1
00:00:29,906 --> 00:00:35,453
And so let us start
a long march... together.

2
00:00:37,830 --> 00:00:39,206
Not in lockstep

3
00:00:40,792 --> 00:00:42,334
but on different roads

4
00:00:42,877 --> 00:00:44,462
leading to the same goal.

5
00:00:48,257 --> 00:00:51,469
The goal of building
a world structure

6
00:00:52,428 --> 00:00:54,138
of peace and justice,

7
00:00:55,848 --> 00:01:00,060
in which all may stand together
with equal dignity.

8
00:01:00,853 --> 00:01:02,104
First of all,

9
00:01:02,229 --> 00:01:04,231
our markets are already open
to China.

10
00:01:04,398 --> 00:01:06,901
This agreement
will open China's market to us.

11
00:01:07,359 --> 00:01:08,861
I would call our relationship with China

12
00:01:09,028 --> 00:01:12,448
very positive... and complex.

13
00:01:14,533 --> 00:01:16,368
The free market is the greatest force

14
00:01:16,494 --> 00:01:18,496
for economic progress
in human history.

15
00:01:19,538 --> 00:01:21,040
I will make a great deal

16
00:01:21,206 --> 00:01:23,250
and lots of great deals
for the American people.

17
00:01:23,668 --> 00:01:25,169
Believe me!

18
00:01:41,894 --> 00:01:43,395
What is capitalism?

19
00:01:48,108 --> 00:01:50,486
Is it an economic system?

20
00:01:53,823 --> 00:01:57,242
Or is it an apparatus
that we can use

21
00:01:57,409 --> 00:01:59,495
to make more money
for ourselves

22
00:01:59,662 --> 00:02:01,121
and take more money
from others?

23
00:02:03,833 --> 00:02:05,417
I think, at its heart,

24
00:02:06,085 --> 00:02:08,587
it rewards those who work hard,

25
00:02:09,213 --> 00:02:11,423
but it also rewards
those who...

26
00:02:12,132 --> 00:02:16,261
are willing to...
take advantage of others.

27
00:02:28,024 --> 00:02:31,694
There are no good guys
in this story...

28
00:02:33,696 --> 00:02:34,864
including me.

29
00:02:50,254 --> 00:02:51,630
- Yeah, yeah, that's good.
- Okay...

30
00:02:53,091 --> 00:02:54,675
What's your earliest memory
from childhood?

31
00:02:57,428 --> 00:03:00,222
- That's a trick question.
- Is it?

32
00:03:00,973 --> 00:03:03,308
I... was not expecting it.

33
00:03:04,226 --> 00:03:06,979
I don't know what my earliest
memory from childhood was.

34
00:03:07,521 --> 00:03:09,774
I imagine I was two years old
and I was busting

35
00:03:09,899 --> 00:03:10,983
a fraud somewhere.

36
00:03:12,276 --> 00:03:13,778
This is Dan David.

37
00:03:19,075 --> 00:03:21,285
The first time I met him,
we had a couple of drinks

38
00:03:21,452 --> 00:03:23,704
at a TGI Fridays
in Penn Station,

39
00:03:24,204 --> 00:03:27,041
and he told me
an almost unbelievable story.

40
00:03:31,087 --> 00:03:32,130
Before the dust had settled

41
00:03:32,296 --> 00:03:34,882
on the economic collapse
of 2008,

42
00:03:35,507 --> 00:03:37,509
Wall Street had already
figured out a new way

43
00:03:37,676 --> 00:03:39,303
to package garbage as gold.

44
00:03:40,387 --> 00:03:41,806
They were engineering
an enormous fraud

45
00:03:41,973 --> 00:03:43,057
that spanned the globe.

46
00:03:44,308 --> 00:03:46,185
But this time,
the lies at the center

47
00:03:46,351 --> 00:03:48,353
of the scam were
100 percent legal.

48
00:03:49,521 --> 00:03:52,524
This time,
the crime was based in China.

49
00:03:57,947 --> 00:03:59,782
Dan's part
of the story begins here,

50
00:04:00,199 --> 00:04:01,617
far from Wall Street.

51
00:04:03,619 --> 00:04:05,997
The small investment shop
he ran with his partner Maj

52
00:04:06,246 --> 00:04:08,499
had just been crushed
by the stock market crash.

53
00:04:08,833 --> 00:04:10,126
Three o'clock. What's goin' on?

54
00:04:10,292 --> 00:04:12,252
People who had hedge funds
in 2008

55
00:04:12,419 --> 00:04:14,797
closed their funds
and started a new fund.

56
00:04:15,047 --> 00:04:16,799
- Chris, you got anything?
- Finishing working on

57
00:04:16,966 --> 00:04:18,425
what I'm working on now.
I'm just gonna...

58
00:04:18,592 --> 00:04:20,469
We decided right away
we weren't gonna do that.

59
00:04:21,012 --> 00:04:22,638
We were gonna make everybody
their money back.

60
00:04:23,555 --> 00:04:25,516
They needed big gains,
quickly.

61
00:04:26,184 --> 00:04:27,226
But with the whole
Western world

62
00:04:27,392 --> 00:04:28,894
on the brink
of another depression,

63
00:04:29,353 --> 00:04:30,771
prospects seemed bleak.

64
00:04:36,068 --> 00:04:37,653
It wasn't hopeless
everywhere, though.

65
00:04:38,278 --> 00:04:41,032
The people in the know
steered Dan to China.

66
00:04:41,907 --> 00:04:43,826
It was this exploding market.

67
00:04:45,995 --> 00:04:47,329
It was the only market
that people actually

68
00:04:47,454 --> 00:04:49,207
were confident
would go up, was China.

69
00:04:50,499 --> 00:04:52,126
This is gonna be
the largest economy in the world.

70
00:04:52,292 --> 00:04:53,585
Let's invest in it now.

71
00:04:53,794 --> 00:04:56,547
It blew my mind 'cause
it was so completely different

72
00:04:56,714 --> 00:04:58,423
from what I thought
it would be it was booming.

73
00:04:59,508 --> 00:05:01,677
There were certain
cities, you'd go one time,

74
00:05:01,844 --> 00:05:03,804
and you'd go a year later
again, and suddenly there'd be

75
00:05:03,971 --> 00:05:06,348
a whole new shopping district
that didn't exist last time.

76
00:05:09,059 --> 00:05:10,936
Very dynamic.

77
00:05:10,394 --> 00:05:11,311
Gold rush.

78
00:05:13,564 --> 00:05:16,441
There was almost no company
that you could invest in

79
00:05:16,901 --> 00:05:20,279
in 2009 that was China-based
that you would lose money on.

80
00:05:21,239 --> 00:05:23,282
For an American
set of eyes looking at this,

81
00:05:23,448 --> 00:05:25,034
you were just like,
"Well, my gosh,

82
00:05:25,201 --> 00:05:27,452
"China really is
this golden land

83
00:05:27,619 --> 00:05:29,496
of rapid economic growth."

84
00:05:29,663 --> 00:05:31,456
I really thought,
"Well, jeez, you know,

85
00:05:31,623 --> 00:05:32,917
"the American century
is over now.

86
00:05:33,084 --> 00:05:34,252
This is it."

87
00:05:40,674 --> 00:05:42,467
Everyone wanted
a piece of China.

88
00:05:43,219 --> 00:05:44,595
There was just one problem,

89
00:05:45,470 --> 00:05:47,556
foreigners like Dan
couldn't invest directly

90
00:05:47,723 --> 00:05:48,766
in Chinese markets.

91
00:05:50,059 --> 00:05:51,810
That's where the small
California bank

92
00:05:52,103 --> 00:05:53,104
Roth Capital came in.

93
00:05:55,689 --> 00:05:57,066
Roth found a niche
that the big banks

94
00:05:57,233 --> 00:06:00,027
had overlooked,
taking small Chinese companies

95
00:06:00,194 --> 00:06:02,821
and listing them directly
on U.S. stock exchanges.

96
00:06:04,156 --> 00:06:06,700
Now Dan and others like him
could participate

97
00:06:06,867 --> 00:06:08,410
in the Chinese
economic miracle,

98
00:06:08,994 --> 00:06:10,579
and the bank's
young salesmen had the chance

99
00:06:10,746 --> 00:06:12,497
to make a killing
with the right pitch.

100
00:06:13,165 --> 00:06:14,374
Hey, Jed,
how are you doing today?

101
00:06:15,084 --> 00:06:16,127
Great, what do you got?

102
00:06:16,543 --> 00:06:18,378
Well, we're working
on this new company.

103
00:06:18,587 --> 00:06:20,172
Would you like to hear
about a transaction?

104
00:06:20,714 --> 00:06:22,382
Two days go by. Five days go by.

105
00:06:22,507 --> 00:06:23,759
Do you have
any interest in this?

106
00:06:23,926 --> 00:06:25,636
This is what we feel
the company's capacity

107
00:06:25,803 --> 00:06:27,054
can go to
after this acquisition.

108
00:06:27,221 --> 00:06:28,889
These are fully registered
securities.

109
00:06:29,056 --> 00:06:30,057
What do you want to do?

110
00:06:30,266 --> 00:06:31,850
If they did have interest,

111
00:06:32,101 --> 00:06:32,977
they would come back to you.

112
00:06:33,102 --> 00:06:34,312
Yes. Yes.

113
00:06:34,561 --> 00:06:35,729
Yeah, I'm interested.

114
00:06:35,896 --> 00:06:36,897
$2 million worth.

115
00:06:37,064 --> 00:06:37,898
Put me in for that.

116
00:06:38,065 --> 00:06:39,024
Okay, great.

117
00:06:39,191 --> 00:06:40,318
And that would be it.

118
00:06:40,484 --> 00:06:43,779
I tried to make myself
be in the flow.

119
00:06:43,946 --> 00:06:45,281
Think of a running river.

120
00:06:46,073 --> 00:06:48,617
21 million bucks?
That's a pretty good fee.

121
00:06:48,826 --> 00:06:50,577
- So let's say this is--
- I'm worried, though.

122
00:06:50,786 --> 00:06:53,038
I'm worried that the numbers
don't hold up from China.

123
00:06:54,290 --> 00:06:56,208
Well, I never got asked that.

124
00:06:56,375 --> 00:06:58,794
No one ever asked that.

125
00:07:02,673 --> 00:07:05,384
Roth is a second, third-tier

126
00:07:05,717 --> 00:07:07,761
boutique investment bank
from California.

127
00:07:08,637 --> 00:07:10,430
Someone else had described it
as a frat house.

128
00:07:13,309 --> 00:07:16,020
Roth Capital would get
behind small companies

129
00:07:16,228 --> 00:07:17,771
and push them out
into the market.

130
00:07:18,897 --> 00:07:22,943
They definitely were
heating up 2010, 2011.

131
00:07:23,610 --> 00:07:26,738
Roth was well known
for doing China deals

132
00:07:26,905 --> 00:07:28,448
at a time when we were looking.

133
00:07:29,616 --> 00:07:31,952
We went to a couple
of Roth conferences.

134
00:07:32,119 --> 00:07:33,078
It was a good time.

135
00:07:35,664 --> 00:07:38,167
Roth Capital Partners
has been organizing conferences

136
00:07:38,334 --> 00:07:40,169
for years in Orange County, California.

137
00:07:40,336 --> 00:07:42,754
This has got to be
the best conference in America.

138
00:07:43,005 --> 00:07:45,507
Company after company you
may have never heard of before

139
00:07:45,674 --> 00:07:47,634
makes pitches
to people with money.

140
00:07:50,554 --> 00:07:53,015
And their business model
was kind of simplicity itself.

141
00:07:54,808 --> 00:07:56,601
They'd have
a three-day extravaganza--

142
00:07:56,768 --> 00:07:59,938
100, 150 companies--
and these CEOs would be saying,

143
00:08:00,105 --> 00:08:02,607
"For these six or seven
or eight or ten reasons,

144
00:08:02,774 --> 00:08:06,153
we think we're gonna grow
revenues 75 percent next year."

145
00:08:06,737 --> 00:08:08,155
China has gone,
in the last few years,

146
00:08:08,322 --> 00:08:09,698
from interesting to important.

147
00:08:09,865 --> 00:08:12,076
And then it turns
into entertainment time.

148
00:08:14,286 --> 00:08:16,872
Snoop Dogg, Billy Idol,
dancers,

149
00:08:17,373 --> 00:08:19,458
ice sculptures,
Trojan theme night, buses,

150
00:08:19,624 --> 00:08:22,461
trains, planes--
and then baijiu,

151
00:08:22,669 --> 00:08:24,629
which looks like motor oil
in a can.

152
00:08:24,796 --> 00:08:25,756
You drank and you drank.

153
00:08:28,092 --> 00:08:30,428
You ganbei,
you cheers to somebody,

154
00:08:30,635 --> 00:08:32,221
and then they have
to cheers to somebody else,

155
00:08:32,388 --> 00:08:33,638
and it goes on and on and on.

156
00:08:33,847 --> 00:08:34,932
The Chinese wanted to see

157
00:08:35,099 --> 00:08:36,434
what kind of a person
you were,

158
00:08:36,892 --> 00:08:39,644
and some of them felt like
the more drunk you got,

159
00:08:39,811 --> 00:08:42,856
the more of your natural persona
would come out.

160
00:08:46,193 --> 00:08:47,527
The master of ceremonies

161
00:08:47,694 --> 00:08:49,780
at these conferences
was often the bank's

162
00:08:49,947 --> 00:08:52,699
stage-diving chairman,
Byron Roth.

163
00:08:53,575 --> 00:08:55,911
♪ I wanna rock and roll
All night ♪

164
00:08:56,078 --> 00:08:57,413
Get him up!

165
00:08:57,579 --> 00:08:59,748
♪ And party every day,
I wanna rock and roll ♪

166
00:08:59,873 --> 00:09:01,541
You know, this is a guy
who started out

167
00:09:01,666 --> 00:09:04,044
in the commodities business
when he was 16 years old.

168
00:09:04,544 --> 00:09:06,338
His dad had a feedlot business,

169
00:09:06,505 --> 00:09:08,590
and they'd bid on cows at
auctions and stuff like that.

170
00:09:08,757 --> 00:09:10,717
I mean, this is not
an unsophisticated man.

171
00:09:11,551 --> 00:09:13,304
We just do things that are--
that are different.

172
00:09:13,553 --> 00:09:14,721
And that's kind of
the way we are

173
00:09:14,888 --> 00:09:15,931
as an investment banking firm.

174
00:09:17,808 --> 00:09:19,935
For Byron Roth
and Matt and Dan,

175
00:09:20,102 --> 00:09:21,353
it was time to party.

176
00:09:22,313 --> 00:09:26,317
Between 2006 and 2011,
Roth hosted over a dozen

177
00:09:26,442 --> 00:09:29,320
conferences and raised
billions for Chinese companies.

178
00:09:29,319 --> 00:09:31,196
Byron, get over here. I want a hug.

179
00:09:35,575 --> 00:09:39,579
Whoo!

180
00:09:45,419 --> 00:09:46,711
Narrator:
Roth wasn't the only bank

181
00:09:46,878 --> 00:09:48,297
cashing in on the China boom.

182
00:09:49,340 --> 00:09:50,799
In New York, a small operator

183
00:09:50,966 --> 00:09:53,552
named Rodman & Renshaw
ran investment conferences

184
00:09:53,718 --> 00:09:55,095
with a slightly different feel,

185
00:09:55,762 --> 00:09:57,097
centered
on the political star power

186
00:09:57,264 --> 00:09:59,599
of its chairman,
General Wesley Clark.

187
00:10:01,226 --> 00:10:03,145
In the Balkans, he helped
negotiate a peace

188
00:10:03,312 --> 00:10:04,604
between bitter enemies

189
00:10:05,439 --> 00:10:06,898
and led a multinational force

190
00:10:07,065 --> 00:10:09,109
that stopped
a campaign of terror.

191
00:10:09,276 --> 00:10:12,112
Wes Clark's life is simply
an American story,

192
00:10:12,571 --> 00:10:13,738
but he will make

193
00:10:13,905 --> 00:10:15,949
an extraordinary American president.

194
00:10:19,119 --> 00:10:21,621
First I want to ask you
to just tell us who you are,

195
00:10:21,788 --> 00:10:23,290
and tell me a bit
about your background.

196
00:10:23,457 --> 00:10:25,000
Yeah, I'm retired general
Wes Clark.

197
00:10:25,667 --> 00:10:27,836
Graduated from West Point
in 1966.

198
00:10:28,086 --> 00:10:30,506
Went to Oxford, went to Vietnam,
came home on a stretcher.

199
00:10:30,672 --> 00:10:32,466
Signed as a NATO
Supreme Allied Commander.

200
00:10:32,632 --> 00:10:35,260
I ran for president
in 2003, 2004.

201
00:10:35,511 --> 00:10:36,845
Went into investment banking.

202
00:10:39,014 --> 00:10:41,016
Rodman & Renshaw
had a troubled past.

203
00:10:41,808 --> 00:10:43,768
After years
of management turmoil,

204
00:10:43,935 --> 00:10:45,937
they declared bankruptcy
in the late '90s.

205
00:10:46,605 --> 00:10:48,148
But with a luminary
like General Clark

206
00:10:48,315 --> 00:10:50,192
as their public face,
they'd reemerged

207
00:10:50,359 --> 00:10:51,776
as a respectable-looking bank,

208
00:10:52,027 --> 00:10:54,279
hosting parties
and selling Chinese stock.

209
00:10:54,446 --> 00:10:57,115
They would typically invite
presidents,

210
00:10:57,949 --> 00:11:00,702
ex-presidents, Colin Powell,

211
00:11:00,827 --> 00:11:03,497
Diana Ross, Henry Kissinger.

212
00:11:03,914 --> 00:11:05,749
For an hour or two,
having Henry Kissinger

213
00:11:05,916 --> 00:11:08,252
or George Bush
or Wesley Clark speak--

214
00:11:08,752 --> 00:11:10,212
boy, oh, boy,
like you're going into

215
00:11:10,379 --> 00:11:13,131
some inner sanctum of knowledge,
when, you know,

216
00:11:13,298 --> 00:11:15,175
Kissinger's 90 years old,
talking out his ass.

217
00:11:15,342 --> 00:11:16,594
You can see
what's happening there.

218
00:11:16,718 --> 00:11:18,512
They're renting a name
for an hour or two.

219
00:11:18,678 --> 00:11:20,598
These people all work
for fees.

220
00:11:21,139 --> 00:11:22,182
That's how they make money.

221
00:11:22,349 --> 00:11:24,017
When luminaries speak at it,

222
00:11:24,184 --> 00:11:25,644
more power to 'em.

223
00:11:26,144 --> 00:11:28,188
During the six years
that General Clark was chairman,

224
00:11:28,355 --> 00:11:30,774
Rodman & Renshaw brought
over 40 Chinese companies

225
00:11:30,941 --> 00:11:33,235
to U.S. markets,
with an aggregate value

226
00:11:33,402 --> 00:11:35,613
of over $31 billion.

227
00:11:39,658 --> 00:11:41,577
While Rodman and Roth
made fees

228
00:11:41,743 --> 00:11:43,579
for bringing Chinese companies
to the U.S.,

229
00:11:43,745 --> 00:11:45,163
the real paydays came

230
00:11:45,330 --> 00:11:48,417
when the companies listed
on major stock exchanges

231
00:11:50,085 --> 00:11:51,920
Their analysts would
recommend the risky stocks

232
00:11:52,129 --> 00:11:54,548
as great investments,
and then their salesmen--

233
00:11:54,714 --> 00:11:57,717
like Matt, would push them
on their investment network.

234
00:12:02,013 --> 00:12:03,641
Once the stocks rose
high enough,

235
00:12:03,807 --> 00:12:05,725
the banks and insiders
could cash out,

236
00:12:05,892 --> 00:12:07,852
leaving others holding
the overvalued shares.

237
00:12:09,480 --> 00:12:10,939
The catch was,
listing a company

238
00:12:11,106 --> 00:12:13,317
on the stock exchange
normally required audits

239
00:12:13,484 --> 00:12:14,652
and public vetting,

240
00:12:15,193 --> 00:12:17,195
but the banks found a way
around all that.

241
00:12:17,946 --> 00:12:20,865
They used a backdoor process
called a reverse merger.

242
00:12:21,783 --> 00:12:23,868
It's dollar denominated.
It trades onshore,

243
00:12:24,035 --> 00:12:25,996
the New York Stock Exchange,
the NASDAQ.

244
00:12:26,163 --> 00:12:28,332
It's normally a shell company

245
00:12:28,624 --> 00:12:30,959
that is a public-traded stock

246
00:12:31,418 --> 00:12:33,337
that has no operations
underneath it.

247
00:12:33,545 --> 00:12:34,630
You need to go to Nevada.

248
00:12:34,879 --> 00:12:36,214
A lot of them were there,

249
00:12:36,548 --> 00:12:38,049
that had started off as
mining companies or whatever,

250
00:12:38,216 --> 00:12:40,885
and they were just sort of
sitting there, waiting,

251
00:12:41,970 --> 00:12:44,139
you know, to find
the right partner

252
00:12:44,306 --> 00:12:45,474
who could merge into them.

253
00:12:45,641 --> 00:12:46,391
So you need the shell company.

254
00:12:47,225 --> 00:12:48,810
Here's how
these reverse mergers work.

255
00:12:49,186 --> 00:12:50,937
a Chinese company
looking for a way

256
00:12:51,104 --> 00:12:53,565
into American exchanges
merges with the shell

257
00:12:53,732 --> 00:12:56,067
of a defunct U.S. company
that no longer operates

258
00:12:56,234 --> 00:12:58,612
but still legally exists
and has a listing

259
00:12:58,778 --> 00:13:00,197
on a U.S. stock exchange.

260
00:13:00,656 --> 00:13:01,823
The Chinese company then takes

261
00:13:01,990 --> 00:13:04,034
the shell company's place
in the market.

262
00:13:04,242 --> 00:13:05,703
Presto! You just appear.

263
00:13:05,869 --> 00:13:07,746
You're a stock
that's trading in the U.S.,

264
00:13:07,912 --> 00:13:09,456
and you've got a story to tell.

265
00:13:09,623 --> 00:13:11,124
And no one asks any questions.

266
00:13:15,086 --> 00:13:17,673
Between 2006 and 2012,

267
00:13:17,922 --> 00:13:21,009
over 400 Chinese companies
listed on U.S. markets.

268
00:13:22,052 --> 00:13:24,095
80 percent of them
were reverse mergers.

269
00:13:25,013 --> 00:13:27,265
Our exchanges
are monitoring them.

270
00:13:27,641 --> 00:13:30,477
Our banks are vetting
these companies.

271
00:13:30,935 --> 00:13:32,062
You don't have
to worry about them

272
00:13:32,229 --> 00:13:33,897
because they're
on the U.S. exchanges.

273
00:13:41,572 --> 00:13:42,573
Oh, you're in Hong Kong?

274
00:13:43,741 --> 00:13:45,283
Late on the 30th.

275
00:13:45,992 --> 00:13:49,413
Between 2009 and mid-2010,

276
00:13:49,621 --> 00:13:52,832
the average China-based
reverse merger

277
00:13:53,542 --> 00:13:56,670
was up several hundred percent--
the average!

278
00:13:57,337 --> 00:13:58,838
Could you tell me
what China did last night?

279
00:13:59,839 --> 00:14:01,592
We stuck with
our value-investing approach.

280
00:14:02,467 --> 00:14:05,011
And with that approach
and with our guidelines,

281
00:14:05,596 --> 00:14:08,348
that took us to a lot
of China-based companies.

282
00:14:09,015 --> 00:14:10,225
And we made
several hundred percent

283
00:14:10,392 --> 00:14:11,560
on all of 'em.

284
00:14:13,061 --> 00:14:15,689
Longwei Petroleum,
bought them, $1, $1.50.

285
00:14:15,939 --> 00:14:18,191
We sold, $5, $6,
500 percent profit.

286
00:14:18,358 --> 00:14:19,943
L&L Energy,

287
00:14:20,110 --> 00:14:22,571
bought them for under $2,
sold it between $9 and $10.

288
00:14:22,821 --> 00:14:24,782
Puda Coal, bought them
for around $4,

289
00:14:24,948 --> 00:14:26,366
sold them for around $7,
great company.

290
00:14:26,825 --> 00:14:28,702
China Agriculture, CAGC.

291
00:14:28,868 --> 00:14:30,454
$9, sold them at $28.

292
00:14:30,621 --> 00:14:31,913
All great companies.

293
00:14:34,541 --> 00:14:35,793
We were back.

294
00:14:49,681 --> 00:14:50,724
By 2010,

295
00:14:51,391 --> 00:14:53,184
Dan and the guys
at Roth and Rodman

296
00:14:53,351 --> 00:14:55,312
were making a killing
on the China stocks.

297
00:14:57,648 --> 00:14:59,399
It seemed like
it would never end,

298
00:14:59,650 --> 00:15:01,443
and maybe it wouldn't have,
had it not been

299
00:15:01,610 --> 00:15:03,779
for one earnest young
American businessman

300
00:15:03,945 --> 00:15:05,071
who'd gone to Shanghai to seek

301
00:15:05,238 --> 00:15:07,031
a completely different
type of fortune.

302
00:15:10,577 --> 00:15:11,662
The business I set up

303
00:15:11,829 --> 00:15:13,413
was the first
self-storage business

304
00:15:13,580 --> 00:15:14,832
in mainland China.

305
00:15:14,998 --> 00:15:16,958
It was called
Love Box Self Storage.

306
00:15:17,584 --> 00:15:18,669
World-class.

307
00:15:19,670 --> 00:15:20,879
And we did win an award

308
00:15:21,045 --> 00:15:23,173
for self-storage facility
of the year.

309
00:15:23,423 --> 00:15:25,175
On the way to setting up
that business,

310
00:15:25,342 --> 00:15:27,761
I co-authored "Doing Business
in China For Dummies."

311
00:15:30,555 --> 00:15:33,350
Carson's father,
a stockbroker back in the U.S.,

312
00:15:33,725 --> 00:15:35,435
wanted to invest
in Orient Paper,

313
00:15:35,602 --> 00:15:37,813
a company that Roth Capital
had brought to the markets

314
00:15:37,979 --> 00:15:39,481
through a reverse merger.

315
00:15:40,524 --> 00:15:42,484
The company claimed that
it was doing $100 million

316
00:15:42,651 --> 00:15:44,820
in business a year
and shipping tons

317
00:15:44,986 --> 00:15:46,905
of high-quality paper
all over China.

318
00:15:47,906 --> 00:15:49,282
It was one of
the fast-growing companies

319
00:15:49,449 --> 00:15:50,784
that Roth and Rodman had sold

320
00:15:51,159 --> 00:15:52,952
and that investors
like Dan had bought.

321
00:15:53,745 --> 00:15:55,497
The goal was
to do some research,

322
00:15:55,664 --> 00:15:57,081
make sure that it was legit.

323
00:15:57,666 --> 00:15:59,209
His father would
write up the report.

324
00:15:59,417 --> 00:16:01,461
Again, a fairly easy
to understand

325
00:16:01,628 --> 00:16:02,838
and analyze business

326
00:16:03,213 --> 00:16:06,299
the opposite of
an American software company.

327
00:16:07,217 --> 00:16:08,968
Carson and a friend
went to check out the factory,

328
00:16:09,135 --> 00:16:11,221
but right away,
something seemed off.

329
00:16:11,471 --> 00:16:14,182
It was a country road.
It was in poor shape.

330
00:16:14,349 --> 00:16:18,269
That road could not support
the massive trucks

331
00:16:18,729 --> 00:16:21,690
that would be going in and out
of that facility all day.

332
00:16:22,524 --> 00:16:23,817
Then we got into the factory.

333
00:16:28,321 --> 00:16:29,865
It was a complete dump.

334
00:16:30,240 --> 00:16:32,992
Half the machines were broken,
weren't working.

335
00:16:34,160 --> 00:16:36,287
Garbage rotting
out in the front yard,

336
00:16:36,454 --> 00:16:37,539
no signage.

337
00:16:38,081 --> 00:16:39,917
And this is their main
manufacturing facility.

338
00:16:40,083 --> 00:16:41,501
There's water everywhere,
all right?

339
00:16:41,668 --> 00:16:43,461
This is a company
that's a paper company.

340
00:16:44,588 --> 00:16:46,715
The company had just
claimed to have clocked in

341
00:16:46,882 --> 00:16:48,592
$100 million U.S. in revenue,

342
00:16:48,759 --> 00:16:50,969
which was up substantially
from the year before.

343
00:16:51,135 --> 00:16:53,471
How was this growing
50 percent a year?

344
00:16:53,638 --> 00:16:55,557
On the balance sheet,
they were showing about...

345
00:16:55,933 --> 00:16:58,769
$5 million in raw materials.

346
00:16:59,227 --> 00:17:01,020
And so they had
heaps and heaps

347
00:17:01,187 --> 00:17:03,815
of this old corrugated
cardboard out front.

348
00:17:04,190 --> 00:17:05,984
My friend climbed
one of those heaps

349
00:17:06,150 --> 00:17:09,613
to take a look at the expanse
of rotting cardboard,

350
00:17:10,029 --> 00:17:11,615
and when he came down,
he said,

351
00:17:11,865 --> 00:17:13,867
"If this is worth $5 million,

352
00:17:14,158 --> 00:17:16,286
the world's a much richer place
than I knew."

353
00:17:16,703 --> 00:17:19,038
Carson and his dad looked
at each other at that point

354
00:17:19,623 --> 00:17:23,376
ah, and said, "There's probably
something to do in this stock,

355
00:17:23,794 --> 00:17:25,169
but it has nothing to do
with owning it."

356
00:17:35,346 --> 00:17:37,641
This business
was a complete sham.

357
00:17:38,016 --> 00:17:40,226
This is going to zero.
It's a total fraud.

358
00:17:40,393 --> 00:17:41,979
I've never seen
anything like this.

359
00:17:42,938 --> 00:17:44,648
Carson wrote a report
of his findings

360
00:17:45,189 --> 00:17:46,900
and announced that he was
going to back his claims

361
00:17:47,066 --> 00:17:48,401
by making a bet in the market

362
00:17:48,568 --> 00:17:49,945
that the stock would collapse.

363
00:17:51,070 --> 00:17:52,447
It would change
the course of his life,

364
00:17:53,114 --> 00:17:55,116
but more importantly,
it was the first time

365
00:17:55,283 --> 00:17:57,410
anyone had poked a hole
in the Chinese miracle.

366
00:17:58,286 --> 00:17:59,788
I sent it out into the ether

367
00:17:59,955 --> 00:18:01,999
in late June of 2010.

368
00:18:02,206 --> 00:18:04,459
I stayed up for a little bit
to watch it close,

369
00:18:04,626 --> 00:18:06,294
and going into the close,

370
00:18:07,170 --> 00:18:08,421
it just moved down a little bit.

371
00:18:08,880 --> 00:18:10,381
And so as I went to sleep,

372
00:18:10,548 --> 00:18:13,217
I wondered whether that was
a reaction to the report.

373
00:18:13,927 --> 00:18:15,679
Well, the next day
answered the question

374
00:18:16,013 --> 00:18:17,597
down 25 percent.

375
00:18:17,931 --> 00:18:19,641
And it ended up trading down

376
00:18:19,808 --> 00:18:21,267
as much as 55 percent

377
00:18:21,434 --> 00:18:23,353
from where
we had put out the report.

378
00:18:23,520 --> 00:18:25,647
Even though it's China
and it's a fast-growing economy,

379
00:18:26,230 --> 00:18:28,566
pigs do not fly in China,
and I think that...

380
00:18:28,733 --> 00:18:30,652
There's a proverb in Chinese,

381
00:18:31,319 --> 00:18:33,488
"Muddy waters makes it
easy to catch fish."

382
00:18:35,782 --> 00:18:40,954
(speaking Mandarin)

383
00:18:41,162 --> 00:18:43,456
Yeah, so it means water.

384
00:18:43,497 --> 00:18:45,833
In clear water, there is no fish.

385
00:18:46,459 --> 00:18:47,544
Huh.

386
00:18:47,836 --> 00:18:49,838
That saying,
"Muddy waters makes it easy

387
00:18:50,005 --> 00:18:51,798
to catch fish,"
explains so much

388
00:18:51,965 --> 00:18:53,341
about what goes on
in China.

389
00:18:56,135 --> 00:18:58,638
Opacity creates opportunities

390
00:18:58,972 --> 00:19:00,223
for people to make money.

391
00:19:01,182 --> 00:19:04,019
That's China's view,
muddy waters.

392
00:19:04,185 --> 00:19:05,979
I thought that
that was a very apropos name

393
00:19:06,145 --> 00:19:08,272
for the firm and chose it.

394
00:19:17,281 --> 00:19:18,199
The "Muddy Waters Report"

395
00:19:18,366 --> 00:19:19,826
was the first major claim

396
00:19:19,993 --> 00:19:22,037
against a Chinese company,
and it began to resonate

397
00:19:22,370 --> 00:19:23,371
throughout the industry

398
00:19:24,205 --> 00:19:26,124
nowhere more so
than at Roth Capital,

399
00:19:26,541 --> 00:19:27,584
who'd engineered the deal.

400
00:19:29,836 --> 00:19:31,504
Target price,
less than a dollar.

401
00:19:32,296 --> 00:19:34,049
You have pictures
of dirty factories.

402
00:19:34,298 --> 00:19:36,259
You have pictures
of recycled paper on the ground.

403
00:19:37,052 --> 00:19:39,345
You have people climbing...
pictures.

404
00:19:41,890 --> 00:19:43,182
This is a $150-million company.

405
00:19:46,144 --> 00:19:47,353
It's pretty crazy though.

406
00:19:49,606 --> 00:19:51,942
I had sold
over $22 million of that deal.

407
00:19:57,488 --> 00:19:59,407
I remember
going into Byron's office,

408
00:19:59,657 --> 00:20:00,658
asking, "What's going on here?"

409
00:20:01,659 --> 00:20:04,121
What was "going on"
was that the company

410
00:20:04,287 --> 00:20:06,915
had deployed a classic move
in the reverse-merger playbook:

411
00:20:07,665 --> 00:20:09,709
get a stamp of approval
from a trusted source.

412
00:20:10,376 --> 00:20:11,586
Deloitte and Touche
had come out

413
00:20:11,753 --> 00:20:13,171
with an independent
investigation saying

414
00:20:13,337 --> 00:20:15,214
that the company was
accurately telling

415
00:20:15,381 --> 00:20:16,674
about its financial statements.

416
00:20:17,258 --> 00:20:18,217
In the mortgage crisis,

417
00:20:18,509 --> 00:20:19,844
banks used rating agencies

418
00:20:20,011 --> 00:20:21,679
to disguise
crappy mortgage bonds.

419
00:20:22,097 --> 00:20:24,099
Now Orient Paper was using

420
00:20:24,265 --> 00:20:25,850
an even more
recognizable cover

421
00:20:26,476 --> 00:20:28,436
one of the Big Four
global audit firms.

422
00:20:30,438 --> 00:20:32,356
Every day,
all around the world,

423
00:20:32,523 --> 00:20:34,734
Deloitte professionals are
making an impact that matters...

424
00:20:35,193 --> 00:20:36,153
It turns out that dozens

425
00:20:36,319 --> 00:20:37,612
of Chinese reverse mergers

426
00:20:37,779 --> 00:20:39,823
used the same trick
hiding shady financials

427
00:20:39,990 --> 00:20:41,825
behind audits
from the Big Four.

428
00:20:42,366 --> 00:20:44,661
It was like handing investors
a shiny, thin file

429
00:20:44,828 --> 00:20:46,287
- stamped, "Trust me."

430
00:20:47,413 --> 00:20:49,373
Because when it comes
to living our purpose,

431
00:20:49,791 --> 00:20:51,250
it all starts with integrity.

432
00:20:53,837 --> 00:20:56,339
Whether it's Deloitte
or PwC,

433
00:20:56,756 --> 00:21:00,551
they expect these brands
to have significant value

434
00:21:00,718 --> 00:21:03,930
wherever they are in the world,
but in actuality,

435
00:21:04,097 --> 00:21:05,974
the way these partnerships
are structured

436
00:21:06,307 --> 00:21:10,145
is that each office
is its own entity.

437
00:21:10,311 --> 00:21:11,980
So they were able
to dollarize

438
00:21:12,271 --> 00:21:14,315
renting their name out,
effectively.

439
00:21:14,565 --> 00:21:16,526
All they hoped was that
this company didn't collapse.

440
00:21:19,612 --> 00:21:21,072
Many of these companies
would say, "Well, look.

441
00:21:21,239 --> 00:21:22,740
We're being audited
by Pricewaterhouse."

442
00:21:22,949 --> 00:21:24,367
No, they're not.

443
00:21:24,701 --> 00:21:26,911
They're being audited
by Pricewaterhouse China,

444
00:21:27,078 --> 00:21:28,621
which is like a franchise.

445
00:21:28,872 --> 00:21:30,581
It's not really
Pricewaterhouse.

446
00:21:33,877 --> 00:21:35,628
In the United States,
whenever we've had

447
00:21:35,795 --> 00:21:38,173
a massive fraud--
that we've been short

448
00:21:38,297 --> 00:21:40,508
people always ask me,
"Well, who were the auditors?"

449
00:21:41,092 --> 00:21:42,510
And I always say,
"Who cares?"

450
00:21:44,303 --> 00:21:46,097
It's important to understand,

451
00:21:46,389 --> 00:21:47,849
and most people
don't know this,

452
00:21:48,016 --> 00:21:50,351
that the financial statements
are prepared by management,

453
00:21:50,601 --> 00:21:51,853
not by the auditors.

454
00:21:53,897 --> 00:21:57,316
Auditor's job is to simply
review management's work.

455
00:21:57,942 --> 00:22:00,070
And if management is trying
to hide something

456
00:22:00,653 --> 00:22:03,198
or has co-opted the auditors,
they will hide it.

457
00:22:04,448 --> 00:22:05,783
If hiding it doesn't work,

458
00:22:05,950 --> 00:22:07,118
they opt for plan B.

459
00:22:07,702 --> 00:22:08,828
hire a good lawyer.

460
00:22:09,829 --> 00:22:12,540
Orient Paper brought in
Mitch Nussbaum of Loeb & Loeb

461
00:22:12,749 --> 00:22:14,918
to respond
to Muddy Waters' allegations.

462
00:22:16,211 --> 00:22:18,588
Mitch had helped bring dozens
of Chinese companies to market,

463
00:22:18,922 --> 00:22:20,006
and he knew how to fight back.

464
00:22:20,173 --> 00:22:22,259
You have short sellers who--
who go ahead

465
00:22:22,425 --> 00:22:23,885
and put a short position
on the company

466
00:22:24,052 --> 00:22:26,512
and then throw all sorts
of allegations against them...

467
00:22:26,846 --> 00:22:28,723
Nussbaum's firm
led an investigation.

468
00:22:29,224 --> 00:22:30,600
His unsurprising conclusion

469
00:22:30,808 --> 00:22:32,560
was that Carson's allegations
were false

470
00:22:33,186 --> 00:22:34,938
and that his report
amounted to slander.

471
00:22:35,105 --> 00:22:37,023
How-- do I know what anybody's
telling me is true?

472
00:22:37,148 --> 00:22:38,775
- That's a huge problem.
- It's a huge problem.

473
00:22:38,900 --> 00:22:40,277
All right,

474
00:22:40,526 --> 00:22:43,113
Let's talk about
a case where you did a type

475
00:22:43,280 --> 00:22:44,281
of forensic investigation--

476
00:22:44,488 --> 00:22:45,656
- um hmm.
- Orient Paper.

477
00:22:46,032 --> 00:22:48,367
I wouldn't be prepared
in these circumstances

478
00:22:48,534 --> 00:22:51,329
to discuss or present any more
or additional information

479
00:22:51,495 --> 00:22:53,581
than what we disclosed publicly,
because that wouldn't be,

480
00:22:54,082 --> 00:22:55,208
you know, appropriate.

481
00:23:00,671 --> 00:23:02,423
The Chinese businesses
were a huge profit center

482
00:23:02,590 --> 00:23:03,466
for Loeb & Loeb,

483
00:23:04,425 --> 00:23:05,843
but I imagined
that the company's

484
00:23:06,010 --> 00:23:07,386
often-shoddy paperwork

485
00:23:07,553 --> 00:23:09,097
posed a problem for Nussbaum
and his colleagues.

486
00:23:10,473 --> 00:23:12,558
I wondered how just how much
diligence they had to do

487
00:23:12,725 --> 00:23:14,144
to satisfy regulators.

488
00:23:15,645 --> 00:23:17,272
Forget about the lawyer.
Forget about the banker.

489
00:23:17,772 --> 00:23:19,065
The banker doesn't go
into the books

490
00:23:19,232 --> 00:23:20,317
and records of the company.

491
00:23:20,483 --> 00:23:21,609
The lawyers don't go
into the books

492
00:23:21,776 --> 00:23:22,860
and records of the companies.

493
00:23:23,153 --> 00:23:25,446
We don't go check
to see whether

494
00:23:25,780 --> 00:23:27,157
the shipments were received.

495
00:23:27,573 --> 00:23:29,617
You know, we don't go visit
the customers' homes.

496
00:23:29,909 --> 00:23:31,577
I mean, no law firm does this.

497
00:23:31,744 --> 00:23:33,246
No law firm does this.

498
00:23:33,579 --> 00:23:34,789
This is the part of the story

499
00:23:34,914 --> 00:23:36,124
where I had to do
a double take.

500
00:23:36,958 --> 00:23:39,210
All of the people who
we think of as gatekeepers,

501
00:23:39,418 --> 00:23:41,296
the lawyers,
the bankers, the auditors,

502
00:23:42,088 --> 00:23:43,173
the people making good money

503
00:23:43,340 --> 00:23:44,841
to ensure that
the markets are clean,

504
00:23:45,466 --> 00:23:46,968
weren't doing
anything of the sort.

505
00:23:47,927 --> 00:23:50,013
They simply processed
the necessary paperwork,

506
00:23:50,263 --> 00:23:51,889
took their fees, and moved on.

507
00:23:52,598 --> 00:23:54,642
If the companies were lying,
so what?

508
00:23:59,605 --> 00:24:01,482
The answers
that I was receiving

509
00:24:02,441 --> 00:24:06,029
was insufficient
to thwart my concerns.

510
00:24:07,155 --> 00:24:08,739
And I didn't feel they were
thorough enough

511
00:24:09,073 --> 00:24:10,616
answers to questions.

512
00:24:13,370 --> 00:24:14,453
And that's when

513
00:24:14,787 --> 00:24:16,914
everything significantly
changed for me.

514
00:24:17,456 --> 00:24:20,084
My eyes were open
to this concept

515
00:24:20,335 --> 00:24:23,462
that there was another side
to this company.

516
00:24:28,009 --> 00:24:30,887
I knew what my job was.
I knew what I couldn't do

517
00:24:31,137 --> 00:24:32,722
if I was sitting
in that seat still.

518
00:24:33,139 --> 00:24:35,599
So for me, it was... quit,

519
00:24:36,226 --> 00:24:38,436
go take a break,
and see what happens.

520
00:24:39,103 --> 00:24:40,021
I went on safari.

521
00:24:48,612 --> 00:24:51,032
I'm at a Rodman & Renshaw
conference,

522
00:24:51,824 --> 00:24:54,327
and a firm by the name
of Muddy Waters

523
00:24:54,660 --> 00:24:56,954
puts out a report
on Orient Paper,

524
00:24:58,289 --> 00:24:59,749
and it goes down significantly.

525
00:25:00,166 --> 00:25:03,753
And this is the first time
that we're actually hearing

526
00:25:03,920 --> 00:25:05,755
somebody's publishing a report
and calling it fraud.

527
00:25:07,840 --> 00:25:08,883
We decided that

528
00:25:09,133 --> 00:25:11,135
we were either good
at what we do

529
00:25:11,802 --> 00:25:15,098
or we were lucky,
and if we were lucky,

530
00:25:15,514 --> 00:25:16,807
we were about
to go out of business.

531
00:25:16,933 --> 00:25:18,226
I'm trying to reach
either the general manager

532
00:25:18,351 --> 00:25:19,310
or the property manager...

533
00:25:19,436 --> 00:25:20,519
So we hired our own team.

534
00:25:22,021 --> 00:25:23,940
And our own team went to China

535
00:25:24,107 --> 00:25:27,485
to vet some of these companies
that were accused of fraud.

536
00:25:27,651 --> 00:25:30,113
Let's talk about
China Green Agriculture.

537
00:25:30,488 --> 00:25:32,156
China Green Agriculture
came to our attention

538
00:25:32,323 --> 00:25:34,658
originally in 2009.

539
00:25:36,535 --> 00:25:38,871
And we invested long
into what we thought was

540
00:25:39,038 --> 00:25:40,331
a great fertilizer company.

541
00:25:40,915 --> 00:25:42,417
Their stock was pumping.

542
00:25:43,000 --> 00:25:45,920
Press releases were coming out
about deals they were making

543
00:25:46,087 --> 00:25:47,630
with Nestlé and whoever else.

544
00:25:48,547 --> 00:25:49,757
Dan calculated that

545
00:25:49,924 --> 00:25:51,468
in order to fulfil these contracts,

546
00:25:51,801 --> 00:25:53,261
dozens of trucks
would have to be loading

547
00:25:53,428 --> 00:25:55,138
and unloading goods all day.

548
00:25:56,806 --> 00:25:58,641
So even though
monitoring private companies

549
00:25:58,808 --> 00:25:59,934
is illegal in China,

550
00:26:00,101 --> 00:26:01,936
his team risked
lengthy jail terms

551
00:26:02,103 --> 00:26:04,897
to set up surveillance cameras
outside the factory gates.

552
00:26:05,982 --> 00:26:10,361
We filmed them for 344 days.

553
00:26:10,736 --> 00:26:12,489
Tapes showed us
of very little activity going,

554
00:26:12,655 --> 00:26:14,240
very few employees
coming in and out.

555
00:26:17,327 --> 00:26:18,786
Dan figured that
if the company was doing

556
00:26:18,953 --> 00:26:20,538
what it said it was,
it would have

557
00:26:20,704 --> 00:26:23,124
hundreds of employees
and dozens of drivers.

558
00:26:24,083 --> 00:26:26,710
So what we do is,
we have our investigator

559
00:26:27,253 --> 00:26:28,587
pose as a tea salesman.

560
00:26:29,672 --> 00:26:31,174
So he shows up,
and he's got a suitcase

561
00:26:31,341 --> 00:26:34,218
full of tea samples,
says he's a tea salesman

562
00:26:34,385 --> 00:26:37,263
and he wants to give
free tea samples for everybody.

563
00:26:37,262 --> 00:26:39,348
And 40 regular staff
members in total, right?

564
00:26:37,638 --> 00:26:40,016
(in Mandarin)

565
00:26:39,515 --> 00:26:41,767
Yes, that's right.
40 regular staff members.

566
00:26:42,059 --> 00:26:44,603
Then can you please
write down the number here?

567
00:26:44,895 --> 00:26:46,980
Ok, I'll write down 40 people.

568
00:26:47,690 --> 00:26:49,775
So tell me how many
employees you have here

569
00:26:50,151 --> 00:26:51,902
so I can give you
enough samples.

570
00:26:52,236 --> 00:26:52,987
We get that answer.

571
00:26:52,945 --> 00:26:54,530
How many truck drivers? Only one?

572
00:26:53,154 --> 00:26:54,822
(in Mandarin)

573
00:26:54,655 --> 00:26:55,572
Yes.

574
00:26:56,199 --> 00:26:58,617
What did it mean that
they only had one truck driver?

575
00:26:59,827 --> 00:27:01,162
It meant that their volume

576
00:27:01,329 --> 00:27:04,623
was vastly less
than they had claimed.

577
00:27:11,255 --> 00:27:12,882
In the first half of this year,

578
00:27:13,090 --> 00:27:16,719
Ah, Yongye grew both revenues
and net income by about 100 percent.

579
00:27:17,053 --> 00:27:18,721
Calling out
China Green Agriculture meant

580
00:27:18,888 --> 00:27:20,848
that Dan was also questioning
the integrity

581
00:27:21,015 --> 00:27:23,059
of some of the guys he'd ridden
the China-stock wave up with.

582
00:27:23,518 --> 00:27:24,935
guys like Crocker Coulson,

583
00:27:25,102 --> 00:27:27,021
a stock promoter
who'd pushed this stock

584
00:27:27,313 --> 00:27:28,147
and dozens like it.

585
00:27:28,731 --> 00:27:31,067
What about, um,
China Green Agriculture?

586
00:27:31,901 --> 00:27:34,862
So that's another
fertilizer story that we were...

587
00:27:35,572 --> 00:27:38,074
Again, this kind of goes back
a fair ways for me.

588
00:27:38,241 --> 00:27:39,283
- Yeah.
- I believe that was

589
00:27:39,409 --> 00:27:41,160
an organic fertilizer.

590
00:27:41,327 --> 00:27:42,537
It was also supposed to have...

591
00:27:43,037 --> 00:27:44,247
um...

592
00:27:44,622 --> 00:27:46,457
I really don't remember
a whole lot about that company.

593
00:27:46,999 --> 00:27:49,210
What we came up with is,
they were doing 10 percent

594
00:27:49,377 --> 00:27:50,628
of the business
that they claimed.

595
00:27:50,836 --> 00:27:52,046
And then the fight began.

596
00:27:53,548 --> 00:27:56,509
Puts out a press release
calling us terrorists,

597
00:27:56,926 --> 00:27:59,262
saboteurs, criminals.

598
00:28:00,096 --> 00:28:02,557
There was a statement from
five Beijing finance professors

599
00:28:02,765 --> 00:28:04,601
who alleged
wealthy and sophisticated

600
00:28:04,767 --> 00:28:05,976
short sellers from overseas

601
00:28:06,143 --> 00:28:07,811
were robbing
small Chinese investors

602
00:28:07,978 --> 00:28:10,981
and ignoring risks
of market instability.

603
00:28:11,190 --> 00:28:12,525
They didn't cite any evidence.

604
00:28:13,109 --> 00:28:15,403
Just to be clear,
we put a lot of effort

605
00:28:15,570 --> 00:28:17,280
into trying
to weed out companies,

606
00:28:17,988 --> 00:28:19,574
you know,
before representing them

607
00:28:19,865 --> 00:28:21,909
and then to flag problems,

608
00:28:22,743 --> 00:28:24,245
serious problems,
if we saw them.

609
00:28:24,412 --> 00:28:25,580
There was no way to know

610
00:28:25,871 --> 00:28:27,415
which were the good actors
and bad actors.

611
00:28:29,875 --> 00:28:32,711
A gate guard
knows what's happening.

612
00:28:35,590 --> 00:28:37,216
So we went
to the investment banks.

613
00:28:37,592 --> 00:28:40,094
We took them our evidence.
We said, "Look what we found.

614
00:28:41,095 --> 00:28:43,180
If you hire us and our team
to do diligence,

615
00:28:43,514 --> 00:28:44,641
you'll have a better product

616
00:28:44,807 --> 00:28:45,933
to sell to
the American people."

617
00:28:47,184 --> 00:28:48,185
They said, "Get out of here.

618
00:28:49,395 --> 00:28:52,815
You're telling us to pay you
not to collect 10 percent fees

619
00:28:52,982 --> 00:28:54,900
on every transaction
done through this bank.

620
00:28:55,901 --> 00:28:58,946
The less we know, the better,
and by the way,

621
00:28:59,113 --> 00:29:00,739
if you tell anybody
what you found, we'll sue you.

622
00:29:02,116 --> 00:29:03,242
Go back to Skippack."

623
00:29:05,703 --> 00:29:06,787
So we went back to Skippack.

624
00:29:08,038 --> 00:29:09,415
We published our research.

625
00:29:11,417 --> 00:29:13,252
Dan's report laid out
his allegations

626
00:29:13,419 --> 00:29:15,212
against China
Green Agriculture.

627
00:29:16,005 --> 00:29:18,215
The stock trades
for a dollar today.

628
00:29:20,468 --> 00:29:21,927
You know, it turns out
nobody believes them.

629
00:29:23,012 --> 00:29:24,347
What happened
to the chairman?

630
00:29:25,389 --> 00:29:27,766
Nothing.
I mean, he's kept the money.

631
00:29:28,934 --> 00:29:30,436
And that's what this
is all about, right?

632
00:29:30,603 --> 00:29:34,190
That's $113 million that has
just, poof, vanished

633
00:29:34,982 --> 00:29:37,776
Ah, because they never really
did that kind of volume.

634
00:29:39,778 --> 00:29:42,281
Dan realized he'd made
money off of companies' lies,

635
00:29:42,740 --> 00:29:43,824
and it gnawed at him,

636
00:29:44,450 --> 00:29:45,868
because he knew he'd crossed

637
00:29:46,118 --> 00:29:48,496
into what a lot of people see
as the dark side of finance--

638
00:29:48,996 --> 00:29:49,830
short selling.

639
00:29:56,962 --> 00:29:58,172
What is short selling?

640
00:29:58,422 --> 00:29:59,549
Hmm, let me think about this.

641
00:29:59,716 --> 00:30:01,342
I want to-- this is always
a difficult one.

642
00:30:01,509 --> 00:30:02,968
But short--

643
00:30:03,135 --> 00:30:05,012
What is--

644
00:30:05,262 --> 00:30:06,972
Well, the first short
economically

645
00:30:07,139 --> 00:30:09,767
was probably some transaction
between, you know,

646
00:30:09,933 --> 00:30:11,435
two Cro-Magnon person,

647
00:30:11,602 --> 00:30:14,480
promising some guy--
some other Cro-Magnon

648
00:30:14,647 --> 00:30:15,690
part of a sabre-tooth tiger.

649
00:30:16,023 --> 00:30:17,525
This is Jim Chanos.

650
00:30:17,692 --> 00:30:18,817
He's the dean of short sellers.

651
00:30:19,985 --> 00:30:22,363
And he's brought down some of
the biggest frauds in history.

652
00:30:22,988 --> 00:30:24,615
If you want to think
about short selling,

653
00:30:24,782 --> 00:30:27,117
all kinds of commercial
transactions are short selling.

654
00:30:27,284 --> 00:30:29,704
An airline that sells you
an advance-purchase ticket,

655
00:30:29,870 --> 00:30:32,206
for example,
is shorting you a seat.

656
00:30:32,623 --> 00:30:35,251
Short selling is betting
that a stock is gonna go down,

657
00:30:35,501 --> 00:30:36,586
as opposed to go up.

658
00:30:36,794 --> 00:30:38,128
So shorting a stock,

659
00:30:38,337 --> 00:30:41,131
you'll often hear it referred to
as "borrowing shares."

660
00:30:41,382 --> 00:30:43,342
This is where
a lot of people get confused.

661
00:30:43,760 --> 00:30:44,843
Here's a simple way
to think of it.

662
00:30:46,053 --> 00:30:47,680
Say I want to short sugar.

663
00:30:48,138 --> 00:30:50,057
I think that sugar
is overvalued

664
00:30:50,224 --> 00:30:52,476
and it's going to cost less
in, say, six months

665
00:30:52,643 --> 00:30:53,936
than it does today.

666
00:30:54,687 --> 00:30:55,979
I see a business opportunity.

667
00:30:56,355 --> 00:30:59,149
I go to my neighbor
and borrow one pound of sugar.

668
00:30:59,358 --> 00:31:01,402
Then I turn right around
and sell that sugar

669
00:31:01,569 --> 00:31:03,279
for the going rate
of $1 a pound.

670
00:31:03,487 --> 00:31:04,488
Yeah!

671
00:31:04,655 --> 00:31:05,989
In about six months,

672
00:31:06,282 --> 00:31:08,242
when I have to give my neighbor
a pound of sugar back,

673
00:31:08,826 --> 00:31:11,912
I go buy it on the open market,
where the price has come down,

674
00:31:12,455 --> 00:31:13,956
and it only costs me 50 cents.

675
00:31:14,248 --> 00:31:15,874
I give my neighbor
a pound of sugar back,

676
00:31:16,041 --> 00:31:17,627
plus a little extra
for interest,

677
00:31:18,001 --> 00:31:20,087
and pocket
the 50-cent difference.

678
00:31:20,379 --> 00:31:23,507
She's got her sugar back,
and I've made money on my bet.

679
00:31:24,258 --> 00:31:26,969
You want everybody else
who's trading in that stock

680
00:31:27,136 --> 00:31:29,305
to believe what you're saying

681
00:31:29,472 --> 00:31:31,390
if you think that
the company is a fraud

682
00:31:31,557 --> 00:31:34,059
or you think that something
about the company is not true.

683
00:31:34,226 --> 00:31:36,312
The person that's most
attracted to short selling

684
00:31:36,479 --> 00:31:38,897
is probably those who've been
dropped on their heads at birth.

685
00:31:39,106 --> 00:31:40,817
They're iconoclasts.

686
00:31:40,983 --> 00:31:42,652
Do I believe that their
motivation was to--

687
00:31:42,819 --> 00:31:44,695
was justice for the world?

688
00:31:44,862 --> 00:31:46,947
No, I think their motivation
was to profit from this.

689
00:31:47,114 --> 00:31:49,158
It's about cleaning
our financial markets.

690
00:31:49,325 --> 00:31:50,534
It's about stopping a fraud.

691
00:31:50,701 --> 00:31:52,286
What I really want to do is,

692
00:31:52,453 --> 00:31:53,579
I want to reach in...

693
00:31:53,788 --> 00:31:55,832
Remember this guy,
Dick Fuld?

694
00:31:56,248 --> 00:31:57,916
He ran Lehman Brothers,
the bank whose collapse

695
00:31:58,083 --> 00:32:00,419
set off the financial crisis
in 2008.

696
00:32:01,086 --> 00:32:02,839
He's got an opinion
about short sellers.

697
00:32:03,046 --> 00:32:06,091
Rip out their heart,
and eat it before they die.

698
00:32:08,177 --> 00:32:09,970
So there are
a lot of problems here.

699
00:32:10,137 --> 00:32:11,514
There are a lot
of problems here.

700
00:32:12,931 --> 00:32:14,433
When I bet against a company,

701
00:32:15,017 --> 00:32:16,644
it's because I believe

702
00:32:16,811 --> 00:32:18,479
that they're misrepresenting.

703
00:32:19,271 --> 00:32:21,440
And their trend line
doesn't matter to me at all.

704
00:32:22,650 --> 00:32:25,944
I am somebody that will
bet against fraud.

705
00:32:31,200 --> 00:32:32,284
As Dan and Carson
began looking

706
00:32:32,451 --> 00:32:34,036
for other Chinese companies
to short,

707
00:32:34,578 --> 00:32:36,539
Matt was just getting back
from his safari.

708
00:32:37,540 --> 00:32:39,667
He'd been out of the loop
and wanted to make sense

709
00:32:39,834 --> 00:32:40,835
of what he'd been a part of.

710
00:32:41,669 --> 00:32:42,837
So he asked his friend Soren,

711
00:32:43,295 --> 00:32:45,005
a finance industry lawyer
from New York,

712
00:32:45,464 --> 00:32:47,174
to meet him for a weekend
in the mountains

713
00:32:47,424 --> 00:32:48,843
and take a look
at some of the documents

714
00:32:49,009 --> 00:32:50,636
he'd saved
from his time at Roth.

715
00:32:51,721 --> 00:32:54,056
In the process,
they would discover a new way

716
00:32:54,223 --> 00:32:55,974
to look at the whole
landscape of fraud.

717
00:32:57,142 --> 00:32:59,562
Matt said,
"Just look at these companies.

718
00:33:00,270 --> 00:33:01,104
Tell me what you think."

719
00:33:06,360 --> 00:33:09,572
L&L Energy was nominally
a coal company.

720
00:33:13,033 --> 00:33:14,451
Very typical of an RTO fraud

721
00:33:14,618 --> 00:33:16,704
in that
its financial performance

722
00:33:16,871 --> 00:33:18,205
was simply too good to be true.

723
00:33:18,706 --> 00:33:21,709
(man speaking Mandarin)

724
00:33:24,044 --> 00:33:27,130
The notion
that a small reverse merger

725
00:33:27,339 --> 00:33:29,884
from rural China could somehow

726
00:33:30,050 --> 00:33:32,887
efficiently mine and process coal

727
00:33:33,387 --> 00:33:36,014
so much better than the best
coal companies in the world

728
00:33:36,682 --> 00:33:37,808
was just not credible.

729
00:33:39,142 --> 00:33:40,394
Digging into the papers,

730
00:33:41,061 --> 00:33:42,229
they uncovered a new way

731
00:33:42,396 --> 00:33:44,273
to understand
what was really going on

732
00:33:44,440 --> 00:33:45,816
with the hundreds
of Chinese companies

733
00:33:45,983 --> 00:33:47,818
listed on U.S. exchanges.

734
00:33:48,569 --> 00:33:51,572
What we came back with were
what are called SAIC filings.

735
00:33:52,322 --> 00:33:54,825
They're these filings
from the State Office of, uh...

736
00:33:55,367 --> 00:33:57,327
Oh, my gosh, can't believe
I'm blanking on this.

737
00:33:57,912 --> 00:34:00,205
State Office of, uh, Adminis--

738
00:34:00,372 --> 00:34:02,291
State Administrative Office.
Is that right?

739
00:34:02,499 --> 00:34:04,752
The interesting part
here was that

740
00:34:05,127 --> 00:34:09,256
the filings in China
tended to be very accurate

741
00:34:09,423 --> 00:34:13,469
or more accurate than
the fictions that were filed

742
00:34:13,886 --> 00:34:15,554
with the Securities
and Exchange Commission.

743
00:34:16,597 --> 00:34:19,099
In China,
a company might accurately say

744
00:34:19,266 --> 00:34:21,518
they made $10 million,
while in the U.S.,

745
00:34:21,685 --> 00:34:24,062
they could report
making $100 million or more.

746
00:34:25,188 --> 00:34:26,983
These SAIC filings
were dead reliable.

747
00:34:27,274 --> 00:34:29,359
They showed exactly
what was going on.

748
00:34:32,863 --> 00:34:34,865
And this is-- this is
the cultural difference,

749
00:34:36,199 --> 00:34:40,704
we can't find auditors
in China that will help us,

750
00:34:41,079 --> 00:34:42,080
because let me
tell you something,

751
00:34:42,247 --> 00:34:44,541
if we do find those people,

752
00:34:45,125 --> 00:34:47,085
the government of China
will kill 'em.

753
00:34:47,670 --> 00:34:49,005
I mean, they will take
their ass out

754
00:34:49,338 --> 00:34:51,089
and shoot them
in the fucking head.

755
00:34:53,216 --> 00:34:54,927
This was, from the
beginning, a deception.

756
00:34:55,469 --> 00:34:58,096
The purpose of it
was to deceive,

757
00:34:58,263 --> 00:35:00,516
from day one, and we'd
never really seen that

758
00:35:00,808 --> 00:35:03,352
at this scale
in the United States market.

759
00:35:03,560 --> 00:35:05,437
And that's probably why
it took everyone by surprise.

760
00:35:07,439 --> 00:35:09,817
That included Matt,
and his reaction was telling,

761
00:35:10,734 --> 00:35:12,569
maybe it says something
about human nature,

762
00:35:13,153 --> 00:35:15,113
about why we keep getting
into these messes.

763
00:35:16,532 --> 00:35:18,408
He realized that hundreds
of millions of dollars

764
00:35:18,575 --> 00:35:20,786
in Chinese reverse mergers
that he'd sold were frauds,

765
00:35:21,704 --> 00:35:24,999
but he didn't react
with shame, just pragmatism.

766
00:35:25,666 --> 00:35:28,126
He wanted to make sure he got
a piece of the ride down,

767
00:35:28,836 --> 00:35:30,128
so he switched sides

768
00:35:30,295 --> 00:35:32,297
and became a short seller,
like Dan.

769
00:35:34,050 --> 00:35:38,136
I-- I did it
and made 78 percent in...

770
00:35:38,804 --> 00:35:40,305
four days.

771
00:35:46,979 --> 00:35:49,147
Eventually LLEN collapsed.

772
00:35:49,899 --> 00:35:51,734
For short sellers
like Dan and Matt,

773
00:35:52,109 --> 00:35:53,736
the filings were the final
piece of the puzzle--

774
00:35:54,528 --> 00:35:56,655
not just evidence
from one company or another

775
00:35:57,197 --> 00:35:58,782
but data from
all the companies.

776
00:35:59,783 --> 00:36:01,035
For the first time,
they could see

777
00:36:01,201 --> 00:36:02,745
the full scope
of the deception.

778
00:36:03,620 --> 00:36:05,122
I don't know
what the numbers are,

779
00:36:05,330 --> 00:36:06,874
but it's well into
the billions of dollars

780
00:36:07,041 --> 00:36:08,667
that U.S. investors have lost.

781
00:36:08,834 --> 00:36:10,920
$30 billion, I think
the number was $30 billion.

782
00:36:11,087 --> 00:36:12,379
- $20 billion.
- $50 billion.

783
00:36:12,546 --> 00:36:14,464
It's between
$20 billion and $50 billion

784
00:36:14,631 --> 00:36:17,300
of market capitalization
of stock that's listed

785
00:36:17,467 --> 00:36:20,345
here in the United States
that might be worth zero.

786
00:36:20,596 --> 00:36:23,015
Individual mom-and-pop investors

787
00:36:23,181 --> 00:36:26,643
and mutual funds were invested
in these Chinese companies,

788
00:36:26,977 --> 00:36:29,187
so it really does affect

789
00:36:29,354 --> 00:36:31,189
the average person
on the street as well.

790
00:36:34,234 --> 00:36:36,570
If this one company
is so brazenly fraudulent,

791
00:36:37,905 --> 00:36:39,949
what does that say
about the rest of the market?

792
00:36:42,076 --> 00:36:44,369
Over 300 reverse mergers

793
00:36:44,745 --> 00:36:46,872
with businesses operating
in China.

794
00:36:48,999 --> 00:36:50,500
This whole thing
could be fraudulent.

795
00:36:52,419 --> 00:36:54,212
And that money
could never be recovered,

796
00:36:54,588 --> 00:36:57,382
and if you got caught,
there was no consequences.

797
00:36:58,508 --> 00:36:59,802
When you talk about
the investment banks,

798
00:36:59,969 --> 00:37:01,095
especially the bigger ones,

799
00:37:01,804 --> 00:37:05,682
fraud is baked
into the income statement.

800
00:37:06,934 --> 00:37:08,144
How many investment banks

801
00:37:09,019 --> 00:37:12,355
have had to pay fines this year
for fraud?

802
00:37:13,899 --> 00:37:16,234
Wells Fargo? Check.

803
00:37:16,986 --> 00:37:18,862
Bank of America has in the past.
Check.

804
00:37:19,196 --> 00:37:20,948
Morgan Stanley has in the past.
Check.

805
00:37:21,448 --> 00:37:23,533
Nobody's going to jail.
It's a fine.

806
00:37:24,160 --> 00:37:25,661
So it becomes part--

807
00:37:26,244 --> 00:37:28,288
it becomes part
of what you budget.

808
00:37:28,956 --> 00:37:30,415
You budget for fraud.

809
00:37:34,586 --> 00:37:37,006
Maybe Dan's fixation
on fraud comes from the fact

810
00:37:37,173 --> 00:37:39,175
that Flint, Michigan,
where he grew up,

811
00:37:39,549 --> 00:37:41,426
is the victim
of a kind of fraud.

812
00:37:43,804 --> 00:37:46,389
Big companies made big promises
to the people who lived there,

813
00:37:46,598 --> 00:37:48,475
and in the end,
they couldn't keep them.

814
00:37:50,186 --> 00:37:53,189
Dan saw firsthand how lies
coming from corporate offices

815
00:37:53,396 --> 00:37:55,315
actually affect
real people on the ground.

816
00:37:56,733 --> 00:37:58,610
Where other finance guys
see market machinations,

817
00:37:59,195 --> 00:38:00,654
Dan sees his hometown,

818
00:38:01,530 --> 00:38:03,991
busted, full of ghosts.

819
00:38:16,628 --> 00:38:18,296
This was a pretty nice area
30 years ago.

820
00:38:22,051 --> 00:38:23,301
Hmm.

821
00:38:30,100 --> 00:38:31,309
This was a school.

822
00:38:35,231 --> 00:38:37,107
By today's standards,
it was pretty violent.

823
00:38:39,651 --> 00:38:42,821
I mean, I can't even imagine
10, 11, and 12-year-old kids

824
00:38:42,988 --> 00:38:44,823
swinging bats
at each other today.

825
00:38:53,790 --> 00:38:54,875
No, I was definitely--

826
00:38:55,042 --> 00:38:56,543
I was happy growing up here,
for sure.

827
00:39:02,799 --> 00:39:04,134
Companies lie.

828
00:39:06,011 --> 00:39:07,345
Companies lie.

829
00:39:11,474 --> 00:39:14,561
Companies have companies'
best interests at heart--

830
00:39:15,478 --> 00:39:17,731
not a community's,
not a people's.

831
00:39:18,857 --> 00:39:21,359
The people need to have
their own interests at heart.

832
00:39:26,323 --> 00:39:27,407
Flint's an awesome town.

833
00:39:27,991 --> 00:39:29,451
It's always been
an awesome town.

834
00:39:31,870 --> 00:39:33,122
Very hardworking community.

835
00:39:34,664 --> 00:39:36,083
Very hardworking community.

836
00:39:42,131 --> 00:39:43,090
All right, look.

837
00:39:46,426 --> 00:39:49,221
I saw myself growing up in Flint

838
00:39:49,512 --> 00:39:51,056
and staying there forever.

839
00:39:53,600 --> 00:39:54,935
And then the jobs were gone.

840
00:40:06,071 --> 00:40:07,447
Dan had investigated
the companies

841
00:40:07,614 --> 00:40:08,615
from the ground up.

842
00:40:09,074 --> 00:40:10,408
Matt had seen
the bird's-eye view

843
00:40:10,575 --> 00:40:11,868
of their SEC filings.

844
00:40:12,661 --> 00:40:14,246
Together they began to realize

845
00:40:14,412 --> 00:40:16,414
how shockingly simple
the whole thing was.

846
00:40:18,167 --> 00:40:20,085
Let's say that you wanted
to construct a fraud.

847
00:40:23,255 --> 00:40:24,965
What you would do is,
you would have a factory.

848
00:40:25,257 --> 00:40:26,091
You would have a chairman.

849
00:40:27,050 --> 00:40:28,344
And then you would find
someone,

850
00:40:28,510 --> 00:40:29,761
a gatekeeper, for example.

851
00:40:29,928 --> 00:40:33,056
A finder says,
"This is your business.

852
00:40:33,807 --> 00:40:35,934
What could you do
with $100 million?"

853
00:40:36,101 --> 00:40:38,187
He would help with
connections with auditors,

854
00:40:38,436 --> 00:40:40,189
legal tier-three banks.

855
00:40:40,856 --> 00:40:42,274
This operator in China
would be like,

856
00:40:42,732 --> 00:40:45,027
"Well, that'd be--
it would be a game changer."

857
00:40:45,402 --> 00:40:47,279
"I'd buy up my competition.
I could do this.

858
00:40:47,445 --> 00:40:49,281
I could do that.
I'd be this big."

859
00:40:49,614 --> 00:40:50,573
Get to the United States.

860
00:40:50,907 --> 00:40:52,492
This guy or this company
in China

861
00:40:52,826 --> 00:40:54,536
would say, "Okay, I'm gonna get you

862
00:40:54,703 --> 00:40:57,497
a $100 million,
but this is what you have to do.

863
00:40:57,873 --> 00:41:00,625
You have to tell people
that you're already this big."

864
00:41:01,251 --> 00:41:03,253
You just had to make sure
that you checked all the boxes

865
00:41:03,795 --> 00:41:05,755
in order to get it to be sold.

866
00:41:05,922 --> 00:41:08,466
And don't worry,
because if they even find out

867
00:41:08,633 --> 00:41:10,844
that we're lying,
you won't go to jail.

868
00:41:10,969 --> 00:41:12,388
- You're in China."
- All you needed was

869
00:41:12,512 --> 00:41:13,847
the collusion
of a couple players,

870
00:41:13,972 --> 00:41:15,432
and you could defraud
anyone you wanted.

871
00:41:15,557 --> 00:41:16,975
And if we're lucky enough
to get the money

872
00:41:17,142 --> 00:41:18,060
and they find out you're lying,

873
00:41:18,310 --> 00:41:19,311
you get to keep the money.

874
00:41:19,895 --> 00:41:22,231
So there's really no risk here.
I'll do all the work.

875
00:41:22,772 --> 00:41:25,025
All you have to do
is continue to tell the lie.

876
00:41:26,860 --> 00:41:28,611
You know,
if you're gonna be a CEO

877
00:41:28,778 --> 00:41:30,488
of a public company,
you've got to be educated,

878
00:41:32,115 --> 00:41:35,160
gone to college, got an MBA.

879
00:41:35,327 --> 00:41:37,454
These guys had zero of that.

880
00:41:38,496 --> 00:41:40,123
Zero, a lot of these guys.

881
00:41:40,623 --> 00:41:43,460
They came from second,
third-tier cities in China.

882
00:41:43,626 --> 00:41:45,754
They came from a different way
of doing business...

883
00:41:48,173 --> 00:41:49,216
Like running
their own candy store

884
00:41:49,383 --> 00:41:50,759
type of way doing business.

885
00:41:52,719 --> 00:41:56,432
A Chinese chicken farmer
does not wake up one day

886
00:41:56,973 --> 00:42:01,103
and understand how to defraud
the U.S. capital markets.

887
00:42:01,686 --> 00:42:03,939
From the creation
of these little companies,

888
00:42:04,773 --> 00:42:06,442
it's all about
stock market fraud.

889
00:42:08,526 --> 00:42:10,028
Once Dan, Matt,
and the other shorts

890
00:42:10,195 --> 00:42:12,072
figured out the basic characteristics

891
00:42:12,239 --> 00:42:15,409
of the China frauds, they started
taking them out, one by one.

892
00:42:16,785 --> 00:42:20,497
Puda Coal, the chairman,
stole investors' shares.

893
00:42:21,206 --> 00:42:23,500
SINO Clean Energy,
super technology.

894
00:42:23,666 --> 00:42:25,502
This company puts advertisements
on buses.

895
00:42:26,336 --> 00:42:28,380
They would crush coal,
mix it with water,

896
00:42:28,713 --> 00:42:31,508
and that was energy...
phenomenal.

897
00:42:32,384 --> 00:42:36,305
They hired none other
than Loeb & Loeb to sue us.

898
00:42:37,013 --> 00:42:38,348
China Integrated Energy,

899
00:42:39,266 --> 00:42:42,018
for weeks and weeks and weeks,
there was nothing happening
at this company.

900
00:42:42,394 --> 00:42:44,354
All of a sudden,
things get turned on.

901
00:42:44,771 --> 00:42:46,064
Lights start working.

902
00:42:46,731 --> 00:42:49,234
The next day,
Rodman & Renshaw shows up

903
00:42:49,443 --> 00:42:50,610
with a busload of investors.

904
00:42:52,154 --> 00:42:55,115
Take a tour of the facility,
get back on the bus, leave.

905
00:42:55,740 --> 00:42:56,908
All the lights go back off.

906
00:42:59,369 --> 00:43:01,413
Rodman investors,
invest in a bunch.

907
00:43:03,123 --> 00:43:06,584
You continue to find really
interesting anomalies in China.

908
00:43:06,793 --> 00:43:09,171
I talked to the people who were
running the industrial gases

909
00:43:09,338 --> 00:43:10,506
that were feeding a steel mill.

910
00:43:10,672 --> 00:43:12,466
"We're making a profit
on this now,"

911
00:43:12,674 --> 00:43:14,259
and then they said,
"Yes, but there's a problem.

912
00:43:14,759 --> 00:43:17,513
It seems that
the gauges were wrong,

913
00:43:17,762 --> 00:43:21,433
and we, uh, did not deliver
as much gas

914
00:43:21,641 --> 00:43:23,477
as we charged
the steel mill for."

915
00:43:23,685 --> 00:43:25,020
I said, "When did you find this out?"

916
00:43:25,187 --> 00:43:26,604
They said, "Just last week."

917
00:43:27,189 --> 00:43:29,065
I said, "And how much were
the gauges wrong?"

918
00:43:29,399 --> 00:43:31,651
"Uh, by the exact amount
of our profit.

919
00:43:33,570 --> 00:43:34,654
It's very strange."

920
00:43:43,955 --> 00:43:47,291
If you respect me,
I will respect you.

921
00:43:47,834 --> 00:43:52,505
If this return of respect
is about profit, I will give it up.

922
00:43:53,048 --> 00:43:55,008
I've been told I am addressing
the Honorable Ho,

923
00:43:55,842 --> 00:43:57,886
whose ancestors have been
the glory of their provinces.

924
00:43:58,303 --> 00:44:01,515
I am humble Ho,
whose name stands in deep shadow

925
00:44:01,848 --> 00:44:03,725
before the tincture
of the great company.

926
00:44:03,975 --> 00:44:08,313
In China, business is done
following a tradition

927
00:44:08,605 --> 00:44:11,900
of not having a particularly
strong legal system.

928
00:44:12,234 --> 00:44:16,154
So people rely more on trust
and on personal relationships.

929
00:44:16,363 --> 00:44:18,865
I shall gain merit in the eyes
of the company by being so trusted.

930
00:44:20,075 --> 00:44:23,245
There's a lot of focus
on building those relationships

931
00:44:23,537 --> 00:44:25,372
so that you can build the trust.

932
00:44:25,663 --> 00:44:29,667
The Chinese call this network
of personal relationships, guanxi.

933
00:44:30,126 --> 00:44:33,213
And so I give you small
gifts and I do you favors,

934
00:44:33,630 --> 00:44:35,840
and then you owe me one.
You scratch my back,

935
00:44:36,132 --> 00:44:36,925
I'll scratch yours.

936
00:44:38,176 --> 00:44:40,095
If you do enough favors
of people,

937
00:44:40,387 --> 00:44:42,764
you have the ability
to call on them

938
00:44:43,056 --> 00:44:45,808
for a favor that might be
quite inconvenient for them.

939
00:44:46,851 --> 00:44:49,187
And that they would feel
an obligation

940
00:44:49,438 --> 00:44:50,606
to actually go forward.

941
00:44:54,526 --> 00:44:57,571
This notion that guanxi
wasn't just trading favors

942
00:44:58,113 --> 00:45:00,698
but represented something
more powerful is crucial.

943
00:45:03,159 --> 00:45:05,161
Dan had told me that going
after Chinese companies,

944
00:45:05,412 --> 00:45:07,914
could be dangerous.
But it wasn't until he told me

945
00:45:08,206 --> 00:45:11,000
the story of Alfred Little that I really
understood what he meant.

946
00:45:12,461 --> 00:45:14,630
When these short reports
started coming out,

947
00:45:14,921 --> 00:45:16,465
there was a website
called Alfred Little.

948
00:45:17,507 --> 00:45:20,427
And it started publishing these
very interesting reports,

949
00:45:20,760 --> 00:45:22,137
the sort of the shoe leather,
like,

950
00:45:22,471 --> 00:45:24,889
"We've gone out and we sat
in front of this factory,

951
00:45:25,348 --> 00:45:26,516
and this is what we found."

952
00:45:27,976 --> 00:45:31,271
The website described
Alfred Little

953
00:45:31,605 --> 00:45:34,983
as an investor with
35 years of experience,

954
00:45:35,233 --> 00:45:36,943
I think he was supposed
to have worked at Deloitte.

955
00:45:37,235 --> 00:45:38,736
You know, maybe he lived
in Shanghai.

956
00:45:38,945 --> 00:45:40,656
I mean, there was this whole
backstory, right?

957
00:45:42,157 --> 00:45:43,741
He basically says that,

958
00:45:44,117 --> 00:45:45,785
all these companies
in China are fraud,

959
00:45:47,078 --> 00:45:48,037
are just wholesale bullshit.

960
00:45:49,080 --> 00:45:50,290
And I was dismissive of it.

961
00:45:50,624 --> 00:45:52,750
I can't remember the date,
but I got an email saying,

962
00:45:53,209 --> 00:45:56,421
"I'm gonna be in New York.
Let's meet."

963
00:45:57,005 --> 00:45:59,675
I was like, "Oh, okay,"
so I go to this hotel,

964
00:46:00,258 --> 00:46:02,051
and there's this guy,
and he's like,

965
00:46:02,260 --> 00:46:03,136
"Oh, I'm Jon Carnes."

966
00:46:03,845 --> 00:46:05,472
Like, "I'm the guy who's been...

967
00:46:05,681 --> 00:46:06,931
you know, I'm Alfred Little."

968
00:46:16,566 --> 00:46:18,985
As one of the few Westerners
still working as a short seller

969
00:46:19,194 --> 00:46:20,236
inside China,

970
00:46:20,778 --> 00:46:23,281
Carnes knew how to be careful
and cover his tracks.

971
00:46:24,533 --> 00:46:26,535
Posing as Alfred Little
had served him well.

972
00:46:28,203 --> 00:46:30,163
But when he decided
to take on Silvercorp,

973
00:46:30,455 --> 00:46:32,790
a mining company
in rural Hunan province,

974
00:46:33,583 --> 00:46:36,586
he and his investigators would find
out the dark side of guanxi.

975
00:46:37,337 --> 00:46:39,464
You know, some companies
are more aggressive than others,

976
00:46:39,881 --> 00:46:44,678
but in general, I've found that
the more truthful the report,

977
00:46:45,053 --> 00:46:48,848
the more difficult it is
for a company to explain

978
00:46:50,099 --> 00:46:51,267
these negative truths,

979
00:46:52,435 --> 00:46:56,314
the more likely they're going
to commit some form of retaliation.

980
00:46:57,190 --> 00:46:59,401
Because if
a company can't answer

981
00:46:59,568 --> 00:47:01,611
the questions raised
by the short seller,

982
00:47:02,362 --> 00:47:07,450
then they look for other means
to stop the negative reports.

983
00:47:10,495 --> 00:47:12,997
As Alfred Little began
to publicly question Silvercorp,

984
00:47:13,456 --> 00:47:15,083
the company's stock price
started to drop.

985
00:47:15,958 --> 00:47:17,502
Company officials called
in favors

986
00:47:17,711 --> 00:47:18,920
with the local authorities.

987
00:47:19,962 --> 00:47:21,881
Police began to threaten
Little's chief researcher,

988
00:47:22,340 --> 00:47:23,216
Kun Huang,

989
00:47:24,384 --> 00:47:26,469
detaining him for hours
or days at a time,

990
00:47:27,220 --> 00:47:29,180
demanding to know whom
he was really working for.

991
00:47:31,808 --> 00:47:33,851
Carnes knew that
there was no cavalry coming.

992
00:47:34,644 --> 00:47:36,547
He'd asked the SEC for help,
and they said

993
00:47:36,548 --> 00:47:38,270
their phones couldn't even dial China,

994
00:47:38,981 --> 00:47:40,400
let alone protect him
and his team.

995
00:47:40,232 --> 00:47:41,984
I'm looking for Officer Yi.

996
00:47:40,567 --> 00:47:42,819
(speaking in Mandarin)

997
00:47:43,194 --> 00:47:45,405
He sent another researcher
to secretly record evidence

998
00:47:45,739 --> 00:47:48,617
that local police officials were doing
Silvercorp's bidding.

999
00:47:49,200 --> 00:47:52,621
He would use the videos as leverage to
try and keep Kun out of jail.

1000
00:47:53,079 --> 00:47:54,830
Have you had any contact
with Kun Huang?

1001
00:47:53,246 --> 00:47:54,872
(in Mandarin)

1002
00:47:55,081 --> 00:47:55,915
Communist Party Official: No.

1003
00:47:56,082 --> 00:47:57,500
Official: Don't have any
more contact with him.

1004
00:47:57,666 --> 00:48:01,587
Official: Kun Huang is insignificant.
Like a pebble.

1005
00:48:03,005 --> 00:48:05,382
Official: Toss one out and
no one would care.

1006
00:48:05,674 --> 00:48:09,303
Official: He's a Chinese national
committing crimes in China.

1007
00:48:10,471 --> 00:48:15,351
This issue... If Silvercorp
didn't make such a big mess of it,

1008
00:48:16,227 --> 00:48:18,896
It all would have been concluded
by the end of last year.

1009
00:48:20,189 --> 00:48:26,362
Official: Don't worry, we would not
prosecute an innocent person.

1010
00:48:29,616 --> 00:48:32,661
(man speaking Mandarin)

1011
00:48:42,128 --> 00:48:48,592
We started investigating Silvercorp
around May or June of 2011.

1012
00:48:42,629 --> 00:48:46,299
(in Mandarin)

1013
00:48:49,093 --> 00:48:52,972
We were informed by other investors

1014
00:48:53,097 --> 00:49:00,604
that Silvercorp operated
silver mines in China,

1015
00:49:00,980 --> 00:49:06,152
and that it was regarded very highly.

1016
00:49:08,613 --> 00:49:10,031
Kun had made secret videos

1017
00:49:10,198 --> 00:49:11,867
of Silvercorp's
under performing mines,

1018
00:49:12,450 --> 00:49:14,327
and some of the local officials
they had bribed.

1019
00:49:15,244 --> 00:49:17,664
He was detained briefly
twice in late 2011,

1020
00:49:18,373 --> 00:49:20,041
and officials promised
to leave him alone

1021
00:49:20,249 --> 00:49:21,959
if he would expose
and denounce Alfred Little.

1022
00:49:23,044 --> 00:49:25,129
He refused,
and later that year,

1023
00:49:25,338 --> 00:49:28,049
he was stopped at the border
as he tried to flee to Hong Kong.

1024
00:49:29,091 --> 00:49:34,054
When I first entered
the detention center

1025
00:49:29,551 --> 00:49:34,556
(in Mandarin)

1026
00:49:34,388 --> 00:49:42,146
nobody told me that I had
a right to talk to a lawyer.

1027
00:49:44,523 --> 00:49:49,486
I knew that the interrogators were
in cahoots with Silvercorp,

1028
00:49:49,612 --> 00:49:51,030
and they wanted revenge.

1029
00:49:56,535 --> 00:49:59,872
I arrived at midnight
and they put me in a cell.

1030
00:50:00,581 --> 00:50:06,420
It was only thirty square meters.

1031
00:50:12,635 --> 00:50:15,971
The room was filled with people
sleeping on the floor.

1032
00:50:19,099 --> 00:50:24,563
I was terrified. I didn't know
how long I would be locked up for.

1033
00:50:26,440 --> 00:50:30,486
I didn't do anything illegal.

1034
00:50:30,653 --> 00:50:34,448
But I ended up locked in a Chinese
prison for two years.

1035
00:50:39,828 --> 00:50:42,248
This was a great disaster for me.

1036
00:50:43,123 --> 00:50:45,459
It was devastating to my family.

1037
00:50:48,754 --> 00:50:52,508
But I think I did the right thing.

1038
00:50:54,677 --> 00:51:00,683
Good will ultimately
triumph over evil.

1039
00:51:18,326 --> 00:51:21,078
What...
how many shares short am I?

1040
00:51:26,668 --> 00:51:27,627
No shit.

1041
00:51:27,961 --> 00:51:29,086
 Hmm.

1042
00:51:30,588 --> 00:51:32,799
Before Jon was exposed
as Alfred Little,

1043
00:51:33,090 --> 00:51:34,467
Dan thought he was a crackpot.

1044
00:51:34,592 --> 00:51:35,802
Hey...

1045
00:51:36,218 --> 00:51:37,804
Now, along
with Carson, Matt, and Soren,

1046
00:51:38,220 --> 00:51:39,388
they're part of
a loose-knit tribe.

1047
00:51:40,640 --> 00:51:43,267
Activist short sellers chasing
down frauds in China.

1048
00:51:44,477 --> 00:51:45,520
Most of them are realists,

1049
00:51:46,187 --> 00:51:48,314
believing the market finds
the truth on its own.

1050
00:51:49,649 --> 00:51:50,817
Dan is different.

1051
00:51:51,901 --> 00:51:52,986
He takes it personally.

1052
00:51:55,279 --> 00:51:57,991
Kun keeps going to
the psychologist once a week.

1053
00:51:59,951 --> 00:52:01,661
That was a great thing
you did, though...

1054
00:52:03,496 --> 00:52:04,455
Not cutting him loose.

1055
00:52:05,874 --> 00:52:07,625
Taking care of him
while he was over there.

1056
00:52:09,752 --> 00:52:11,587
How many of these other guys
we know would've just cut him loose.

1057
00:52:12,755 --> 00:52:13,756
We owe him a lot.

1058
00:52:15,383 --> 00:52:17,052
Kun's imprisonment changed Dan.

1059
00:52:17,844 --> 00:52:18,970
As far as he was concerned,

1060
00:52:19,554 --> 00:52:22,015
this wasn't about
just uncovering frauds anymore.

1061
00:52:22,974 --> 00:52:24,475
It was about right and wrong.

1062
00:52:27,020 --> 00:52:28,312
His friend had gone to jail,

1063
00:52:28,938 --> 00:52:30,481
and millions of people
were being ripped off.

1064
00:52:31,066 --> 00:52:32,567
He wanted government action,

1065
00:52:32,817 --> 00:52:34,069
even if it meant
putting himself

1066
00:52:34,318 --> 00:52:35,862
and the other shorts
out of business.

1067
00:52:36,529 --> 00:52:39,032
So he hired a lobbyist and came
up with a plan to try

1068
00:52:39,198 --> 00:52:40,575
and make Congress
pay attention.

1069
00:52:41,659 --> 00:52:44,453
Both Toomey and Casey, are
on the Senate Finance Committee.

1070
00:52:45,121 --> 00:52:46,622
- Mm-hmm.
- So what I was asking for is

1071
00:52:46,873 --> 00:52:48,290
a Senate Finance hearing.

1072
00:52:48,624 --> 00:52:50,251
You're, you're talking
to staffers who bounce

1073
00:52:50,418 --> 00:52:51,961
from meeting to meeting
to meeting to meeting to meeting.

1074
00:52:52,128 --> 00:52:53,880
So I think a lot of people don't
even know, this really happened.

1075
00:52:54,171 --> 00:52:55,673
Anyone I talked to,
anyone even involved

1076
00:52:55,840 --> 00:52:56,841
in the stock market,
doesn't even know.

1077
00:52:57,008 --> 00:52:57,926
A lot of people don't know.

1078
00:52:58,051 --> 00:52:59,385
So here's the frustrating part.

1079
00:52:59,594 --> 00:53:02,055
It was the first meeting
that we had with Toomey's staff.

1080
00:53:02,430 --> 00:53:05,808
Um, he, he actually suggested,
after an hour and a half,

1081
00:53:06,101 --> 00:53:07,602
- a letter-writing campaign.
- Right.

1082
00:53:07,894 --> 00:53:10,813
Number one, you know,
welcome to 2016.

1083
00:53:11,773 --> 00:53:13,900
Um,
but I guess those still work.

1084
00:53:14,233 --> 00:53:16,527
Two, I spent an hour explaining
to him,

1085
00:53:17,153 --> 00:53:18,654
that nobody knows
they're being ripped off.

1086
00:53:19,321 --> 00:53:21,032
How do I get people
to write a letter

1087
00:53:21,323 --> 00:53:22,742
about what they don't know
is happening?

1088
00:53:22,951 --> 00:53:26,328
If we give up, you know what
happens out of Washington? Nothing.

1089
00:53:27,038 --> 00:53:29,082
You have to be at the hearing.
You have to consider yourself an expert.

1090
00:53:29,290 --> 00:53:30,291
That's why we're going
to Washington,

1091
00:53:30,499 --> 00:53:31,333
That's where we're trying
to effect change.

1092
00:53:34,629 --> 00:53:36,338
- It's a very frustrating thing.
- Mm-hmm.

1093
00:53:36,672 --> 00:53:37,423
And I just...

1094
00:53:39,467 --> 00:53:41,427
don't want to hear how
the world works anymore.

1095
00:53:49,978 --> 00:53:50,979
Dan had a plan.

1096
00:53:55,316 --> 00:53:57,735
There was a Senate hearing on
whether or not the Chinese economy

1097
00:53:58,111 --> 00:53:59,946
poses a strategic danger
to our economy.

1098
00:54:01,072 --> 00:54:03,992
He'd use it as an opportunity to
meet with his senator Toomey.

1099
00:54:04,450 --> 00:54:06,202
And get him to listen
to his concerns.

1100
00:54:06,494 --> 00:54:07,662
Would you vote for him
at this point?

1101
00:54:08,579 --> 00:54:10,289
- How'd I vote?
- Oh, right, right.

1102
00:54:10,539 --> 00:54:12,416
I'm sorry, I'm sorry.
I'm having a casual conversation

1103
00:54:12,625 --> 00:54:13,626
with you and I forget.

1104
00:54:15,670 --> 00:54:17,546
Well, let me just say this,
I won't vote

1105
00:54:17,713 --> 00:54:18,547
for the motherfucker.

1106
00:54:32,728 --> 00:54:34,814
I think that there are
a great many people

1107
00:54:35,148 --> 00:54:36,816
that it's their job
to give a shit.

1108
00:54:37,483 --> 00:54:40,444
If you're going to run
for office on the idea

1109
00:54:40,695 --> 00:54:43,781
that you're there to protect
citizens' interests...

1110
00:54:45,200 --> 00:54:48,911
The rights of citizens,
then you should do your job.

1111
00:54:49,245 --> 00:54:50,079
Thank you, sir.

1112
00:54:51,330 --> 00:54:53,208
Or let somebody else do it,
that will do it.

1113
00:55:14,020 --> 00:55:16,231
Today, the Committee
will hear testimony

1114
00:55:16,564 --> 00:55:19,358
on the Chinese economy
and the risk it may pose

1115
00:55:19,650 --> 00:55:20,609
to the United States.

1116
00:55:21,527 --> 00:55:23,821
Some believe
that China's economic stimulus,

1117
00:55:24,072 --> 00:55:26,699
following the 2008
financial crisis,

1118
00:55:27,116 --> 00:55:28,910
has left the financial system

1119
00:55:29,244 --> 00:55:31,996
with an unusually high
percentage of bad debts.

1120
00:55:32,288 --> 00:55:35,416
China's not transitioned, uh,
to a market economy.

1121
00:55:35,583 --> 00:55:37,418
It's not lived up
to the commitments it made

1122
00:55:37,668 --> 00:55:39,420
when it joined
the World Trade Organization.

1123
00:55:39,628 --> 00:55:41,463
Chinese government props
up its state-owned enterprises,

1124
00:55:41,672 --> 00:55:43,216
also called SOEs,

1125
00:55:43,632 --> 00:55:46,844
and designated private firms,
while limiting market access

1126
00:55:47,095 --> 00:55:48,429
for U.S.
and other foreign firms.

1127
00:55:49,597 --> 00:55:51,266
Dan had hoped
that Senator Toomey

1128
00:55:51,432 --> 00:55:53,392
would address some of the
questions he'd raised with his staff.

1129
00:55:55,019 --> 00:55:56,145
But he left the hearing early.

1130
00:55:57,688 --> 00:55:59,232
And it went downhill
from there.

1131
00:56:00,024 --> 00:56:04,028
I'm not sure that I see this
as something that we really need

1132
00:56:04,320 --> 00:56:05,362
to be too worried about.

1133
00:56:05,571 --> 00:56:07,489
What we do need
to be worried about more,

1134
00:56:08,116 --> 00:56:11,535
is the continuation
of the imbalances in China

1135
00:56:11,994 --> 00:56:13,579
and what that might imply...

1136
00:56:20,753 --> 00:56:23,172
How fast is
the Chinese economy growing?

1137
00:56:23,798 --> 00:56:26,884
I don't know exactly.
We don't have reliable figures.

1138
00:56:27,176 --> 00:56:28,261
You know, I pretty much agree

1139
00:56:28,469 --> 00:56:31,055
that China's not growing
at 6.7 percent.

1140
00:56:31,555 --> 00:56:33,682
It's rather growing at something, uh,
like 4 percent.

1141
00:56:34,267 --> 00:56:37,353
So, if the Chinese
credit bubble pops,

1142
00:56:38,187 --> 00:56:39,939
whether it's sooner or later,

1143
00:56:40,564 --> 00:56:43,192
dragging the Chinese economy
down with it,

1144
00:56:43,484 --> 00:56:46,612
what kinds of vulnerabilities
might we see?

1145
00:56:46,821 --> 00:56:50,491
I don't see the impact as being
through direct exposure

1146
00:56:50,741 --> 00:56:53,244
- of United States companies...
- So, so you're not worried

1147
00:56:53,535 --> 00:56:56,122
about the exposure
through derivatives

1148
00:56:56,331 --> 00:56:58,166
that, for example,
put our banks,

1149
00:56:59,292 --> 00:57:02,628
deeply engaged on the question
of commodity prices

1150
00:57:02,837 --> 00:57:05,006
or other financial
transactions more direct?

1151
00:57:05,298 --> 00:57:07,675
Not through China itself...

1152
00:57:15,016 --> 00:57:17,768
I'm Dan David.
I believe Tom gave you my book there.

1153
00:57:18,102 --> 00:57:19,145
- Oh, yes.
- Yeah.

1154
00:57:19,395 --> 00:57:20,188
I'll believe you'll find that--

1155
00:57:20,355 --> 00:57:21,189
"The China Hustle."

1156
00:57:21,314 --> 00:57:23,065
That's right. That's right.

1157
00:57:23,607 --> 00:57:24,984
If you, uh, read that
and you're interested,

1158
00:57:25,151 --> 00:57:26,819
I'd love to talk
to you about it.

1159
00:57:26,986 --> 00:57:27,442
Okay.

1160
00:57:27,443 --> 00:57:29,328
So, couple of hundred billion in fraud,
and it continues.

1161
00:57:30,239 --> 00:57:31,949
It's not over.
It goes on every day.

1162
00:57:32,241 --> 00:57:33,450
- Great.
- Yeah, any one of them.

1163
00:57:36,996 --> 00:57:38,789
Very cursory and...

1164
00:57:39,123 --> 00:57:40,916
- Okay.
- ...dismissive and generic.

1165
00:57:41,500 --> 00:57:42,668
- Anecdotal.
- The only thing I heard

1166
00:57:42,877 --> 00:57:44,879
at the end
was Shelby saying, uh,

1167
00:57:45,171 --> 00:57:46,630
you know, we got
to face reality.

1168
00:57:47,464 --> 00:57:48,924
- That was it.
- Okay, the reality is,

1169
00:57:49,091 --> 00:57:50,801
- they're gonna do nothing about it.
- Right.

1170
00:57:51,719 --> 00:57:54,347
The biggest, eh, you know,
you can guarantee losing

1171
00:57:54,847 --> 00:57:56,307
- by not doing anything.
- That's right.

1172
00:58:01,770 --> 00:58:03,356
Uh, why did you come down
to Washington?

1173
00:58:04,523 --> 00:58:06,859
I was hoping
to move the ball forward,

1174
00:58:07,526 --> 00:58:08,986
advocating for investors' rights,

1175
00:58:09,278 --> 00:58:12,323
to... show up and see
what's actually done

1176
00:58:12,614 --> 00:58:13,490
at a committee hearing.

1177
00:58:14,783 --> 00:58:16,160
What happened at the hearing?

1178
00:58:16,952 --> 00:58:17,786
Not much.

1179
00:58:23,792 --> 00:58:26,087
I think
that what Dan's doing to try

1180
00:58:26,295 --> 00:58:30,507
to get Congress to take action,
is a good thing.

1181
00:58:32,093 --> 00:58:34,511
Do I think that's the way
to solve the problem? No.

1182
00:58:35,512 --> 00:58:36,513
I don't think so.

1183
00:58:38,766 --> 00:58:41,143
The entire staff of
the SEC hasn't busted,

1184
00:58:41,685 --> 00:58:43,145
more than one or two
of these frauds.

1185
00:58:44,021 --> 00:58:46,023
A handful of short sellers
have busted,

1186
00:58:46,232 --> 00:58:47,442
forty or fifty of these frauds.

1187
00:58:58,535 --> 00:58:59,745
Coach, you need one?

1188
00:59:00,162 --> 00:59:02,081
- Yeah, I guess so.
- Is he still living out in France?

1189
00:59:02,915 --> 00:59:04,583
Excuse me, ladies,
can I get you anything?

1190
00:59:05,000 --> 00:59:06,043
Soda, water, beer?

1191
00:59:07,420 --> 00:59:09,004
Pop, can you get Sean a beer?

1192
00:59:10,005 --> 00:59:11,924
No, he can help himself.

1193
00:59:12,216 --> 00:59:13,008
He's a big guy.

1194
00:59:13,384 --> 00:59:15,844
Uh-huh.

1195
00:59:16,220 --> 00:59:17,679
- Geo Investing.
- G-O?

1196
00:59:18,139 --> 00:59:19,014
G-E-O.

1197
00:59:21,100 --> 00:59:22,643
I'll bet against them.

1198
00:59:22,935 --> 00:59:24,812
And I'll write a report,
and I'll publish it.

1199
00:59:25,562 --> 00:59:28,107
And I'll say they're a fraud
and I'm short.

1200
00:59:29,275 --> 00:59:30,609
But when they do go to zero,

1201
00:59:31,319 --> 00:59:34,029
I win, but you all lose.

1202
00:59:34,822 --> 00:59:35,739
We're losing our ass.

1203
00:59:36,698 --> 00:59:38,200
Started out good.
We didn't get any...

1204
00:59:38,326 --> 00:59:40,495
This is the skim that comes
out of everybody's account.

1205
00:59:41,329 --> 00:59:42,497
It's pennies from everyone...

1206
00:59:43,914 --> 00:59:46,083
that adds up
to hundreds of billions.

1207
00:59:46,959 --> 00:59:49,378
So you're campaigning
to get something to happen.

1208
00:59:50,754 --> 00:59:52,381
So that I won't
make money anymore.

1209
00:59:53,424 --> 00:59:54,633
- You're a good man, Danny.
- Yeah.

1210
00:59:54,800 --> 00:59:55,968
I always thought
you were like that.

1211
00:59:56,135 --> 00:59:57,594
No, you didn't.

1212
00:59:57,761 --> 01:00:00,264
And I'm not. I'm not. I'm not.
It just...

1213
01:00:01,140 --> 01:00:02,641
just doesn't sit well,
that's all.

1214
01:00:03,892 --> 01:00:06,061
Explain to me again,
why you make money and we don't.

1215
01:00:06,645 --> 01:00:08,230
You bet against them.
That's short them.

1216
01:00:09,357 --> 01:00:10,358
Okay.

1217
01:00:12,067 --> 01:00:13,861
Graduating with a 1.6...

1218
01:00:18,449 --> 01:00:20,075
- I'm kidding. I'm kidding.
- There's two things there.

1219
01:00:20,242 --> 01:00:22,119
One, I had no idea
I actually graduated.

1220
01:00:26,748 --> 01:00:27,749
Carol read something

1221
01:00:28,834 --> 01:00:31,504
about something going on
in China right now,

1222
01:00:31,712 --> 01:00:35,550
where they've discovered
what they think to be aliens.

1223
01:00:36,175 --> 01:00:37,676
Wasn't it deep down,
they found 'em?

1224
01:00:40,637 --> 01:00:41,847
Well, that would be
a new wrinkle.

1225
01:00:42,764 --> 01:00:44,850
Well, that would make what I've been
doing the last three years a waste.

1226
01:00:45,226 --> 01:00:46,435
Nothin'.

1227
01:00:46,643 --> 01:00:48,563
- Thousands of years ago.
- Yeah.

1228
01:00:49,480 --> 01:00:51,773
Yup, I think he might not
come home in one piece.

1229
01:01:00,741 --> 01:01:03,660
At the end of the day,
investors counting on the SEC

1230
01:01:04,579 --> 01:01:09,542
to save them from their own lack
of due diligence, or greed,

1231
01:01:10,000 --> 01:01:11,335
are kidding themselves.

1232
01:01:12,044 --> 01:01:14,255
We have more opportunity in
our markets than anywhere in the world.

1233
01:01:14,713 --> 01:01:16,215
But, at the same time,

1234
01:01:16,840 --> 01:01:20,428
we don't have a regulator
that looks over our, our filings

1235
01:01:20,553 --> 01:01:22,721
and says, "I want to protect
the public from this."

1236
01:01:24,223 --> 01:01:26,016
Our system... you know,
we file with the SEC,

1237
01:01:26,225 --> 01:01:27,935
and the SEC reads the disclosure,
and they comment

1238
01:01:28,143 --> 01:01:29,728
on, on the disclosure.

1239
01:01:30,062 --> 01:01:31,522
They don't determine whether it's viable
to be public or not.

1240
01:01:31,730 --> 01:01:32,940
They don't make that determination.

1241
01:01:33,148 --> 01:01:34,942
They let the free market
make the determination.

1242
01:01:36,235 --> 01:01:38,362
The SEC should do its job.

1243
01:01:38,862 --> 01:01:40,948
Your job is to look out
for investors,

1244
01:01:41,156 --> 01:01:43,659
but you've put the interests
of the Chamber of Commerce

1245
01:01:43,867 --> 01:01:45,661
and their big-business members

1246
01:01:46,120 --> 01:01:48,247
at the top of your priority list.

1247
01:01:49,373 --> 01:01:52,000
It is the SEC's job
to protect investors.

1248
01:01:52,627 --> 01:01:54,462
But it was chartered
in the 1930s,

1249
01:01:55,254 --> 01:01:57,465
at a time when stock prices
rolled off of ticker tape

1250
01:01:58,132 --> 01:01:59,341
and the markets closed at four.

1251
01:02:00,384 --> 01:02:02,553
Now, they're outgunned
and outmanned,

1252
01:02:02,928 --> 01:02:05,640
like Keystone Cops chasing
the starship "Enterprise."

1253
01:02:06,599 --> 01:02:09,477
Even if the SEC
gets its entire wish list

1254
01:02:09,768 --> 01:02:11,019
of documents from the company

1255
01:02:11,270 --> 01:02:13,564
and they have enough evidence
to pursue a case,

1256
01:02:13,855 --> 01:02:17,151
the Chinese people responsible
for this, don't really care.

1257
01:02:17,443 --> 01:02:18,819
When somebody breaks
the law here,

1258
01:02:19,069 --> 01:02:22,197
there is a process
where they're accountable.

1259
01:02:22,615 --> 01:02:24,533
At some point
in a China-based company,

1260
01:02:24,908 --> 01:02:26,285
that accountability ends.

1261
01:02:27,077 --> 01:02:28,663
And it ends at the ocean.

1262
01:02:28,954 --> 01:02:31,332
This is one of the first
things that Dan ever told me.

1263
01:02:31,957 --> 01:02:34,960
In China, it's not illegal to
steal from foreign investors.

1264
01:02:37,129 --> 01:02:39,423
I couldn't believe
the SEC would allow companies

1265
01:02:39,715 --> 01:02:42,134
to list on U.S. markets,
if it really had no way

1266
01:02:42,343 --> 01:02:43,552
to police them.

1267
01:02:44,345 --> 01:02:47,014
So I found an employee of the Chinese
state financial news agency,

1268
01:02:47,431 --> 01:02:49,808
who was willing to take a risk
to confirm the truth.

1269
01:02:51,810 --> 01:02:55,689
My name is Summer. I am a financial
journalist for the state regulators.

1270
01:02:52,227 --> 01:02:53,729
(in Mandarin)

1271
01:02:55,814 --> 01:02:59,985
If a company releases
false information about

1272
01:03:00,151 --> 01:03:02,779
its financial report
in the U.S. market,

1273
01:03:02,988 --> 01:03:06,241
Chinese domestic
regulatory authorities

1274
01:03:06,491 --> 01:03:10,370
have no power to punish it.

1275
01:03:10,787 --> 01:03:13,039
I will surely be punished by law

1276
01:03:13,164 --> 01:03:17,252
if I make counterfeit products
in China, theoretically speaking.

1277
01:03:17,377 --> 01:03:20,130
If I go abroad,
if I lie to foreign investors,

1278
01:03:20,255 --> 01:03:24,259
Chinese authorities can
do nothing to me.

1279
01:03:30,015 --> 01:03:31,058
Bottom line is,

1280
01:03:31,475 --> 01:03:33,268
the Chinese government
and the U.S. government,

1281
01:03:33,602 --> 01:03:36,146
on most levels,
don't work that well together.

1282
01:03:38,399 --> 01:03:40,192
You can't compel somebody

1283
01:03:40,901 --> 01:03:43,153
that has stolen millions
and millions of dollars

1284
01:03:43,820 --> 01:03:46,532
from U.S. investors
to come here from China.

1285
01:03:47,949 --> 01:03:49,660
You can't compel them
to testify.

1286
01:03:51,370 --> 01:03:52,829
You can't even find them.

1287
01:03:53,914 --> 01:03:55,332
Forget about
the average person

1288
01:03:55,499 --> 01:03:57,793
who thinks that their broker
or the SEC will protect them.

1289
01:03:58,753 --> 01:04:00,254
Even someone
like Crocker Coulson,

1290
01:04:00,713 --> 01:04:03,131
who worked inside the system,
couldn't find out

1291
01:04:03,340 --> 01:04:05,551
what was really going on
with these Chinese companies.

1292
01:04:06,051 --> 01:04:07,428
You're in
an alternate universe.

1293
01:04:07,678 --> 01:04:08,679
There's kind of this arms race

1294
01:04:08,929 --> 01:04:10,431
to do the simplest things.

1295
01:04:10,681 --> 01:04:12,266
You can't even look
at the bank statement.

1296
01:04:12,474 --> 01:04:14,976
You can't even go into
the local bank and ask them.

1297
01:04:15,436 --> 01:04:17,646
A lot of times,
the manager of the local bank,

1298
01:04:17,854 --> 01:04:20,232
will actually reprogram
the books of the bank

1299
01:04:20,482 --> 01:04:22,901
to make it look like the books
of his client are better than they are.

1300
01:04:24,570 --> 01:04:27,155
Anytime you have
a country like China,

1301
01:04:27,406 --> 01:04:29,617
where information
is not easily obtained,

1302
01:04:29,866 --> 01:04:33,870
any society like that
is a much greater risk.

1303
01:04:34,246 --> 01:04:36,665
In the United States,
we can go directly to a firm

1304
01:04:36,873 --> 01:04:38,875
and we can subpoena those records.

1305
01:04:39,042 --> 01:04:41,211
To get records out of China
is significantly more difficult,

1306
01:04:41,503 --> 01:04:42,797
if not impossible.

1307
01:04:44,172 --> 01:04:46,592
If you wanted to set out
to be a criminal,

1308
01:04:47,050 --> 01:04:48,885
probably the best place
to be a criminal

1309
01:04:49,052 --> 01:04:52,347
is someplace with no cops,
and that was China.

1310
01:04:52,598 --> 01:04:54,182
It was the Wild West.

1311
01:05:32,971 --> 01:05:35,932
I am delivered.
I'm at the airport.

1312
01:05:36,851 --> 01:05:38,435
Just headin' to the hotel.

1313
01:05:49,905 --> 01:05:52,115
Dan was like Nicolas Cage
in that movie

1314
01:05:52,324 --> 01:05:55,118
where he's the only one who knows that
the world is going to end.

1315
01:05:55,952 --> 01:05:58,288
He's screaming about it,
but nobody cares.

1316
01:06:00,374 --> 01:06:03,960
The auditors, the bankers,
Congress, the SEC...

1317
01:06:05,587 --> 01:06:06,922
None of them see
the financial tsunami

1318
01:06:07,088 --> 01:06:08,965
that Dan sees
coming from China.

1319
01:06:10,801 --> 01:06:13,053
So he decides to do
the one thing he can do,

1320
01:06:13,804 --> 01:06:15,013
take the criminals' money.

1321
01:06:28,276 --> 01:06:30,487
Their share count
has ballooned,

1322
01:06:31,071 --> 01:06:33,990
from a whopping 4.9 billion
shares four years ago

1323
01:06:34,324 --> 01:06:36,993
to 6.5 billion shares today.

1324
01:06:37,369 --> 01:06:39,371
It appears that the only way
that they can continue

1325
01:06:39,621 --> 01:06:41,039
to sustain
their business operation,

1326
01:06:41,289 --> 01:06:42,708
is through dilutive financing.

1327
01:06:48,672 --> 01:06:51,174
Normally, Dan publishes
his reports online.

1328
01:06:52,008 --> 01:06:54,219
But this time,

1329
01:06:52,008 --> 01:06:54,219
there's too much at stake,

1330
01:06:54,762 --> 01:06:57,681
a nearly $2 billion company,
Tech Pro.

1331
01:06:58,724 --> 01:06:59,934
He believes the company's chairman,

1332
01:07:00,100 --> 01:07:02,018
is misallocating shareholder money

1333
01:07:02,269 --> 01:07:03,604
to lavish on pet projects.

1334
01:07:04,396 --> 01:07:06,774
If he can convince the markets,
he'll wipe the company out.

1335
01:07:07,357 --> 01:07:09,109
It'll be his biggest short ever.

1336
01:07:10,193 --> 01:07:11,946
Now, I don't know
what that tells anybody else,

1337
01:07:12,237 --> 01:07:13,948
but, there's something going on here.

1338
01:07:15,073 --> 01:07:17,910
Our due diligence,
is a lot of black smoke,

1339
01:07:18,452 --> 01:07:20,955
lot of black smoke
coming out of this company.

1340
01:07:21,371 --> 01:07:22,122
That's a fire.

1341
01:07:24,750 --> 01:07:25,918
That needs to be looked into.

1342
01:07:59,868 --> 01:08:01,870
♪ To change the world ♪

1343
01:08:02,370 --> 01:08:04,289
♪ I want to ♪

1344
01:08:04,581 --> 01:08:06,082
Joining us on the floor
of the exchange right now,

1345
01:08:06,374 --> 01:08:07,751
Dan David. He's co-founder

1346
01:08:07,960 --> 01:08:10,420
of due-diligence firm,
GeoInvesting.

1347
01:08:10,712 --> 01:08:12,547
And I see here,
you also specialize in China?

1348
01:08:13,131 --> 01:08:15,133
We do.
My Sohn presentation in June

1349
01:08:15,342 --> 01:08:18,136
on Tech Pro,
Tech Pro's down 91 percent.

1350
01:08:18,470 --> 01:08:20,263
Is it vindication for you when
you see a stock

1351
01:08:20,388 --> 01:08:22,223
- like that plummet?
- Well, it was inevitable.

1352
01:08:22,516 --> 01:08:24,476
I... The stock was always going
to plummet.

1353
01:08:25,310 --> 01:08:27,938
Are you bullish
on China at all or is it just...

1354
01:08:32,275 --> 01:08:33,861
What is capitalism?

1355
01:08:36,864 --> 01:08:39,033
Is it an economic system?

1356
01:08:39,533 --> 01:08:42,703
Or is it an apparatus
that we can use

1357
01:08:42,911 --> 01:08:46,331
to make more money for ourselves and
take more money from others?

1358
01:08:49,501 --> 01:08:53,547
At its heart,
it rewards those who work hard,

1359
01:08:54,381 --> 01:08:57,092
but it also rewards those
who are willing

1360
01:08:57,384 --> 01:08:59,135
to take advantage of others.

1361
01:09:13,316 --> 01:09:14,985
When we describe
a fraud like this one,

1362
01:09:15,819 --> 01:09:17,696
we use terms like
"white-collar crime"

1363
01:09:17,946 --> 01:09:19,031
to distinguish it.

1364
01:09:22,242 --> 01:09:24,202
But really, it's just theft,

1365
01:09:25,245 --> 01:09:27,497
in its way, as violent
as being mugged in the street.

1366
01:09:30,751 --> 01:09:33,253
It can be traumatic to chart
the trail of personal loss.

1367
01:09:35,589 --> 01:09:37,883
How much was stolen
from each pension fund,

1368
01:09:38,842 --> 01:09:39,634
each retirement fund,

1369
01:09:41,011 --> 01:09:42,054
each of us.

1370
01:09:44,556 --> 01:09:47,601
The real story
is the aggregate value.

1371
01:09:48,476 --> 01:09:52,147
It's the investors who,
by the end,
were mostly retail investors.

1372
01:09:52,439 --> 01:09:55,067
These were mostly just people playing
the American stock market,

1373
01:09:55,692 --> 01:09:57,652
who looked at the financials
and believed them.

1374
01:09:58,862 --> 01:10:00,864
That money is money that belonged

1375
01:10:01,115 --> 01:10:03,784
to individual mom-and-pop investors

1376
01:10:04,076 --> 01:10:07,955
who thought, "Hey, I want to be
a part of the China growth story."

1377
01:10:08,830 --> 01:10:10,832
And they were also shares
that belonged

1378
01:10:11,083 --> 01:10:12,626
to mutual funds, like Vanguard,

1379
01:10:13,418 --> 01:10:16,504
that manage money for,
for example, The New York Times,

1380
01:10:16,964 --> 01:10:18,381
right?
The employees.

1381
01:10:18,966 --> 01:10:20,383
My pension fund money.

1382
01:10:21,384 --> 01:10:25,139
We sold ourselves
on a myth of China

1383
01:10:25,346 --> 01:10:27,808
as a really compelling market.

1384
01:10:28,183 --> 01:10:30,644
A nation that wanted
the leveling effects

1385
01:10:30,811 --> 01:10:32,020
of free trade.

1386
01:10:34,148 --> 01:10:35,273
You should
have known better.

1387
01:10:35,565 --> 01:10:36,817
Well, what I would pay,

1388
01:10:37,109 --> 01:10:38,401
if I have my money in Fidelity,

1389
01:10:38,568 --> 01:10:39,820
isn't that...
why do I pay these guys?

1390
01:10:40,112 --> 01:10:41,155
I don't know. I don't pay 'em.

1391
01:10:41,362 --> 01:10:42,614
I don't give 'em any
of my money.

1392
01:10:45,366 --> 01:10:47,368
It's like a game
of musical chairs,

1393
01:10:47,744 --> 01:10:48,996
when the music stops,

1394
01:10:49,204 --> 01:10:50,956
if you're left holding
the paper,

1395
01:10:51,372 --> 01:10:52,791
if you're left holding
the shares,

1396
01:10:53,374 --> 01:10:54,292
you are the victim.

1397
01:11:01,257 --> 01:11:03,135
Okay, um, my name is David Yee,

1398
01:11:03,802 --> 01:11:05,095
and I live in Atlanta, Georgia.

1399
01:11:05,971 --> 01:11:07,472
My name is Ray Snader.

1400
01:11:07,889 --> 01:11:10,100
I'm a print and broadcast
journalist

1401
01:11:10,475 --> 01:11:12,435
in Newport, Tennessee.

1402
01:11:12,811 --> 01:11:16,439
Tom Snodgrass
from, uh, Spring, Texas.

1403
01:11:17,482 --> 01:11:19,693
What attracted me
to U.S.-listed Chinese stocks,

1404
01:11:19,985 --> 01:11:21,111
were the high returns.

1405
01:11:21,402 --> 01:11:23,030
There was a lot of hype
about them and

1406
01:11:23,321 --> 01:11:24,239
a lot of attention.

1407
01:11:24,990 --> 01:11:28,869
I was hoping to have
a nice retirement egg

1408
01:11:29,077 --> 01:11:30,411
for my wife and myself.

1409
01:11:31,579 --> 01:11:34,833
I do not have
a retirement plan at my job.

1410
01:11:35,583 --> 01:11:38,419
My wife doesn't have
a retirement plan at her job.

1411
01:11:39,504 --> 01:11:43,050
Roth Capital, issued
a buy recommendation.

1412
01:11:43,800 --> 01:11:46,386
The first company that really
kind of caught my eye,

1413
01:11:46,636 --> 01:11:48,222
was AgFeed.
Allegedly they were

1414
01:11:48,429 --> 01:11:51,349
the largest
feed producer in China.

1415
01:11:52,308 --> 01:11:55,645
My last shares,
that I purchased,

1416
01:11:55,854 --> 01:11:57,397
were $9 a share.

1417
01:12:01,442 --> 01:12:05,197
We recouped...12 cents
on the share.

1418
01:12:06,031 --> 01:12:10,326
And, we had a total
of about 26,000 shares.

1419
01:12:12,328 --> 01:12:14,581
What kind of loss did
that represent for you, personally?

1420
01:12:15,874 --> 01:12:17,167
It represented,

1421
01:12:17,667 --> 01:12:19,335
about a $150,000.

1422
01:12:21,213 --> 01:12:25,092
I think I lost well,
well in excess of a $100,000.

1423
01:12:25,425 --> 01:12:27,635
My investment in these
U.S. listed Chinese companies,

1424
01:12:27,802 --> 01:12:30,513
represented at least 50 percent
of my assets.

1425
01:12:31,139 --> 01:12:32,682
The prices tanked,

1426
01:12:32,849 --> 01:12:37,187
and they were eventually, um,
delisted and not tradable.

1427
01:12:38,313 --> 01:12:41,108
- Worth zero.
- Worth $0 per share.

1428
01:12:41,233 --> 01:12:44,652
We put our faith in the market,

1429
01:12:45,153 --> 01:12:47,363
in our government
to police that market.

1430
01:12:47,614 --> 01:12:51,659
And I think, uh, we got burned
on literally every turn,

1431
01:12:52,160 --> 01:12:54,370
in that particular transaction.

1432
01:12:56,414 --> 01:12:59,793
Roth Capital issued
a buy recommendation.

1433
01:13:02,003 --> 01:13:05,548
I'm not sure that they visited
the plant at all in China.

1434
01:13:05,882 --> 01:13:07,717
In fact, today,

1435
01:13:08,927 --> 01:13:13,223
I'm not sure that there was
a China Electric Motor company.

1436
01:13:16,476 --> 01:13:19,395
- How old are you, Ray?
- I'm 68 years old.

1437
01:13:25,026 --> 01:13:26,320
So where
did the money go?

1438
01:13:29,489 --> 01:13:30,782
To the bankers and lawyers,

1439
01:13:31,032 --> 01:13:32,408
who helped set up the deals.

1440
01:13:33,868 --> 01:13:36,288
And to the Chinese executives
who made millions

1441
01:13:36,496 --> 01:13:37,831
while their
companies collapsed.

1442
01:13:39,666 --> 01:13:40,792
I don't know what's worse,

1443
01:13:41,417 --> 01:13:43,503
that the executives were beyond
the reach of the law,

1444
01:13:44,296 --> 01:13:46,422
or that the enablers
on Wall Street were operating

1445
01:13:46,631 --> 01:13:49,134
inside the law,
just doing their jobs.

1446
01:13:50,635 --> 01:13:53,054
One way or another, almost all
of them got away with it,

1447
01:13:53,388 --> 01:13:54,348
scot-free.

1448
01:13:55,056 --> 01:13:57,642
One exception,
was Rodman & Renshaw.

1449
01:13:57,976 --> 01:13:59,394
Do you have just a moment,
General?

1450
01:13:59,727 --> 01:14:00,895
No.

1451
01:14:01,229 --> 01:14:02,772
During the heyday
of the reverse-merger boom,

1452
01:14:03,315 --> 01:14:05,317
they doled out
almost $18 million

1453
01:14:05,525 --> 01:14:06,818
in bonuses to their executives.

1454
01:14:07,361 --> 01:14:08,903
But their problems
caught up with them.

1455
01:14:09,821 --> 01:14:10,697
In 2012,

1456
01:14:11,281 --> 01:14:13,408
they paid a $315,000 fine

1457
01:14:13,908 --> 01:14:15,660
and surrendered
their brokers license.

1458
01:14:16,536 --> 01:14:18,454
Soon after,
they filed for bankruptcy.

1459
01:14:20,165 --> 01:14:21,416
So I want
to make sure you understand.

1460
01:14:21,708 --> 01:14:23,918
My investment bank
is called Enverra.

1461
01:14:24,252 --> 01:14:25,712
- Right.
- It's not Rodman & Renshaw.

1462
01:14:25,920 --> 01:14:27,547
- Right.
- I was the chairman
of Rodman & Renshaw,

1463
01:14:27,714 --> 01:14:30,300
I was not a banker
at Rodman & Renshaw.

1464
01:14:30,550 --> 01:14:33,469
I didn't have anything to do
with the financial transactions
in China.

1465
01:14:34,221 --> 01:14:35,596
That wasn't me.

1466
01:14:35,972 --> 01:14:38,141
I'm the guy that told them,
"You got a problem with it."

1467
01:14:38,641 --> 01:14:41,311
And I left the company, uh,
a year or so,

1468
01:14:41,561 --> 01:14:43,188
18 months after that,
from the board.

1469
01:14:43,479 --> 01:14:46,733
My question is,
who did he tell?

1470
01:14:47,483 --> 01:14:49,527
How about, "And then
I went down to Washington

1471
01:14:49,903 --> 01:14:51,821
and saw all the people
that I know while I was running

1472
01:14:52,030 --> 01:14:52,822
for president...

1473
01:14:53,614 --> 01:14:55,409
and told them
what was going on"?

1474
01:14:55,533 --> 01:14:57,077
I don't think I want
to be in the film.

1475
01:14:57,202 --> 01:15:00,955
I think it's just...
it, it invites attacks on me.

1476
01:15:01,248 --> 01:15:03,417
And I don't need that.
I'm trying to build a business.

1477
01:15:03,666 --> 01:15:06,169
I don't want to be attacked.
I didn't do anything wrong.

1478
01:15:06,336 --> 01:15:07,837
You're chairman of the board.
What role was it?

1479
01:15:08,046 --> 01:15:09,381
A non-executive chairman
of the board?

1480
01:15:09,672 --> 01:15:11,049
Was he the person
who ran the business,

1481
01:15:11,216 --> 01:15:12,842
or was he really there
as a figurehead,

1482
01:15:13,218 --> 01:15:14,928
to lend his name
to the credibility

1483
01:15:15,136 --> 01:15:16,054
of this situation?

1484
01:15:16,512 --> 01:15:17,513
I mean, that's the classic.

1485
01:15:18,390 --> 01:15:19,682
It's like Monica Lewinsky.

1486
01:15:19,891 --> 01:15:21,684
Forget about Monica Lewinsky.
It doesn't matter

1487
01:15:21,851 --> 01:15:24,020
what you say about it.
It's a bad story.

1488
01:15:24,771 --> 01:15:26,606
So let's, let's
just cancel this session, okay?

1489
01:15:26,773 --> 01:15:28,483
- I'm sorry I wasted your time.
- Do I,

1490
01:15:28,691 --> 01:15:30,318
do I send
shame on people?

1491
01:15:31,278 --> 01:15:32,528
Do I say, "Shame on you

1492
01:15:32,820 --> 01:15:34,364
for not asking
the right questions?

1493
01:15:34,655 --> 01:15:36,908
Shame on the auditors
for allowing this shit
to go through?

1494
01:15:37,200 --> 01:15:38,743
Shame on the regulators
for not making

1495
01:15:38,952 --> 01:15:41,162
the, the requirements
more stringent and difficult"?

1496
01:15:41,746 --> 01:15:43,664
So, you don't think
we have a problem here?

1497
01:15:43,915 --> 01:15:46,000
You want to blame this
on any one or two people?

1498
01:15:46,334 --> 01:15:47,252
Ridiculous.

1499
01:15:48,128 --> 01:15:50,588
It's ridiculous.
The whole thing is b... is broken.

1500
01:15:51,923 --> 01:15:53,174
It's broken.

1501
01:15:53,633 --> 01:15:55,635
Let's get out of this.
This is a mistake for me.

1502
01:15:55,927 --> 01:15:57,553
It's a mistake for the people
that depend on me.

1503
01:15:57,762 --> 01:15:58,721
I've got a firm.

1504
01:15:59,013 --> 01:16:00,474
I've got people
that work for me.

1505
01:16:00,974 --> 01:16:04,185
I owe them my best opportunity
to give them a living.

1506
01:16:04,685 --> 01:16:06,771
And, this doesn't help.
This hurts.

1507
01:16:07,272 --> 01:16:08,564
So I want out of this.

1508
01:16:10,066 --> 01:16:10,984
Well, I'm not...

1509
01:16:11,692 --> 01:16:13,445
This is not an attack piece
on you, sir.

1510
01:16:13,611 --> 01:16:14,988
It doesn't help...

1511
01:16:15,196 --> 01:16:16,906
That's not, that's not
my intention, nor is that...

1512
01:16:17,073 --> 01:16:19,326
Uh, I thought I could do this
in an academic way,

1513
01:16:19,493 --> 01:16:21,328
but I realize I can't.

1514
01:16:22,203 --> 01:16:23,079
You know?
I...

1515
01:16:26,791 --> 01:16:28,835
China is fundamentally

1516
01:16:29,669 --> 01:16:32,464
a broken
or fucked-up societal system.

1517
01:16:32,713 --> 01:16:34,132
The people who get to the top,

1518
01:16:34,674 --> 01:16:37,511
get to the top
by breaking rules.

1519
01:16:38,219 --> 01:16:40,305
Good people who want
to play by the rules,

1520
01:16:40,847 --> 01:16:42,849
get stepped on and pushed
to the bottom of the pile.

1521
01:16:43,141 --> 01:16:45,185
This, in some ways,
has nothing to do with China.

1522
01:16:45,352 --> 01:16:46,811
If you gave American
management teams

1523
01:16:46,978 --> 01:16:48,062
that incentive structure,

1524
01:16:48,604 --> 01:16:50,606
oh, my God, we'd have
the same amount of fraud here.

1525
01:16:51,607 --> 01:16:53,485
It was just a no-brainer
for them.

1526
01:16:53,860 --> 01:16:56,196
Bulls versus bears, constantly.

1527
01:16:57,155 --> 01:16:58,906
And now that I'm deemed a bear,

1528
01:17:00,033 --> 01:17:02,494
I don't know if I'm ever gonna be
able to go back to the bull side.

1529
01:17:07,874 --> 01:17:09,625
But, no regrets working
for them.

1530
01:17:10,835 --> 01:17:12,920
My clients made money.

1531
01:17:15,881 --> 01:17:17,299
People get lost.

1532
01:17:17,758 --> 01:17:19,343
I think it happen
anywhere in the world.

1533
01:17:19,677 --> 01:17:21,387
But just that, in China,

1534
01:17:21,679 --> 01:17:25,224
everything has
a big multiple effect.

1535
01:17:25,558 --> 01:17:27,810
You know.
You have 1.3 billion people.

1536
01:17:28,018 --> 01:17:29,603
I mean,
the multiple effect is so big.

1537
01:17:30,480 --> 01:17:32,065
We've never seen a credit buildup

1538
01:17:32,357 --> 01:17:34,192
to the likes of what
China is doing today,

1539
01:17:34,484 --> 01:17:38,363
that hasn't been followed by a,
a major, major financial crisis.

1540
01:17:38,905 --> 01:17:40,198
So, stay tuned.

1541
01:17:41,491 --> 01:17:43,618
We, we have, by far,
the most vibrant markets

1542
01:17:43,784 --> 01:17:44,911
in the world. By far!

1543
01:17:45,912 --> 01:17:48,748
And so, that freedom,
leaving those decisions

1544
01:17:48,915 --> 01:17:50,875
to the private sector, you know,

1545
01:17:51,125 --> 01:17:53,461
it, it frees up a lot,
a lot of capital.

1546
01:17:53,711 --> 01:17:55,255
This is the largest financial crime

1547
01:17:55,505 --> 01:17:58,132
of the last 25 years, with
the exception of Bernie Madoff.

1548
01:17:58,633 --> 01:18:02,136
It's still way too easy
for the bad guys in finance

1549
01:18:02,470 --> 01:18:04,055
to keep Washington off their backs.

1550
01:18:05,181 --> 01:18:06,766
We're cutting regulations.

1551
01:18:07,058 --> 01:18:09,852
I would say 70 percent
of the regulations can go.

1552
01:18:11,479 --> 01:18:13,981
I think you see a lot of the
similarities with the mortgage crisis

1553
01:18:14,232 --> 01:18:17,110
in, in '08 and the China situation.

1554
01:18:17,444 --> 01:18:20,238
We had our chances,
post-global financial crisis,

1555
01:18:20,405 --> 01:18:22,156
in my opinion, and we missed it.

1556
01:18:22,365 --> 01:18:24,825
This was sort of the appetizer,

1557
01:18:25,034 --> 01:18:27,703
in, in that these were
the small, crappy companies

1558
01:18:27,954 --> 01:18:29,956
that, often times,
were demonstrable frauds.

1559
01:18:30,248 --> 01:18:31,874
We point to $50 billion,

1560
01:18:32,166 --> 01:18:33,751
and that's like an empirical number.

1561
01:18:34,294 --> 01:18:36,337
That's a number we can say, "Boom."

1562
01:18:36,796 --> 01:18:39,299
We can point to this and this fraud

1563
01:18:39,466 --> 01:18:41,342
and tie it in nicely on a bow.

1564
01:18:42,093 --> 01:18:44,304
What we don't talk about

1565
01:18:45,054 --> 01:18:47,932
is that there's hundreds
of billions of dollars

1566
01:18:48,266 --> 01:18:50,184
that we can't even begin to touch.

1567
01:18:51,060 --> 01:18:52,853
And the fraud that can be perpetrated...

1568
01:18:53,729 --> 01:18:55,773
through China by other means.

1569
01:18:56,524 --> 01:18:57,775
So it's not $50 billion,

1570
01:18:58,192 --> 01:19:00,194
and it's not some investment banks,

1571
01:19:00,695 --> 01:19:02,822
and it's not some people
in the United States.

1572
01:19:03,823 --> 01:19:06,826
It's everybody. It's every bank.

1573
01:19:15,251 --> 01:19:16,461
Whether they know it or not.

1574
01:19:18,087 --> 01:19:23,217
The Chinese e-commerce giant, Alibaba,
took Wall Street by storm today.

1575
01:19:23,593 --> 01:19:25,470
The company

1576
01:19:23,593 --> 01:19:25,470
had its initial public offering

1577
01:19:25,637 --> 01:19:27,054
on the New York Stock Exchange.

1578
01:19:27,305 --> 01:19:29,557
The share price jumped 38 percent...

1579
01:19:29,849 --> 01:19:30,891
This is a perfect storm.

1580
01:19:33,102 --> 01:19:34,479
This is a perfect storm.

1581
01:19:34,604 --> 01:19:37,106
Yeah, the eBay and Amazon
and PayPal is pretty easy,

1582
01:19:37,357 --> 01:19:39,317
but it's a Netflix; it's a Groupon...

1583
01:19:39,651 --> 01:19:41,027
I mean, it's a perfect storm.

1584
01:19:41,235 --> 01:19:43,697
It's the first time
a major Chinese Internet company

1585
01:19:43,863 --> 01:19:45,615
has gone public
in the United States.

1586
01:19:48,868 --> 01:19:50,995
Uh, there's an old joke that
the biggest lie on Wall Street,

1587
01:19:51,746 --> 01:19:53,623
is that this time, it's different.

1588
01:19:53,831 --> 01:19:55,709
Alibaba's profit for the second quarter,

1589
01:19:55,875 --> 01:19:59,128
jumped some 179 percent
to $2 billion.

1590
01:19:59,546 --> 01:20:00,672
It's a perfect storm.

1591
01:20:01,506 --> 01:20:02,923
That's what this is.

1592
01:20:03,132 --> 01:20:05,468
You don't have the ability,
to really research it.

1593
01:20:05,719 --> 01:20:07,220
You're buying lottery tickets.

1594
01:20:07,803 --> 01:20:09,764
Alibaba is lottery tickets.

1595
01:20:10,724 --> 01:20:13,017
Charismatic founder, Jack Ma,
has the stage presence

1596
01:20:13,142 --> 01:20:14,602
to rival many tech icons.

1597
01:20:14,810 --> 01:20:17,271
Should we jump in
and buy Alibaba stock?

1598
01:20:17,564 --> 01:20:18,939
Yeah, it's China.

1599
01:20:19,106 --> 01:20:20,900
Is there something looming
down the pike

1600
01:20:21,067 --> 01:20:24,571
that's even crappier than this?
I, I could make that argument.

1601
01:20:25,196 --> 01:20:27,114
There's Jack Ma,
having met with the president.

1602
01:20:27,657 --> 01:20:29,033
Jack and I, are gonna do some

1603
01:20:29,325 --> 01:20:30,326
- great things.
- Small business.

1604
01:20:30,577 --> 01:20:31,827
- Thank you, Jack.
- Thank you, sir.

1605
01:20:33,454 --> 01:20:37,250
The CEO of Alibaba, Jack Ma, says,
"Just trust us, just trust."

1606
01:20:37,625 --> 01:20:40,169
In this country, when anyone says,

1607
01:20:40,336 --> 01:20:42,338
"Just trust us,"
the first thing you do is,

1608
01:20:42,838 --> 01:20:43,964
hold on to your wallet.

1609
01:20:44,465 --> 01:20:45,966
You don't trust anybody,

1610
01:20:46,342 --> 01:20:48,428
and you don't trust anything,
you can't see and research

1611
01:20:48,553 --> 01:20:49,763
for yourself.

1612
01:20:50,346 --> 01:20:51,806
And that goes for Alibaba too.

1613
01:20:55,476 --> 01:20:57,853
- So why do you keep at it?
- Fuck 'em.

1614
01:21:00,231 --> 01:21:01,023
They're lying.

1615
01:21:09,282 --> 01:21:10,908
Hot masseuse,
hot masseuse, right there.

1616
01:21:11,451 --> 01:21:13,453
Here we go.
Joe, bring your drink down here.

1617
01:21:13,745 --> 01:21:15,996
Come on.
Wait, we got it.

1618
01:21:16,664 --> 01:21:18,999
I just want to raise a toast
to all of us, all right?

1619
01:21:19,208 --> 01:21:23,212
I want to raise a toast
to an awesome 2015,

1620
01:21:23,630 --> 01:21:25,256
to a great year, to being blessed,

1621
01:21:25,548 --> 01:21:27,383
to everything you want.
Here it comes, all right?

1622
01:21:27,550 --> 01:21:29,427
Let's raise 'em up.
Let's raise 'em up.

1623
01:21:29,552 --> 01:21:30,553
Raise your arms up.

1624
01:21:36,267 --> 01:21:38,352
Give us some house music.
Let's keep this party going.