nobody would risk waging nuclear war. "Make Money Not War" became the 90s counterslogan to the 60s' "Make Love Not War." Believing the rhetoric that China would never wage war against its largest cash cow, the Clinton Administration pressured the SEC to be flexible in dealing with China.

During the 1996 election cycle, SEC officials, eager to accommodate Bill Clinton�and to help con the voters into believing that China was no longer a threat to the free world, SEC officials agreed to sit down with high-ranking People's Liberation Army officials and arrange to place several questionable stocks with artificially-inflated values on the American stock market�without disclosing their true ownership. This created an illegal transparency that would have caused any American stock to be banned from sale in the United States and the stock's promoters charged with SEC violations.

In May, 1997, 150 million shares of Beijing Enterprises, offered at $1.61 per share, were tendered in a public offering. The stock reached a high of $8.41 per share�achieving a net worth of $1.25 billion before it crashed and burned. According to the Financial Times of London at the time, several Wall Street bankers raked in a killing as the backers of Beijing Enterprises creamed off the profits as the middle class investors in the United States absorbed the loss. Among the profit-takers were several well known American investment banks�and Indonesian businessman Mochtar Riady (one of Bill Clinton's illegal financial backers in both 1992 and 1996) and Li Ka-shing, the owner of Hutchinson-Whampoa which assumed most of the assets in the Canal Zone when Panama assumed ownership of the Panama Canal.

Ralph Quon, a fellow at the Potomac Foundation and a former investment banker and fund manager in London, Geneva, Moscow and Hong Kong was one of the advisors hired by the People's Bank of China to teach Beijing Enterprises how to skirt SEC registration requirements through a loophole known as "Regulation S." Regulation S allows unregistered securities to be sold through investment banking houses in the United States through offshore transactions. Before such securities are offered to American customers they are required to be checked and registered�unless, under Rule 144[a], those securities are for private placement in the United States where the buyers theoretically know the source and history of the securities and, thus, the pitfalls associated with high risk buying.

Once more, worthless Chinese stocks are being peddled as premium red chip stocks. But this time they came into the country through the back door and into the portfolios of the working class American investor. Meet the "flim-flam man." The "flimflam man" in this case is penny stock shell companies that trade on "over-the-counter" bulletin boards or on pink sheets. (The penny stocks you are likely familiar with are from American companies that were once traded over NASDAQ or perhaps even on the big board. They all fell on hard times but somehow staved off bankruptcy.) Many are companies that are taking their last gasps and will eventually die. But occasionally the managers of the penny stocks you own turn their companies around and you earn a bonanza for a minuscule investment. That's the nature of penny stocks.

Penny stocks sell for anywhere from $5 per share to 25� or less that's why they're called penny stocks. Enter the People's Republic of China with their own penny stocks and American penny stock brokers with a new scheme called the "reverse merger."

The company represented by the penny stock�which theoretically has been purchased by a penny stock management company�suddenly surges in value. The "value" is sometimes artificially generated by hype from financial spinmeisters who plant rumors on the street that the principles of the targeted penny stock are attempting to buy the company back because it has developed a new product, or its has landed a major contract, or some other financial or merchandising miracle has happened. People love comeback companies.

The rumors generally cause the prices of the company's stock to soar for a few days, weeks, or even a month or two. If the prime-pumping was a scam, the stock will crash and burn within two months because after 71 days of a reverse merger, the company is required to issue an audited financial statement. If there was nothing but hype bolstering the price of the stock, that fact will be revealed when its financial statement is issued, and the stock will crash.

Another popular penny stock scheme entails shell traders receiving large blocks of penny stocks through a SEC loophole designed to easily allow employees to buy company stock when they are exercising 401K stock options. The shell companies theoretically set aside blocks of stock for their "employees" even though they may not even have any. Contractors who become part of the shell company's "cooperative" are then able to sell the stock through that loophole to the unsuspecting public through their own "co-op" without first registering it or, in many cases, without providing the buyer with a SEC prospectus since, theoretically, the investor works for the company and thus, knows its history.

In February, 2003 Industries International, a Chinese telephone equipment supplier went public in a "reverse merger." Its stock rose from 40¢ per share to $3.90 per share. Nothing to make the bells ring at the New York Stock Exchange, but a move that caused a ninefold increase in the value of the stock. The stock closed last Friday at 52¢ per share as the company's auditors drained off millions in fees in what is now described as a dispute between the company's auditors and II chairman, Kit Tsui. While II management claims a financial dispute resulted from miscommunications between the company and its auditors, the real losers here are American penny stock investors who thought they had finally hit the mother lode when Industries International stock took off, only to discover the money they spent buying as the stock spiraled upwards has vanished.

In September, 2003 the Justice Department filed criminal charges against the stock promoters behind another reverse merger company. The SEC alleged that a Utah company, 2Do-Trade made false claims about an anti-anthrax formula they reputedly claimed they were developing. Utah securities chief Anthony Taggart noted that "...con artists follow the headlines." Had that company not been shut down, SEC officials believe another reverse merger, and another sting on the American investor, would have occurred.

On June 8, 2004 the SEC froze the trading rights of 14 penny stock shell companies that they claim were associated with Utah stock promoter Richard Surber, a securities lawyer, after those companies fell a year or more behind in their reporting requirements to the SEC. When he was interviewed by Gannett Newspapers (because he was specifically named in the SEC proceedings that suspended the trading rights of the penny stock shell companies) Surber, a nephew of convicted penny stock broker Allen Z. Wolfson, told USA Today that he was unaware why the SEC would include his name in the filing since he has not been directly involved with many of the companies named in several years.

It is surprising that the Bush Administration appears to be as blind as the Clinton Administration was with respect to the long term objectives of the People's Republic of China. International bureaucrats seem to believe that bolstering any country economically will eliminate its penchant for conquest. China is using the United States and the industrialized nations of the world as the consumers for their slave labor products, knowing that the tidal wave of dollars and Euros will be used almost exclusively to upgrade the technology of their obsolete military hardware and the delivery systems that will allow them to deliver a multiple nuclear warhead to any city, town or secret military installation anywhere in the continental United States.

And filling the shelves at Wal-Mart with slave labor goods from China merely serves to fill the coffers of the PLA faster than the decades it would have otherwise taken China to prepare for the nuclear war they are planning against the United States.

The red chip stock scandal of the 90s is now surreptitiously being replayed in a much more low key way in the counting houses of the investment bankers who apparently don't care who gets hurt if they make a buck.

When the first scandal broke in October, 1997 Free Congress Foundation chairman Paul Weyrich exposed the $3.3 billion Initial Public Offering [IPO] by PRC-owned China Telecom that was going through a New York investment banking firm. Weyrich wrote a letter to then Rep. Gerald Solomon, chairman of the House Committee on Rules, alleging that since Hong Kong businessman Li Ka-shing was involved in the China Telecom IPO, insider trading was taking place. Weyrich demanded that "...the United States...ensure that Beijing play by the rules of an open, transparent market�the level playing field so central to democracy in this country. For instance," he wrote, "state-owned China Telecom is due to raise $3.3 billion in New York and Hong Kong this month. But the background of principals such as Li Ka-shing has not been disclosed to the SEC or the investing public as required under...the Federal Securities Act."

When Solomon forwarded Weyrich's letter to the SEC, he added his own comments agreeing with Weyrich's position that since China had proven itself willing to provide weapons of mass destruction to Mideast nations, he was concerned that allowing the PRC access to our market would provide them with the ability to wage an economic war against the United States from within our country.

When the content of Solomon's letter (not Weyrich's) was forwarded to Li Ka-shing, the PRC's financial advisor responded by calling Solomon's comments "bull***t" and total nonsense, adding that they were "beneath comment." The official Chinese response came from the PRC's Communications (i.e., Propaganda) Minister, Wu Jichuan who offered a very blunt and straightforward explanation, hoping to protect the China Telecom IPO. Holding a press conference in Ghenshan, China (just across the border from Hong Kong), Wu said that the Chinese government would relax the accounting rules for China Telecom in order to boost the company's profits�adding that this was the "first course" of a "larger banquet" to come.

Had an American corporate official announced to the media that he was going to ease general accounting standards in order to manipulate the value of his company's stock he would [a] be fired by his company's board of directors immediately, [b] he would be charged with stock manipulation and hauled into court. What happened was the SEC, after catching its breath, decided that the People's Republic of China was simply ignorant of American securities laws and suggested that China Telecom hire a consultant to advise them how the American system worked.

The "American system" apparently worked well. Former Rose Law Firm attorney Webster Hubbell became China Telecom's consultant. The IPO sailed through. Several Wall street investment bankers made a killing on the IPO, and after a meteoric rise like a helium-filled balloon, the China Telecom bubble burst and the American investor was left holding the bag. The same thing will happen with all public-offered Chinese IPOs or penny stock ventures. Red chip stocks are as worthless as they red ink they will sink in shortly after the offerings are sold. Just like when the American public buys goods made in China, when yon invest in Chinese IPOs you are simply providing a revenue stream to the Chinese government that is purchasing high tech weapons of war that will ultimately decimate the United States of America.

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Jon Christian Ryter is the pseudonym of a former newspaper reporter with the Parkersburg, WV Sentinel. He authored a syndicated newspaper column, Answers From The Bible, from the mid-1970s until 1985. Answers From The Bible was read weekly in many suburban markets in the United States.

Today, Jon is an advertising executive with the Washington Times. His website, www.jonchristianryter.com has helped him establish a network of mid-to senior-level Washington insiders who now provide him with a steady stream of material for use both in his books and in the investigative reports that are found on his website. E-Mail: BAFFauthor@aol.com

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