Nanette Byrnes and Lynnley Browning of Reuters reported on how Chinese companies have got themselves listed on U.S. stock exchanges, avoiding the regulatory scrutiny that normally comes with having to go through all the kerfuffle of Initial Public Offerings of shares (IPOs,) by instead buying dormant shell companies already listed on the exchanges in a method called “reverse merger.”
Basic idea of reverse merger: “A reverse merger hinges on a shell company-a firm without meaningful assets or operations, used as a vehicle for transactions-that's already listed on a stock exchange…A so-called shell broker, anyone from a small shop to a larger firm such as Halter’s [a U.S.-based key player.] Brokers acquire shells, often domiciled in a secrecy-friendly state such as Delaware, Utah or Nevada. The broker then sells the U.S. shell to an operating company seeking to trade on a U.S. exchange-a transaction . . . the acquiring firm thus becomes a publicly-traded company, with access to U.S. investors – but without the time, expense and scrutiny of a traditional initial public offering.”
Article was originally published in Reuters on 8/1/2011. See a related
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