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Investing in China: What Every Investor Must Know

By Nancy A. Peterman, Miriam G. Bahcall and Michael R. Cedillos

There are many companies listed on U.S. stock exchanges whose assets are located in China. Recently, many of these companies have faced increased scrutiny by their shareholders, bondholders, other investors and the Securities and Exchange Commission (SEC). The SEC is reportedly investigating many of these companies for alleged accounting fraud. In addition, in the first half of 2011 alone, 24 federal securities class actions were filed against U.S. public companies with substantially all of their assets in China, accounting for 25.5% of all filings in the first half of 2011. Stanford Law School Securities Class Action Clearinghouse, Securities Class Action Filings Decrease Moderately in First Half of 2011, According to Mid-Year Report, July 26, 2011. See www.cornerstone.com/securities-filings-mid-year-2011. Such cases arise out of a variety of difficulties, from theft of trade secrets to significant discrepancies in financial information.

While not all such investments will result in SEC investigations or securities litigation, it is important to understand the risks associated with investing in a company whose principal assets are located in the People's Republic of China (the PRC or China) ' in particular, the risks associated with collecting a defaulted or troubled investment in such companies.

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