The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site. Please see our Subscription Terms and Conditions.

All material subject to strictly enforced copyright laws. © 2022 Euromoney, a part of the Euromoney Institutional Investor PLC.

M&A: Dangerous reversing manoeuvres

Authorities in the US and China must clamp down on reverse merger fraud.

Market participants in the US and China are awaiting the results of an SEC probe into the practice of Chinese companies listing via shell companies in the US, in what are known as reverse mergers or reverse takeovers. Launched earlier this year, the investigation comes as a result of an increasing number of incidents in which investors in these deals have lost money following the discovery of irregularities in the numbers at the listed firms.

In a typical example, a Chinese company will hire accounting and legal firms at home and in the US to help it create a shell company, which is then listed on an exchange – typically in the US the OTCBB (over-the-counter bulletin board). Shares in the shell company then trade at values relating to the performance of the underlying company in China – the shell itself has no business itself, hence the name.

The structure invites problems because the diligence and disclosure requirements are much less rigorous than would be the case for an exchange listing. In a typical example highlighted by online magazine TheStreet, in December 2010 the SEC reached an agreement with US audit firm Moore Stephens Wurth Frazer & Torbet in which the firm agreed to a $129,000 fine and a temporary ban on accepting new China audit clients.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.


Unlimited access to and

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually


Unlimited access to and, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors


Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree