1
00:00:25,458 --> 00:00:28,228
Richard Nixon: And so let us

2
00:00:28,228 --> 00:00:31,310
start a long march... together.

3
00:00:33,400 --> 00:00:34,768
Not in lockstep

4
00:00:36,369 --> 00:00:37,904
but on different roads

5
00:00:38,438 --> 00:00:40,400
leading to the same goal.

6
00:00:43,810 --> 00:00:45,412
The goal of building

7
00:00:45,412 --> 00:00:47,470
a world structure

8
00:00:47,981 --> 00:00:49,716
of peace and justice,

9
00:00:51,418 --> 00:00:53,520
in which all may stand together

10
00:00:53,520 --> 00:00:55,622
with equal dignity.

11
00:00:56,423 --> 00:00:57,657
Bill Clinton: First of all,

12
00:00:57,791 --> 00:00:59,793
- our markets are already open
- to China.

13
00:00:59,959 --> 00:01:01,227
This agreement

14
00:01:01,227 --> 00:01:02,462
will open China's market to us.

15
00:01:02,929 --> 00:01:04,431
- George W. Bush: I would call
- our relationship with China

16
00:01:04,597 --> 00:01:08,100
Very positive... and complex.

17
00:01:10,103 --> 00:01:11,938
- Barack Obama: The free market
- is the greatest force

18
00:01:12,720 --> 00:01:13,730
For economic progress

19
00:01:13,730 --> 00:01:14,740
in human history.

20
00:01:15,108 --> 00:01:16,609
- Donald Trump:
- I will make a great deal

21
00:01:16,776 --> 00:01:17,777
And lots of great deals

22
00:01:17,777 --> 00:01:18,812
for the American people.

23
00:01:19,245 --> 00:01:20,747
(echoing) Believe me!

24
00:01:23,183 --> 00:01:25,585
(siren wailing)

25
00:01:37,464 --> 00:01:38,965
Dan: What is capitalism?

26
00:01:43,670 --> 00:01:46,390
Is it an economic system?

27
00:01:49,376 --> 00:01:51,111
Or is it an apparatus

28
00:01:51,111 --> 00:01:52,812
that we can use

29
00:01:52,979 --> 00:01:54,140
to make more money

30
00:01:54,140 --> 00:01:55,480
for ourselves

31
00:01:55,215 --> 00:01:56,683
- and take more money
- from others?

32
00:01:59,386 --> 00:02:00,987
I think, at its heart,

33
00:02:01,654 --> 00:02:04,157
it rewards those who work hard,

34
00:02:04,791 --> 00:02:05,892
but it also rewards

35
00:02:05,892 --> 00:02:06,993
those who...

36
00:02:07,694 --> 00:02:09,763
are willing to...

37
00:02:09,763 --> 00:02:11,831
take advantage of others.

38
00:02:12,650 --> 00:02:13,867
- (indistinct chatter)

39
00:02:13,867 --> 00:02:15,669
- (sirens and horns blaring)

40
00:02:23,576 --> 00:02:25,412
There are no good guys

41
00:02:25,412 --> 00:02:27,247
in this story...

42
00:02:29,249 --> 00:02:30,417
including me.

43
00:02:41,861 --> 00:02:44,731
(crew murmuring indistinctly)

44
00:02:45,832 --> 00:02:47,200
- Yeah, yeah, that's good.
- Okay...

45
00:02:48,668 --> 00:02:50,236
- Man: What's your earliest memory
- from childhood?

46
00:02:53,600 --> 00:02:54,374
- That's a trick question.

47
00:02:54,374 --> 00:02:55,775
- Man: Is it?

48
00:02:56,543 --> 00:02:58,878
I... was not expecting it.

49
00:02:59,779 --> 00:03:01,181
I don't know what my earliest

50
00:03:01,181 --> 00:03:02,549
memory from childhood was.

51
00:03:03,830 --> 00:03:05,352
- I imagine I was two years old
- and I was busting

52
00:03:05,452 --> 00:03:06,553
A fraud somewhere.

53
00:03:06,720 --> 00:03:07,721
(chuckles)

54
00:03:07,854 --> 00:03:09,356
Narrator: This is Dan David.

55
00:03:10,290 --> 00:03:13,193
(train rattling)

56
00:03:14,627 --> 00:03:15,729
The first time I met him,

57
00:03:15,729 --> 00:03:16,863
we had a couple of drinks

58
00:03:17,300 --> 00:03:18,131
at a TGI Fridays

59
00:03:18,131 --> 00:03:19,265
in Penn Station,

60
00:03:19,766 --> 00:03:21,201
and he told me

61
00:03:21,201 --> 00:03:22,602
an almost unbelievable story.

62
00:03:26,639 --> 00:03:27,741
Before the dust had settled

63
00:03:27,874 --> 00:03:29,142
on the economic collapse

64
00:03:29,142 --> 00:03:30,443
of 2008,

65
00:03:31,770 --> 00:03:32,780
Wall Street had already

66
00:03:32,780 --> 00:03:33,790
figured out a new way

67
00:03:33,246 --> 00:03:34,881
to package garbage as gold.

68
00:03:35,949 --> 00:03:37,384
- They were engineering
- an enormous fraud

69
00:03:37,550 --> 00:03:38,618
That spanned the globe.

70
00:03:39,886 --> 00:03:41,755
- But this time,
- the lies at the center

71
00:03:41,921 --> 00:03:42,922
Of the scam were

72
00:03:42,922 --> 00:03:43,923
100 percent legal.

73
00:03:45,910 --> 00:03:46,593
This time,

74
00:03:46,593 --> 00:03:48,940
the crime was based in China.

75
00:03:48,261 --> 00:03:49,462
(train rattling)

76
00:03:49,996 --> 00:03:51,731
(crow cawing)

77
00:03:53,500 --> 00:03:55,335
- Narrator: Dan's part
- of the story begins here,

78
00:03:55,769 --> 00:03:57,170
Far from Wall Street.

79
00:03:59,172 --> 00:04:00,373
The small investment shop

80
00:04:00,373 --> 00:04:01,574
he ran with his partner Maj

81
00:04:01,808 --> 00:04:02,942
had just been crushed

82
00:04:02,942 --> 00:04:04,770
by the stock market crash.

83
00:04:04,411 --> 00:04:05,679
Three o'clock. What's goin' on?

84
00:04:05,845 --> 00:04:07,814
- Dan: People who had hedge funds
- in 2008

85
00:04:07,981 --> 00:04:09,182
Closed their funds

86
00:04:09,182 --> 00:04:10,350
and started a new fund.

87
00:04:10,617 --> 00:04:12,352
- Chris, you got anything?
- Finishing working on

88
00:04:12,519 --> 00:04:13,987
- What I'm working on now.
- I'm just gonna...

89
00:04:14,154 --> 00:04:16,220
- We decided right away
- we weren't gonna do that.

90
00:04:16,589 --> 00:04:18,191
- We were gonna make everybody
- their money back.

91
00:04:19,125 --> 00:04:21,940
- Narrator: They needed big gains,
- quickly.

92
00:04:21,761 --> 00:04:22,796
- But with the whole
- Western world

93
00:04:22,962 --> 00:04:24,464
- on the brink
- of another depression,

94
00:04:24,931 --> 00:04:26,332
Prospects seemed bleak.

95
00:04:26,666 --> 00:04:28,835
(thunder rumbling)

96
00:04:31,638 --> 00:04:33,206
- Narrator: It wasn't hopeless
- everywhere, though.

97
00:04:33,840 --> 00:04:35,208
The people in the know

98
00:04:35,208 --> 00:04:36,609
steered Dan to China.

99
00:04:37,477 --> 00:04:39,379
It was this exploding market.

100
00:04:41,548 --> 00:04:42,882
- Soren: It was the only market
- that people actually

101
00:04:43,160 --> 00:04:44,784
- Were confident
- would go up, was China.

102
00:04:46,520 --> 00:04:47,687
- Mitch: This is gonna be
- the largest economy
In the world.

103
00:04:47,854 --> 00:04:49,155
Let's invest in it now.

104
00:04:49,356 --> 00:04:50,724
It blew my mind 'cause

105
00:04:50,724 --> 00:04:52,125
it was so completely different

106
00:04:52,292 --> 00:04:53,993
- from what I thought
- it would be it was booming.

107
00:04:55,610 --> 00:04:56,162
Crocker: There were certain

108
00:04:56,162 --> 00:04:57,230
cities, you'd go one time,

109
00:04:57,397 --> 00:04:59,366
- and you'd go a year later
- again, and suddenly there'd be

110
00:04:59,532 --> 00:05:00,734
A whole new shopping district

111
00:05:00,734 --> 00:05:01,901
that didn't exist last time.

112
00:05:05,972 --> 00:05:06,940
Gold rush.

113
00:05:09,142 --> 00:05:10,577
There was almost no company

114
00:05:10,577 --> 00:05:12,120
that you could invest in

115
00:05:12,479 --> 00:05:14,147
in 2009 that was China-based

116
00:05:14,147 --> 00:05:15,849
that you would lose money on.

117
00:05:16,816 --> 00:05:18,852
- Roddy: For an American
- set of eyes looking at this,

118
00:05:19,190 --> 00:05:20,587
- you were just like,
- "Well, my gosh,

119
00:05:20,754 --> 00:05:21,888
"China really is

120
00:05:21,888 --> 00:05:23,230
this golden land

121
00:05:23,189 --> 00:05:25,580
of rapid economic growth."

122
00:05:25,225 --> 00:05:27,270
- I really thought,
- "Well, jeez, you know,

123
00:05:27,193 --> 00:05:28,495
- "the American century
- is over now.

124
00:05:28,661 --> 00:05:29,829
This is it."

125
00:05:29,996 --> 00:05:31,464
(seagulls screeching,

126
00:05:31,464 --> 00:05:32,932
(waves crashing)

127
00:05:36,236 --> 00:05:38,380
- Narrator: Everyone wanted
- a piece of China.

128
00:05:38,772 --> 00:05:40,173
There was just one problem,

129
00:05:41,410 --> 00:05:42,750
foreigners like Dan

130
00:05:42,750 --> 00:05:43,109
couldn't invest directly

131
00:05:43,276 --> 00:05:44,344
in Chinese markets.

132
00:05:45,612 --> 00:05:47,380
- That's where the small
- California bank

133
00:05:47,681 --> 00:05:48,682
Roth Capital came in.

134
00:05:48,948 --> 00:05:50,850
- (indistinct chatter,
- phone ringing)

135
00:05:51,251 --> 00:05:52,619
- Narrator: Roth found a niche
- that the big banks

136
00:05:52,786 --> 00:05:54,187
Had overlooked,

137
00:05:54,187 --> 00:05:55,588
taking small Chinese companies

138
00:05:55,755 --> 00:05:57,570
and listing them directly

139
00:05:57,570 --> 00:05:58,391
on U.S. stock exchanges.

140
00:05:59,726 --> 00:06:00,994
Now Dan and others like him

141
00:06:00,994 --> 00:06:02,262
could participate

142
00:06:02,429 --> 00:06:03,963
- in the Chinese
- economic miracle,

143
00:06:04,564 --> 00:06:06,132
- and the bank's
- young salesmen had the chance

144
00:06:06,299 --> 00:06:08,680
- to make a killing
- with the right pitch.

145
00:06:08,735 --> 00:06:09,936
- Hey, Jed,
- how are you doing today?

146
00:06:10,637 --> 00:06:11,705
Great, what do you got?

147
00:06:12,105 --> 00:06:13,940
- Well, we're working
- on this new company.

148
00:06:14,140 --> 00:06:15,742
- Would you like to hear
- about a transaction?

149
00:06:16,276 --> 00:06:17,944
Two days go by. Five days go by.

150
00:06:18,780 --> 00:06:19,312
- Do you have
- any interest in this?

151
00:06:19,479 --> 00:06:21,214
- This is what we feel
- the company's capacity

152
00:06:21,381 --> 00:06:22,615
- Can go to
- after this acquisition.

153
00:06:22,782 --> 00:06:24,451
- These are fully registered
- securities.

154
00:06:24,617 --> 00:06:25,618
What do you want to do?

155
00:06:25,819 --> 00:06:27,420
If they did have interest,

156
00:06:27,654 --> 00:06:28,555
they would come back to you.

157
00:06:28,655 --> 00:06:29,889
Yes. Yes.

158
00:06:30,123 --> 00:06:31,291
Yeah, I'm interested.

159
00:06:31,458 --> 00:06:32,459
$2 million worth.

160
00:06:32,625 --> 00:06:33,460
Put me in for that.

161
00:06:33,626 --> 00:06:34,627
Okay, great.

162
00:06:34,761 --> 00:06:35,895
And that would be it.

163
00:06:36,620 --> 00:06:37,697
I tried to make myself

164
00:06:37,697 --> 00:06:39,332
be in the flow.

165
00:06:39,499 --> 00:06:40,834
Think of a running river.

166
00:06:41,634 --> 00:06:42,902
21 million bucks?

167
00:06:42,902 --> 00:06:44,170
That's a pretty good fee.

168
00:06:44,404 --> 00:06:46,139
- So let's say this is--
- Man: I'm worried, though.

169
00:06:46,339 --> 00:06:47,474
I'm worried that the numbers

170
00:06:47,474 --> 00:06:48,608
don't hold up from China.

171
00:06:49,843 --> 00:06:51,778
Well, I never got asked that.

172
00:06:51,945 --> 00:06:53,146
(chuckles)

173
00:06:53,146 --> 00:06:54,347
No one ever asked that.

174
00:06:55,315 --> 00:06:57,784
(seagulls screeching)

175
00:06:58,251 --> 00:07:00,954
Roth is a second, third-tier

176
00:07:01,287 --> 00:07:02,288
boutique investment bank

177
00:07:02,288 --> 00:07:03,323
from California.

178
00:07:04,190 --> 00:07:05,992
- Someone else had described it
- as a frat house.

179
00:07:07,293 --> 00:07:08,294
(chuckles)

180
00:07:08,862 --> 00:07:10,230
Herb: Roth Capital would

181
00:07:10,230 --> 00:07:11,598
get behind small companies

182
00:07:11,798 --> 00:07:13,333
- and push them out
- into the market.

183
00:07:14,467 --> 00:07:16,469
They definitely

184
00:07:16,469 --> 00:07:18,505
were heating up 2010, 2011.

185
00:07:19,172 --> 00:07:20,740
Dan: Roth was well known

186
00:07:20,740 --> 00:07:22,308
for doing China deals

187
00:07:22,475 --> 00:07:24,100
- at a time
- when we were looking.

188
00:07:25,178 --> 00:07:26,346
We went to a couple

189
00:07:26,346 --> 00:07:27,514
of Roth conferences.

190
00:07:27,681 --> 00:07:28,682
It was a good time.

191
00:07:28,815 --> 00:07:31,510
(static crackling)

192
00:07:31,217 --> 00:07:32,485
Woman: Roth Capital Partners

193
00:07:32,485 --> 00:07:33,720
has been organizing conferences

194
00:07:33,887 --> 00:07:35,722
- for years in Orange County,
- California.

195
00:07:35,889 --> 00:07:38,324
- This has got to be
- the best conference in America.

196
00:07:38,558 --> 00:07:39,826
Company after company you

197
00:07:39,826 --> 00:07:41,610
may have never heard of before

198
00:07:41,227 --> 00:07:43,196
- makes pitches
- to people with money.

199
00:07:46,132 --> 00:07:47,334
And their business model

200
00:07:47,334 --> 00:07:48,568
was kind of simplicity itself.

201
00:07:50,370 --> 00:07:52,172
- Roddy: They'd have
- a three-day extravaganza--

202
00:07:52,339 --> 00:07:53,907
100, 150 companies--

203
00:07:53,907 --> 00:07:55,508
And these CEOs would be saying,

204
00:07:55,675 --> 00:07:56,910
"For these six or seven

205
00:07:56,910 --> 00:07:58,178
or eight or ten reasons,

206
00:07:58,345 --> 00:08:00,130
we think we're gonna

207
00:08:00,130 --> 00:08:01,715
grow revenues 75 percent

208
00:08:02,315 --> 00:08:03,717
- Dan: China has gone,
- in the last few years,

209
00:08:03,883 --> 00:08:05,251
From interesting to important.

210
00:08:05,418 --> 00:08:06,519
And then it turns

211
00:08:06,519 --> 00:08:07,654
into entertainment time.

212
00:08:07,821 --> 00:08:09,689
(crowd cheering)

213
00:08:09,856 --> 00:08:11,157
Matt: Snoop Dogg, Billy Idol,

214
00:08:11,157 --> 00:08:12,425
dancers,

215
00:08:12,926 --> 00:08:13,993
ice sculptures,

216
00:08:13,993 --> 00:08:15,280
Trojan theme night, buses,

217
00:08:15,195 --> 00:08:16,596
trains, planes--

218
00:08:16,596 --> 00:08:18,310
And then baijiu,

219
00:08:18,231 --> 00:08:20,200
- which looks like motor oil
- in a can.

220
00:08:20,367 --> 00:08:21,368
You drank and you drank.

221
00:08:23,670 --> 00:08:24,838
You ganbei,

222
00:08:24,838 --> 00:08:26,600
you cheers to somebody,

223
00:08:26,206 --> 00:08:27,774
- and then they have
- to cheers to somebody else,

224
00:08:27,941 --> 00:08:29,209
And it goes on and on and on.

225
00:08:29,409 --> 00:08:30,510
The Chinese wanted to see

226
00:08:30,677 --> 00:08:32,120
- what kind of a person
- you were,

227
00:08:32,445 --> 00:08:33,813
And some of them felt like

228
00:08:33,847 --> 00:08:35,215
the more drunk you got,

229
00:08:35,382 --> 00:08:36,883
the more of your natural persona

230
00:08:36,883 --> 00:08:38,418
would come out.

231
00:08:41,755 --> 00:08:43,890
- Narrator:
- The master of ceremonies

232
00:08:43,256 --> 00:08:44,290
At these conferences

233
00:08:44,290 --> 00:08:45,358
was often the bank's

234
00:08:45,525 --> 00:08:46,893
stage-diving chairman,

235
00:08:46,893 --> 00:08:48,261
Byron Roth.

236
00:08:49,129 --> 00:08:50,296
♪ I wanna rock and roll

237
00:08:50,296 --> 00:08:51,464
All night ♪

238
00:08:51,631 --> 00:08:52,966
Performer: Get him up!

239
00:08:53,133 --> 00:08:54,234
♪ And party every day,

240
00:08:54,234 --> 00:08:55,301
I wanna rock and roll ♪

241
00:08:55,435 --> 00:08:57,103
- Roddy: You know, this is a guy
- who started out

242
00:08:57,237 --> 00:08:58,405
In the commodities business

243
00:08:58,405 --> 00:08:59,606
when he was 16 years old.

244
00:09:00,106 --> 00:09:01,908
- His dad
- had a feedlot business,

245
00:09:02,750 --> 00:09:04,144
- and they'd bid on cows at
- auctions and stuff like that.

246
00:09:04,310 --> 00:09:06,279
- I mean, this is not
- an unsophisticated man.

247
00:09:07,113 --> 00:09:08,882
- We just do things that are--
- That are different.

248
00:09:09,115 --> 00:09:10,283
- And that's kind of
- the way we are

249
00:09:10,450 --> 00:09:11,651
As an investment banking firm.

250
00:09:11,785 --> 00:09:13,219
(crowd cheering)

251
00:09:13,386 --> 00:09:14,421
Narrator: For Byron Roth

252
00:09:14,421 --> 00:09:15,488
and Matt and Dan,

253
00:09:15,655 --> 00:09:16,923
it was time to party.

254
00:09:17,891 --> 00:09:19,893
Between 2006 and 2011,

255
00:09:19,893 --> 00:09:21,895
Roth hosted over a dozen

256
00:09:21,995 --> 00:09:23,430
conferences and raised

257
00:09:23,430 --> 00:09:24,898
billions for Chinese companies.

258
00:09:25,980 --> 00:09:27,000
Performer:

259
00:09:27,233 --> 00:09:28,601
(rock music playing)

260
00:09:31,137 --> 00:09:33,139
- Performer: Whoo!

261
00:09:33,139 --> 00:09:35,141
- (cheers and applause)

262
00:09:38,745 --> 00:09:40,647
(traffic humming)

263
00:09:40,980 --> 00:09:42,282
- Narrator:
- Roth wasn't the only bank

264
00:09:42,449 --> 00:09:43,850
Cashing in on the China boom.

265
00:09:44,918 --> 00:09:46,353
In New York, a small operator

266
00:09:46,519 --> 00:09:47,821
named Rodman & Renshaw

267
00:09:47,821 --> 00:09:49,122
ran investment conferences

268
00:09:49,289 --> 00:09:50,657
with a slightly different feel,

269
00:09:51,324 --> 00:09:52,659
- centered
- on the political star power

270
00:09:52,826 --> 00:09:53,993
Of its chairman,

271
00:09:53,993 --> 00:09:55,161
General Wesley Clark.

272
00:09:56,796 --> 00:09:58,698
- Male Announcer: In the Balkans,
- he helped negotiate a peace

273
00:09:58,865 --> 00:10:00,166
Between bitter enemies

274
00:10:01,100 --> 00:10:02,469
and led a multinational force

275
00:10:02,635 --> 00:10:03,636
that stopped

276
00:10:03,636 --> 00:10:04,671
a campaign of terror.

277
00:10:04,838 --> 00:10:06,239
Wes Clark's life is simply

278
00:10:06,272 --> 00:10:07,674
an American story,

279
00:10:08,141 --> 00:10:09,309
but he will make

280
00:10:09,476 --> 00:10:10,477
an extraordinary

281
00:10:10,477 --> 00:10:11,511
American president.

282
00:10:14,681 --> 00:10:15,915
Man: First I want to ask you

283
00:10:15,949 --> 00:10:17,183
to just tell us who you are,

284
00:10:17,350 --> 00:10:18,852
- and tell me a bit
- about your background.

285
00:10:19,190 --> 00:10:20,553
- Yeah, I'm retired general
- Wes Clark.

286
00:10:21,221 --> 00:10:22,322
Graduated from West Point

287
00:10:22,322 --> 00:10:23,390
in 1966.

288
00:10:23,656 --> 00:10:26,590
- Went to Oxford, went to Vietnam,
- came home on a stretcher.

289
00:10:26,226 --> 00:10:28,280
- Signed as a NATO
- Supreme Allied Commander.

290
00:10:28,194 --> 00:10:29,496
I ran for president

291
00:10:29,496 --> 00:10:30,830
in 2003, 2004.

292
00:10:31,640 --> 00:10:32,399
Went into investment banking.

293
00:10:34,567 --> 00:10:36,569
- Narrator: Rodman & Renshaw
- had a troubled past.

294
00:10:37,370 --> 00:10:39,339
- After years
- of management turmoil,

295
00:10:39,506 --> 00:10:40,507
They declared bankruptcy

296
00:10:40,507 --> 00:10:41,508
in the late '90s.

297
00:10:42,175 --> 00:10:43,710
- But with a luminary
- like General Clark

298
00:10:43,877 --> 00:10:45,745
- as their public face,
- they'd reemerged

299
00:10:45,912 --> 00:10:47,347
As a respectable-looking bank,

300
00:10:47,580 --> 00:10:48,715
hosting parties

301
00:10:48,715 --> 00:10:49,849
and selling Chinese stock.

302
00:10:50,160 --> 00:10:51,351
They would typically invite

303
00:10:51,351 --> 00:10:52,686
presidents,

304
00:10:53,520 --> 00:10:56,256
ex-presidents, Colin Powell,

305
00:10:56,389 --> 00:10:59,590
Diana Ross, Henry Kissinger.

306
00:10:59,492 --> 00:11:01,294
- Roddy: For an hour or two,
- having Henry Kissinger

307
00:11:01,494 --> 00:11:02,662
Or George Bush

308
00:11:02,662 --> 00:11:03,830
or Wesley Clark speak--

309
00:11:04,297 --> 00:11:05,765
- Boy, oh, boy,
- like you're going into

310
00:11:05,932 --> 00:11:07,300
Some inner sanctum of knowledge,

311
00:11:07,334 --> 00:11:08,702
when, you know,

312
00:11:08,868 --> 00:11:10,737
- Kissinger's 90 years old,
- talking out his ***.

313
00:11:10,904 --> 00:11:12,172
- You can see
- what's happening there.

314
00:11:12,272 --> 00:11:14,740
- They're renting a name
- for an hour or two.

315
00:11:14,240 --> 00:11:16,176
- Wesley: These people all work
- for fees.

316
00:11:16,710 --> 00:11:17,777
That's how they make money.

317
00:11:17,911 --> 00:11:19,579
When luminaries speak at it,

318
00:11:19,746 --> 00:11:21,214
more power to 'em.

319
00:11:21,715 --> 00:11:23,750
- Narrator: During the six years
- that General Clark
Was chairman,

320
00:11:23,917 --> 00:11:25,118
Rodman & Renshaw brought

321
00:11:25,118 --> 00:11:26,319
over 40 Chinese companies

322
00:11:26,519 --> 00:11:27,654
to U.S. markets,

323
00:11:27,654 --> 00:11:28,788
with an aggregate value

324
00:11:28,955 --> 00:11:31,191
of over $31 billion.

325
00:11:35,228 --> 00:11:37,130
- Narrator: While Rodman and Roth
- made fees

326
00:11:37,297 --> 00:11:39,132
- for bringing Chinese companies
- to the U.S.,

327
00:11:39,299 --> 00:11:40,734
The real paydays came

328
00:11:40,900 --> 00:11:42,435
when the companies listed

329
00:11:42,435 --> 00:11:43,970
on major stock exchanges

330
00:11:45,638 --> 00:11:47,474
- Their analysts would
- recommend the risky stocks

331
00:11:47,707 --> 00:11:48,908
As great investments,

332
00:11:48,908 --> 00:11:50,110
and then their salesmen--

333
00:11:50,276 --> 00:11:51,778
Like Matt, would push them

334
00:11:51,778 --> 00:11:53,279
on their investment network.

335
00:11:54,714 --> 00:11:56,349
(tickers clicking)

336
00:11:57,584 --> 00:11:59,219
- Narrator: Once the stocks rose
- high enough,

337
00:11:59,352 --> 00:12:01,287
- the banks and insiders
- could cash out,

338
00:12:01,454 --> 00:12:03,423
- leaving others holding
- the overvalued shares.

339
00:12:05,580 --> 00:12:06,493
- The catch was,
- listing a company

340
00:12:06,659 --> 00:12:07,761
On the stock exchange

341
00:12:07,761 --> 00:12:08,895
normally required audits

342
00:12:09,620 --> 00:12:10,230
and public vetting,

343
00:12:10,764 --> 00:12:11,765
but the banks found a way

344
00:12:11,765 --> 00:12:12,766
around all that.

345
00:12:13,500 --> 00:12:14,968
They used a backdoor process

346
00:12:14,968 --> 00:12:16,436
called a reverse merger.

347
00:12:17,337 --> 00:12:18,371
It's dollar denominated.

348
00:12:18,405 --> 00:12:19,439
It trades onshore,

349
00:12:19,606 --> 00:12:21,574
- the New York Stock Exchange,
- the NASDAQ.

350
00:12:21,741 --> 00:12:23,910
It's normally a shell company

351
00:12:24,177 --> 00:12:26,513
that is a public-traded stock

352
00:12:26,980 --> 00:12:28,915
- that has no operations
- underneath it.

353
00:12:29,115 --> 00:12:30,183
You need to go to Nevada.

354
00:12:30,450 --> 00:12:31,785
A lot of them were there,

355
00:12:32,118 --> 00:12:33,620
- that had started off as
- mining companies or whatever,

356
00:12:33,787 --> 00:12:35,121
And they were just sort of

357
00:12:35,121 --> 00:12:36,456
sitting there, waiting,

358
00:12:37,524 --> 00:12:38,625
you know, to find

359
00:12:38,625 --> 00:12:39,693
the right partner

360
00:12:39,859 --> 00:12:41,270
who could merge into them.

361
00:12:41,194 --> 00:12:42,395
So you need the shell company.

362
00:12:42,796 --> 00:12:44,364
- Narrator: Here's how
- these reverse mergers work.

363
00:12:44,764 --> 00:12:46,499
- a Chinese company
- looking for a way

364
00:12:46,666 --> 00:12:47,901
Into American exchanges

365
00:12:47,901 --> 00:12:49,135
merges with the shell

366
00:12:49,302 --> 00:12:50,470
of a defunct U.S. company

367
00:12:50,470 --> 00:12:51,638
that no longer operates

368
00:12:51,805 --> 00:12:52,972
but still legally exists

369
00:12:52,972 --> 00:12:54,174
and has a listing

370
00:12:54,341 --> 00:12:55,775
on a U.S. stock exchange.

371
00:12:56,209 --> 00:12:57,410
The Chinese company then takes

372
00:12:57,544 --> 00:12:58,578
the shell company's place

373
00:12:58,578 --> 00:12:59,579
in the market.

374
00:12:59,813 --> 00:13:01,281
Presto! You just appear.

375
00:13:01,414 --> 00:13:03,316
- You're a stock
- that's trading in the U.S.,

376
00:13:03,483 --> 00:13:05,180
And you've got a story to tell.

377
00:13:05,185 --> 00:13:06,686
And no one asks any questions.

378
00:13:07,200 --> 00:13:09,356
(applause)

379
00:13:10,657 --> 00:13:13,226
Narrator: Between 2006 and 2012,

380
00:13:13,493 --> 00:13:15,280
over 400 Chinese companies

381
00:13:15,280 --> 00:13:16,563
listed on U.S. markets.

382
00:13:17,597 --> 00:13:18,631
80 percent of them

383
00:13:18,631 --> 00:13:19,666
were reverse mergers.

384
00:13:20,567 --> 00:13:21,701
Our exchanges

385
00:13:21,701 --> 00:13:22,836
are monitoring them.

386
00:13:23,203 --> 00:13:24,604
Our banks are vetting

387
00:13:24,637 --> 00:13:26,390
these companies.

388
00:13:26,506 --> 00:13:27,607
- You don't have
- to worry about them

389
00:13:27,807 --> 00:13:29,442
- Because they're
- on the U.S. exchanges.

390
00:13:37,150 --> 00:13:38,284
Dan: Oh, you're in Hong Kong?

391
00:13:39,319 --> 00:13:40,854
Late on the 30th.

392
00:13:41,554 --> 00:13:44,991
Dan: Between 2009 and mid-2010,

393
00:13:45,191 --> 00:13:46,793
the average China-based

394
00:13:46,793 --> 00:13:48,395
reverse merger

395
00:13:49,950 --> 00:13:50,663
was up several hundred percent--

396
00:13:50,663 --> 00:13:52,232
The average!

397
00:13:52,899 --> 00:13:54,401
- Could you tell me
- what China did last night?

398
00:13:55,402 --> 00:13:57,170
- We stuck with
- our value-investing approach.

399
00:13:58,380 --> 00:13:59,305
And with that approach

400
00:13:59,305 --> 00:14:00,573
and with our guidelines,

401
00:14:01,174 --> 00:14:02,542
that took us to a lot

402
00:14:02,542 --> 00:14:03,910
of China-based companies.

403
00:14:04,577 --> 00:14:05,779
- And we made
- several hundred percent

404
00:14:05,945 --> 00:14:07,113
On all of 'em.

405
00:14:08,615 --> 00:14:09,949
Longwei Petroleum,

406
00:14:09,949 --> 00:14:11,251
bought them, $1, $1.50.

407
00:14:11,484 --> 00:14:12,619
We sold, $5, $6,

408
00:14:12,619 --> 00:14:13,753
500 percent profit.

409
00:14:13,920 --> 00:14:15,488
L&L Energy,

410
00:14:15,655 --> 00:14:16,890
bought them for under $2,

411
00:14:16,890 --> 00:14:18,124
sold it between $9 and $10.

412
00:14:18,391 --> 00:14:20,360
- Puda Coal, bought them
- for around $4,

413
00:14:20,493 --> 00:14:21,928
- Sold them for around $7,
- great company.

414
00:14:22,395 --> 00:14:24,264
China Agriculture, CAGC.

415
00:14:24,431 --> 00:14:26,320
$9, sold them at $28.

416
00:14:26,199 --> 00:14:27,467
All great companies.

417
00:14:30,103 --> 00:14:31,371
We were back.

418
00:14:45,251 --> 00:14:46,286
Narrator: By 2010,

419
00:14:46,953 --> 00:14:48,755
- Dan and the guys
- at Roth and Rodman

420
00:14:48,922 --> 00:14:50,890
- were making a killing
- on the China stocks.

421
00:14:53,226 --> 00:14:54,961
- It seemed like
- it would never end,

422
00:14:55,228 --> 00:14:56,996
- and maybe it wouldn't have,
- had it not been

423
00:14:57,163 --> 00:14:58,264
For one earnest young

424
00:14:58,264 --> 00:14:59,332
American businessman

425
00:14:59,499 --> 00:15:00,700
who'd gone to Shanghai to seek

426
00:15:00,800 --> 00:15:02,602
- a completely different
- type of fortune.

427
00:15:06,139 --> 00:15:07,307
Carson: The business I set up

428
00:15:07,407 --> 00:15:08,975
- was the first
- self-storage business

429
00:15:09,142 --> 00:15:10,410
In mainland China.

430
00:15:10,543 --> 00:15:12,512
- It was called
- Love Box Self Storage.

431
00:15:13,146 --> 00:15:14,247
World-class.

432
00:15:15,248 --> 00:15:16,449
And we did win an award

433
00:15:16,616 --> 00:15:17,684
for self-storage facility

434
00:15:17,684 --> 00:15:18,718
of the year.

435
00:15:18,985 --> 00:15:20,720
- On the way to setting up
- that business,

436
00:15:20,887 --> 00:15:22,122
I co-authored "Doing Business

437
00:15:22,122 --> 00:15:23,323
in China For Dummies."

438
00:15:26,126 --> 00:15:27,527
Narrator: Carson's father,

439
00:15:27,527 --> 00:15:28,895
a stockbroker back in the U.S.,

440
00:15:29,295 --> 00:15:30,997
- wanted to invest
- in Orient Paper,

441
00:15:31,164 --> 00:15:32,265
A company that Roth Capital

442
00:15:32,265 --> 00:15:33,366
had brought to the markets

443
00:15:33,533 --> 00:15:35,350
through a reverse merger.

444
00:15:36,102 --> 00:15:38,380
- The company claimed that
- it was doing $100 million

445
00:15:38,204 --> 00:15:39,305
In business a year

446
00:15:39,305 --> 00:15:40,373
and shipping tons

447
00:15:40,540 --> 00:15:42,475
- of high-quality paper
- all over China.

448
00:15:43,476 --> 00:15:44,844
- It was one of
- the fast-growing companies

449
00:15:45,110 --> 00:15:46,346
That Roth and Rodman had sold

450
00:15:46,713 --> 00:15:48,515
- and that investors
- like Dan had bought.

451
00:15:49,315 --> 00:15:51,510
- Richard: The goal was
- to do some research,

452
00:15:51,217 --> 00:15:52,652
Make sure that it was legit.

453
00:15:53,219 --> 00:15:54,754
- His father would
- write up the report.

454
00:15:54,988 --> 00:15:55,989
Again, a fairly easy

455
00:15:55,989 --> 00:15:57,230
to understand

456
00:15:57,190 --> 00:15:58,391
and analyze business

457
00:15:58,758 --> 00:16:00,326
the opposite of

458
00:16:00,326 --> 00:16:01,861
an American software company.

459
00:16:02,762 --> 00:16:04,531
- Narrator: Carson and a friend
- went to check out the factory,

460
00:16:04,698 --> 00:16:05,732
But right away,

461
00:16:05,732 --> 00:16:06,766
something seemed off.

462
00:16:07,330 --> 00:16:08,401
Carson: It was a country road.

463
00:16:08,401 --> 00:16:09,736
It was in poor shape.

464
00:16:09,903 --> 00:16:11,871
That road could not support

465
00:16:11,871 --> 00:16:13,840
the massive trucks

466
00:16:14,307 --> 00:16:15,775
that would be going in and out

467
00:16:15,775 --> 00:16:17,243
of that facility all day.

468
00:16:18,780 --> 00:16:19,379
Then we got into the factory.

469
00:16:19,546 --> 00:16:22,549
(indistinct chatter)

470
00:16:23,883 --> 00:16:25,418
Roddy: It was a complete dump.

471
00:16:25,785 --> 00:16:27,187
Half the machines were broken,

472
00:16:27,187 --> 00:16:28,555
weren't working.

473
00:16:29,723 --> 00:16:30,790
Garbage rotting

474
00:16:30,790 --> 00:16:31,858
out in the front yard,

475
00:16:32,250 --> 00:16:33,930
no signage.

476
00:16:33,626 --> 00:16:35,495
- And this is their main
- manufacturing facility.

477
00:16:35,628 --> 00:16:37,630
- There's water everywhere,
- all right?

478
00:16:37,230 --> 00:16:39,320
- This is a company
- that's a paper company.

479
00:16:40,166 --> 00:16:42,268
- Carson: The company had just
- claimed to have clocked in

480
00:16:42,435 --> 00:16:44,170
$100 million U.S. in revenue,

481
00:16:44,337 --> 00:16:45,438
which was up substantially

482
00:16:45,438 --> 00:16:46,539
from the year before.

483
00:16:46,706 --> 00:16:47,874
How was this growing

484
00:16:47,874 --> 00:16:49,420
50 percent a year?

485
00:16:49,209 --> 00:16:51,111
- On the balance sheet,
- they were showing about...

486
00:16:51,511 --> 00:16:54,347
$5 million in raw materials.

487
00:16:54,781 --> 00:16:56,583
- Carson: And so they had
- heaps and heaps

488
00:16:56,750 --> 00:16:58,510
Of this old corrugated

489
00:16:58,510 --> 00:16:59,386
cardboard out front.

490
00:16:59,753 --> 00:17:01,554
- Carson: My friend climbed
- one of those heaps

491
00:17:01,721 --> 00:17:03,456
To take a look at the expanse

492
00:17:03,456 --> 00:17:05,191
of rotting cardboard,

493
00:17:05,592 --> 00:17:07,193
- and when he came down,
- he said,

494
00:17:07,427 --> 00:17:09,429
"If this is worth $5 million,

495
00:17:09,729 --> 00:17:11,831
- the world's a much richer place
- than I knew."

496
00:17:12,265 --> 00:17:13,433
Carson and his dad looked

497
00:17:13,433 --> 00:17:14,601
at each other at that point

498
00:17:15,201 --> 00:17:17,700
ah, and said, "There's probably

499
00:17:17,700 --> 00:17:18,938
something to do in this stock,

500
00:17:19,372 --> 00:17:20,740
- but it has nothing to do
- with owning it."

501
00:17:21,700 --> 00:17:22,776
(camera shutter clicking,

502
00:17:22,776 --> 00:17:24,544
(flashbulb whining)

503
00:17:30,917 --> 00:17:32,520
Carson: This business

504
00:17:32,520 --> 00:17:33,219
was a complete sham.

505
00:17:33,586 --> 00:17:34,688
This is going to zero.

506
00:17:34,688 --> 00:17:35,789
It's a total fraud.

507
00:17:35,955 --> 00:17:37,557
- I've never seen
- anything like this.

508
00:17:38,491 --> 00:17:40,226
- Narrator: Carson wrote a report
- of his findings

509
00:17:40,760 --> 00:17:42,462
- and announced that he was
- going to back his claims

510
00:17:42,629 --> 00:17:43,963
By making a bet in the market

511
00:17:44,130 --> 00:17:45,498
that the stock would collapse.

512
00:17:46,633 --> 00:17:48,100
- It would change
- the course of his life,

513
00:17:48,668 --> 00:17:49,669
But more importantly,

514
00:17:49,669 --> 00:17:50,670
it was the first time

515
00:17:50,837 --> 00:17:51,905
anyone had poked a hole

516
00:17:51,905 --> 00:17:52,972
in the Chinese miracle.

517
00:17:53,840 --> 00:17:55,342
- Carson:
- I sent it out into the ether

518
00:17:55,508 --> 00:17:57,577
In late June of 2010.

519
00:17:57,777 --> 00:17:58,878
I stayed up for a little bit

520
00:17:58,912 --> 00:18:00,130
to watch it close,

521
00:18:00,180 --> 00:18:01,848
and going into the close,

522
00:18:02,716 --> 00:18:04,170
it just moved down a little bit.

523
00:18:04,451 --> 00:18:05,952
And so as I went to sleep,

524
00:18:06,119 --> 00:18:07,454
I wondered whether that was

525
00:18:07,454 --> 00:18:08,788
a reaction to the report.

526
00:18:09,489 --> 00:18:11,224
- Well, the next day
- answered the question

527
00:18:11,591 --> 00:18:13,159
Down 25 percent.

528
00:18:13,493 --> 00:18:15,195
And it ended up trading down

529
00:18:15,362 --> 00:18:16,830
as much as 55 percent

530
00:18:16,996 --> 00:18:18,898
- from where
- we had put out the report.

531
00:18:19,650 --> 00:18:21,201
- Even though it's China
- and it's a fast-growing economy,

532
00:18:21,801 --> 00:18:22,969
Pigs do not fly in China,

533
00:18:22,969 --> 00:18:24,137
and I think that...

534
00:18:24,304 --> 00:18:26,206
- Carson:
- There's a proverb in Chinese,

535
00:18:26,873 --> 00:18:27,974
"Muddy waters makes it

536
00:18:27,974 --> 00:18:29,420
easy to catch fish."

537
00:18:31,344 --> 00:18:36,516
(speaking Mandarin)

538
00:18:36,716 --> 00:18:37,884
(in English)

539
00:18:37,884 --> 00:18:39,190
Yeah, so it means water.

540
00:18:42,220 --> 00:18:43,890
Huh.

541
00:18:43,390 --> 00:18:45,392
- That saying,
- "Muddy waters makes it easy

542
00:18:45,558 --> 00:18:47,360
- To catch fish,"
- explains so much

543
00:18:47,527 --> 00:18:48,895
- About what goes on
- in China.

544
00:18:51,698 --> 00:18:52,932
Carson:

545
00:18:52,966 --> 00:18:54,200
Opacity creates opportunities

546
00:18:54,534 --> 00:18:55,769
for people to make money.

547
00:18:56,736 --> 00:18:58,171
That's China's view,

548
00:18:58,171 --> 00:18:59,572
muddy waters.

549
00:18:59,739 --> 00:19:01,541
- I thought that
- that was a very apropos name

550
00:19:01,708 --> 00:19:03,843
For the firm and chose it.

551
00:19:06,880 --> 00:19:08,381
(waves crashing,

552
00:19:08,381 --> 00:19:09,883
(seagulls screeching)

553
00:19:12,852 --> 00:19:13,753
- Narrator:
- The "Muddy Waters Report"

554
00:19:13,920 --> 00:19:15,388
Was the first major claim

555
00:19:15,555 --> 00:19:17,590
- against a Chinese company,
- and it began to resonate

556
00:19:17,924 --> 00:19:18,925
Throughout the industry

557
00:19:19,759 --> 00:19:21,695
- nowhere more so
- than at Roth Capital,

558
00:19:22,950 --> 00:19:23,129
Who'd engineered the deal.

559
00:19:25,398 --> 00:19:27,670
- Target price,
- less than a dollar.

560
00:19:27,867 --> 00:19:29,602
- You have pictures
- of dirty factories.

561
00:19:29,869 --> 00:19:31,805
- You have pictures
- of recycled paper on the ground.

562
00:19:32,605 --> 00:19:33,773
You have people climbing...

563
00:19:33,773 --> 00:19:34,908
pictures.

564
00:19:37,444 --> 00:19:38,745
This is a $150-million company.

565
00:19:41,715 --> 00:19:42,916
It's pretty crazy though.

566
00:19:45,151 --> 00:19:47,520
- Matt: I had sold
- over $22 million of that deal.

567
00:19:53,590 --> 00:19:54,961
- Matt: I remember
- going into Byron's office,

568
00:19:55,228 --> 00:19:56,463
Asking, "What's going on here?"

569
00:19:57,230 --> 00:19:58,465
Narrator: What was "going on"

570
00:19:58,465 --> 00:19:59,699
was that the company

571
00:19:59,833 --> 00:20:01,167
had deployed a classic move

572
00:20:01,167 --> 00:20:02,469
in the reverse-merger playbook:

573
00:20:03,236 --> 00:20:04,237
get a stamp of approval

574
00:20:04,237 --> 00:20:05,271
from a trusted source.

575
00:20:05,939 --> 00:20:07,140
- Deloitte and Touche
- had come out

576
00:20:07,307 --> 00:20:08,742
- With an independent
- investigation saying

577
00:20:08,908 --> 00:20:10,777
- That the company was
- accurately telling

578
00:20:10,944 --> 00:20:12,245
About its financial statements.

579
00:20:12,812 --> 00:20:13,780
- Narrator:
- In the mortgage crisis,

580
00:20:14,800 --> 00:20:15,415
Banks used rating agencies

581
00:20:15,582 --> 00:20:17,250
- to disguise
- crappy mortgage bonds.

582
00:20:17,650 --> 00:20:19,652
Now Orient Paper was using

583
00:20:19,819 --> 00:20:21,421
- an even more
- recognizable cover

584
00:20:22,220 --> 00:20:23,990
- one of the Big Four
- global audit firms.

585
00:20:25,992 --> 00:20:27,927
- Every day,
- all around the world,

586
00:20:28,940 --> 00:20:30,296
- Deloitte professionals are
- making an impact that matters...

587
00:20:30,764 --> 00:20:31,731
- Narrator:
- It turns out that dozens

588
00:20:31,865 --> 00:20:33,166
Of Chinese reverse mergers

589
00:20:33,333 --> 00:20:34,367
used the same trick

590
00:20:34,367 --> 00:20:35,368
hiding shady financials

591
00:20:35,568 --> 00:20:37,370
- behind audits
- from the Big Four.

592
00:20:37,937 --> 00:20:40,206
- It was like handing investors
- a shiny, thin file

593
00:20:40,373 --> 00:20:41,841
- Stamped, "Trust me."
- (bell dings)

594
00:20:42,976 --> 00:20:44,944
- Because when it comes
- to living our purpose,

595
00:20:45,345 --> 00:20:46,813
It all starts with integrity.

596
00:20:49,382 --> 00:20:50,650
Carson: Whether it's Deloitte

597
00:20:50,650 --> 00:20:51,885
or PwC,

598
00:20:52,318 --> 00:20:54,220
they expect these brands

599
00:20:54,220 --> 00:20:56,122
to have significant value

600
00:20:56,289 --> 00:20:57,891
wherever they are in the world,

601
00:20:57,891 --> 00:20:59,492
but in actuality,

602
00:20:59,659 --> 00:21:01,528
- the way these partnerships
- are structured

603
00:21:01,861 --> 00:21:03,797
Is that each office

604
00:21:03,797 --> 00:21:05,699
is its own entity.

605
00:21:05,865 --> 00:21:07,534
- Roddy: So they were able
- to dollarize

606
00:21:07,834 --> 00:21:08,868
Renting their name out,

607
00:21:08,868 --> 00:21:09,869
effectively.

608
00:21:10,136 --> 00:21:12,720
- All they hoped was that
- this company didn't collapse.

609
00:21:12,572 --> 00:21:14,474
(indistinct chatter)

610
00:21:15,175 --> 00:21:16,643
- Many of these companies
- would say, "Well, look.

611
00:21:16,810 --> 00:21:18,311
- We're being audited
- by Pricewaterhouse."

612
00:21:18,511 --> 00:21:19,913
No, they're not.

613
00:21:20,246 --> 00:21:21,381
They're being audited

614
00:21:21,381 --> 00:21:22,482
by Pricewaterhouse China,

615
00:21:22,649 --> 00:21:24,184
which is like a franchise.

616
00:21:24,417 --> 00:21:26,152
- It's not really
- Pricewaterhouse.

617
00:21:26,319 --> 00:21:27,787
(siren wailing,

618
00:21:27,787 --> 00:21:29,255
(indistinct chatter)

619
00:21:29,422 --> 00:21:31,191
- Jim: In the United States,
- whenever we've had

620
00:21:31,358 --> 00:21:32,559
A massive fraud--

621
00:21:32,559 --> 00:21:33,727
That we've been short

622
00:21:33,860 --> 00:21:36,620
- people always ask me,
- "Well, who were the auditors?"

623
00:21:36,663 --> 00:21:38,640
- And I always say,
- "Who cares?"

624
00:21:39,866 --> 00:21:41,668
- Jim:
- It's important to understand,

625
00:21:41,935 --> 00:21:43,403
- and most people
- don't know this,

626
00:21:43,570 --> 00:21:44,738
That the financial statements

627
00:21:44,738 --> 00:21:45,905
are prepared by management,

628
00:21:46,172 --> 00:21:47,407
not by the auditors.

629
00:21:47,574 --> 00:21:49,275
(siren wailing)

630
00:21:49,442 --> 00:21:51,177
Jim: Auditor's job is to simply

631
00:21:51,177 --> 00:21:52,879
review management's work.

632
00:21:53,513 --> 00:21:55,615
- And if management is trying
- to hide something

633
00:21:56,216 --> 00:21:57,484
Or has co-opted the auditors,

634
00:21:57,484 --> 00:21:58,752
they will hide it.

635
00:22:00,200 --> 00:22:01,354
- Narrator:
- If hiding it doesn't work,

636
00:22:01,521 --> 00:22:02,689
They opt for plan B.

637
00:22:03,256 --> 00:22:04,391
Hire a good lawyer.

638
00:22:05,392 --> 00:22:06,760
Orient Paper brought in

639
00:22:06,760 --> 00:22:08,940
Mitch Nussbaum of Loeb & Loeb

640
00:22:08,294 --> 00:22:10,463
- to respond
- to Muddy Waters' allegations.

641
00:22:11,765 --> 00:22:14,134
- Mitch had helped bring dozens
- of Chinese companies to market,

642
00:22:14,467 --> 00:22:15,669
And he knew how to fight back.

643
00:22:15,735 --> 00:22:17,837
- You have short sellers who--
- Who go ahead

644
00:22:17,971 --> 00:22:19,439
- And put a short position
- on the company

645
00:22:19,606 --> 00:22:20,840
And then throw all sorts

646
00:22:20,840 --> 00:22:22,750
of allegations against them...

647
00:22:22,409 --> 00:22:24,277
- Narrator: Nussbaum's firm
- led an investigation.

648
00:22:24,778 --> 00:22:26,146
His unsurprising conclusion

649
00:22:26,379 --> 00:22:28,114
- was that Carson's allegations
- were false

650
00:22:28,748 --> 00:22:30,483
- and that his report
- amounted to slander.

651
00:22:30,650 --> 00:22:32,585
- How-- do I know what anybody's
- telling me is true?

652
00:22:32,719 --> 00:22:34,320
- Host: That's a huge problem.
- It's a huge problem.

653
00:22:34,454 --> 00:22:35,855
Host: All right,

654
00:22:36,890 --> 00:22:37,390
Man: Let's talk about

655
00:22:37,390 --> 00:22:38,658
a case where you did a type

656
00:22:38,858 --> 00:22:39,926
of forensic investigation--

657
00:22:40,600 --> 00:22:41,227
- Um hmm.
- Producer: Orient Paper.

658
00:22:41,594 --> 00:22:42,762
I wouldn't be prepared

659
00:22:42,762 --> 00:22:43,930
in these circumstances

660
00:22:44,970 --> 00:22:45,498
to discuss or present any more

661
00:22:45,498 --> 00:22:46,900
or additional information

662
00:22:47,670 --> 00:22:49,135
- than what we disclosed publicly,
- because that wouldn't be,

663
00:22:49,636 --> 00:22:50,770
You know, appropriate.

664
00:22:56,242 --> 00:22:57,977
- Narrator: The Chinese businesses
- were a huge profit center

665
00:22:58,144 --> 00:22:59,145
For Loeb & Loeb,

666
00:22:59,979 --> 00:23:01,414
- but I imagined
- that the company's

667
00:23:01,581 --> 00:23:02,949
Often-shoddy paperwork

668
00:23:03,116 --> 00:23:04,651
- posed a problem for Nussbaum
- and his colleagues.

669
00:23:06,190 --> 00:23:08,121
- I wondered how just how much
- diligence they had to do

670
00:23:08,288 --> 00:23:09,689
To satisfy regulators.

671
00:23:11,191 --> 00:23:12,826
- Forget about the lawyer.
- Forget about the banker.

672
00:23:13,326 --> 00:23:14,627
- The banker doesn't go
- into the books

673
00:23:14,794 --> 00:23:15,895
And records of the company.

674
00:23:16,290 --> 00:23:17,163
- The lawyers don't go
- into the books

675
00:23:17,330 --> 00:23:18,498
And records of the companies.

676
00:23:18,698 --> 00:23:19,866
We don't go check

677
00:23:19,866 --> 00:23:21,000
to see whether

678
00:23:21,334 --> 00:23:22,702
the shipments were received.

679
00:23:23,136 --> 00:23:25,171
- You know, we don't go visit
- the customers' homes.

680
00:23:25,472 --> 00:23:27,140
I mean, no law firm does this.

681
00:23:27,307 --> 00:23:28,808
No law firm does this.

682
00:23:29,142 --> 00:23:30,343
- Narrator:
- This is the part of the story

683
00:23:30,477 --> 00:23:31,678
- where I had to do
- a double take.

684
00:23:32,512 --> 00:23:33,646
All of the people who

685
00:23:33,646 --> 00:23:34,781
we think of as gatekeepers,

686
00:23:34,981 --> 00:23:36,850
- the lawyers,
- the bankers, the auditors,

687
00:23:37,650 --> 00:23:38,785
The people making good money

688
00:23:38,885 --> 00:23:40,387
- to ensure that
- the markets are clean,

689
00:23:41,210 --> 00:23:42,522
- weren't doing
- anything of the sort.

690
00:23:43,490 --> 00:23:44,524
They simply processed

691
00:23:44,524 --> 00:23:45,558
the necessary paperwork,

692
00:23:45,825 --> 00:23:47,460
took their fees, and moved on.

693
00:23:48,161 --> 00:23:50,196
- If the companies were lying,
- so what?

694
00:23:51,297 --> 00:23:52,999
- (thunder rumbling,
- rain pattering)

695
00:23:55,168 --> 00:23:57,370
- The answers
- that I was receiving

696
00:23:58,400 --> 00:23:59,806
Was insufficient

697
00:23:59,806 --> 00:24:01,574
to thwart my concerns.

698
00:24:02,709 --> 00:24:04,310
- And I didn't feel they were
- thorough enough

699
00:24:04,644 --> 00:24:06,179
Answers to questions.

700
00:24:06,880 --> 00:24:08,748
(thunder crashing)

701
00:24:08,915 --> 00:24:10,160
Matt: And that's when

702
00:24:10,350 --> 00:24:11,418
everything significantly

703
00:24:11,418 --> 00:24:12,485
changed for me.

704
00:24:13,190 --> 00:24:14,320
My eyes were open

705
00:24:14,320 --> 00:24:15,655
to this concept

706
00:24:15,889 --> 00:24:17,457
that there was another side

707
00:24:17,457 --> 00:24:19,250
to this company.

708
00:24:23,563 --> 00:24:24,998
Matt: I knew what my job was.

709
00:24:24,998 --> 00:24:26,433
I knew what I couldn't do

710
00:24:26,700 --> 00:24:28,268
- if I was sitting
- in that seat still.

711
00:24:28,702 --> 00:24:31,171
So for me, it was... quit,

712
00:24:31,771 --> 00:24:32,906
go take a break,

713
00:24:32,906 --> 00:24:34,700
and see what happens.

714
00:24:34,674 --> 00:24:35,675
I went on safari.

715
00:24:44,184 --> 00:24:45,385
I'm at a Rodman & Renshaw

716
00:24:45,385 --> 00:24:46,586
conference,

717
00:24:47,387 --> 00:24:48,621
and a firm by the name

718
00:24:48,655 --> 00:24:49,889
of Muddy Waters

719
00:24:50,223 --> 00:24:51,358
puts out a report

720
00:24:51,358 --> 00:24:52,525
on Orient Paper,

721
00:24:53,860 --> 00:24:55,295
and it goes down significantly.

722
00:24:55,729 --> 00:24:57,530
And this is the first time

723
00:24:57,530 --> 00:24:59,299
that we're actually hearing

724
00:24:59,466 --> 00:25:01,301
- somebody's publishing a report
- and calling it fraud.

725
00:25:03,403 --> 00:25:04,437
Dan: We decided that

726
00:25:04,704 --> 00:25:05,705
we were either good

727
00:25:05,705 --> 00:25:06,706
at what we do

728
00:25:07,374 --> 00:25:09,900
or we were lucky,

729
00:25:09,900 --> 00:25:10,643
and if we were lucky,

730
00:25:11,770 --> 00:25:12,379
- we were about
- to go out of business.

731
00:25:12,479 --> 00:25:13,780
- Chris: I'm trying to reach
- either the general manager

732
00:25:13,913 --> 00:25:14,948
Or the property manager...

733
00:25:14,981 --> 00:25:16,182
Dan: So we hired our own team.

734
00:25:17,584 --> 00:25:19,486
- Dan:
- And our own team went to China

735
00:25:19,652 --> 00:25:21,354
To vet some of these companies

736
00:25:21,354 --> 00:25:23,560
that were accused of fraud.

737
00:25:23,223 --> 00:25:24,457
Man: Let's talk about

738
00:25:24,457 --> 00:25:25,658
China Green Agriculture.

739
00:25:26,590 --> 00:25:27,727
- China Green Agriculture
- came to our attention

740
00:25:27,894 --> 00:25:30,230
Originally in 2009.

741
00:25:32,980 --> 00:25:33,266
Dan: And we invested long

742
00:25:33,266 --> 00:25:34,434
into what we thought was

743
00:25:34,601 --> 00:25:35,902
a great fertilizer company.

744
00:25:36,469 --> 00:25:37,971
Their stock was pumping.

745
00:25:38,571 --> 00:25:40,600
Press releases were coming out

746
00:25:40,600 --> 00:25:41,474
about deals they were making

747
00:25:41,641 --> 00:25:43,176
with Nestlé and whoever else.

748
00:25:44,110 --> 00:25:45,311
Narrator: Dan calculated that

749
00:25:45,478 --> 00:25:47,130
- in order
- to fulfill these contracts,

750
00:25:47,347 --> 00:25:48,815
- dozens of trucks
- would have to be loading

751
00:25:48,982 --> 00:25:50,684
And unloading goods all day.

752
00:25:52,352 --> 00:25:54,187
- So even though
- monitoring private companies

753
00:25:54,354 --> 00:25:55,488
Is illegal in China,

754
00:25:55,655 --> 00:25:57,490
- his team risked
- lengthy jail terms

755
00:25:57,657 --> 00:25:59,590
To set up surveillance cameras

756
00:25:59,590 --> 00:26:00,460
outside the factory gates.

757
00:26:01,528 --> 00:26:05,932
We filmed them for 344 days.

758
00:26:06,299 --> 00:26:08,340
- Tapes showed us
- of very little activity going,

759
00:26:08,201 --> 00:26:09,803
- Very few employees
- coming in and out.

760
00:26:12,872 --> 00:26:14,341
- Narrator: Dan figured that
- if the company was doing

761
00:26:14,507 --> 00:26:16,109
- what it said it was,
- it would have

762
00:26:16,276 --> 00:26:17,477
Hundreds of employees

763
00:26:17,477 --> 00:26:18,678
and dozens of drivers.

764
00:26:19,646 --> 00:26:20,947
Dan: So what we do is,

765
00:26:20,947 --> 00:26:22,282
we have our investigator

766
00:26:22,816 --> 00:26:24,150
pose as a tea salesman.

767
00:26:25,218 --> 00:26:26,720
- So he shows up,
- and he's got a suitcase

768
00:26:26,886 --> 00:26:28,355
Full of tea samples,

769
00:26:28,355 --> 00:26:29,789
says he's a tea salesman

770
00:26:29,956 --> 00:26:31,391
and he wants to give

771
00:26:31,391 --> 00:26:32,826
free tea samples for everybody.

772
00:26:33,193 --> 00:26:35,562
(in Mandarin)

773
00:26:43,236 --> 00:26:44,304
Dan: So tell me how many

774
00:26:44,304 --> 00:26:45,338
employees you have here

775
00:26:45,705 --> 00:26:47,474
- so I can give you
- enough samples.

776
00:26:47,807 --> 00:26:48,541
We get that answer.

777
00:26:48,708 --> 00:26:50,377
(in Mandarin)

778
00:26:51,745 --> 00:26:54,180
- Man: What did it mean that
- they only had one truck driver?

779
00:26:55,382 --> 00:26:56,716
It meant that their volume

780
00:26:56,883 --> 00:26:58,551
was vastly less

781
00:26:58,551 --> 00:27:00,186
than they had claimed.

782
00:27:06,826 --> 00:27:08,428
In the first half of this year,

783
00:27:08,661 --> 00:27:10,463
Ah, Yongye grew both revenues

784
00:27:10,463 --> 00:27:12,265
and net income by about

785
00:27:12,599 --> 00:27:14,267
- Narrator: Calling out
- China Green Agriculture meant

786
00:27:14,434 --> 00:27:16,403
- that Dan was also questioning
- the integrity

787
00:27:16,569 --> 00:27:18,605
- of some of the guys he'd ridden
- the China-stock wave up with.

788
00:27:19,720 --> 00:27:20,507
Guys like Crocker Coulson,

789
00:27:20,674 --> 00:27:22,575
- a stock promoter
- who'd pushed this stock

790
00:27:22,876 --> 00:27:23,877
And dozens like it.

791
00:27:24,277 --> 00:27:25,445
What about, um,

792
00:27:25,478 --> 00:27:26,613
China Green Agriculture?

793
00:27:27,447 --> 00:27:28,948
Crocker: So that's another

794
00:27:28,948 --> 00:27:30,417
fertilizer story that we were...

795
00:27:31,117 --> 00:27:32,385
Again, this kind of goes back

796
00:27:32,385 --> 00:27:33,620
a fair ways for me.

797
00:27:33,787 --> 00:27:34,854
- Yeah.
- I believe that was

798
00:27:34,954 --> 00:27:36,723
An organic fertilizer.

799
00:27:36,890 --> 00:27:38,124
It was also supposed to have...

800
00:27:38,591 --> 00:27:39,793
um...

801
00:27:40,193 --> 00:27:42,280
- I really don't remember
- a whole lot about that company.

802
00:27:42,562 --> 00:27:43,663
What we came up with is,

803
00:27:43,663 --> 00:27:44,764
they were doing 10 percent

804
00:27:44,931 --> 00:27:46,199
- of the business
- that they claimed.

805
00:27:46,399 --> 00:27:47,600
And then the fight began.

806
00:27:49,102 --> 00:27:50,603
Dan: Puts out a press release

807
00:27:50,603 --> 00:27:52,720
calling us terrorists,

808
00:27:52,472 --> 00:27:54,808
saboteurs, criminals.

809
00:27:55,642 --> 00:27:58,111
- There was a statement from
- five Beijing finance professors

810
00:27:58,311 --> 00:28:00,146
- Who alleged
- wealthy and sophisticated

811
00:28:00,313 --> 00:28:01,548
Short sellers from overseas

812
00:28:01,715 --> 00:28:03,383
- were robbing
- small Chinese investors

813
00:28:03,550 --> 00:28:05,510
And ignoring risks

814
00:28:05,510 --> 00:28:06,553
of market instability.

815
00:28:06,753 --> 00:28:08,880
They didn't cite any evidence.

816
00:28:08,655 --> 00:28:09,823
Just to be clear,

817
00:28:09,823 --> 00:28:10,957
we put a lot of effort

818
00:28:11,124 --> 00:28:12,826
- into trying
- to weed out companies,

819
00:28:13,560 --> 00:28:15,128
- You know,
- before representing them

820
00:28:15,428 --> 00:28:17,464
And then to flag problems,

821
00:28:18,298 --> 00:28:19,799
- serious problems,
- if we saw them.

822
00:28:19,966 --> 00:28:21,134
There was no way to know

823
00:28:21,434 --> 00:28:22,969
- which were the good actors
- and bad actors.

824
00:28:25,438 --> 00:28:26,840
A gate guard

825
00:28:26,840 --> 00:28:28,274
knows what's happening.

826
00:28:29,175 --> 00:28:30,443
(seagulls screeching)

827
00:28:31,144 --> 00:28:32,779
- Dan: So we went
- to the investment banks.

828
00:28:33,146 --> 00:28:34,414
We took them our evidence.

829
00:28:34,414 --> 00:28:35,648
We said, "Look what we found.

830
00:28:36,649 --> 00:28:38,752
- If you hire us and our team
- to do diligence,

831
00:28:39,850 --> 00:28:40,186
You'll have a better product

832
00:28:40,353 --> 00:28:41,488
- to sell to
- the American people."

833
00:28:42,756 --> 00:28:43,857
They said, "Get out of here.

834
00:28:44,958 --> 00:28:46,659
You're telling us to pay you

835
00:28:46,659 --> 00:28:48,361
not to collect 10 percent fees

836
00:28:48,528 --> 00:28:50,463
- on every transaction
- done through this bank.

837
00:28:51,464 --> 00:28:52,999
The less we know, the better,

838
00:28:52,999 --> 00:28:54,501
and by the way,

839
00:28:54,667 --> 00:28:56,302
- if you tell anybody
- what you found, we'll sue you.

840
00:28:57,671 --> 00:28:58,805
Go back to Skippack."

841
00:29:01,274 --> 00:29:02,375
So we went back to Skippack.

842
00:29:03,610 --> 00:29:04,978
We published our research.

843
00:29:06,980 --> 00:29:08,815
- Narrator: Dan's report laid out
- his allegations

844
00:29:08,982 --> 00:29:10,784
- against China
- Green Agriculture.

845
00:29:11,551 --> 00:29:12,686
Dan: The stock trades

846
00:29:12,686 --> 00:29:13,787
for a dollar today.

847
00:29:16,220 --> 00:29:17,490
- You know, it turns out
- nobody believes them.

848
00:29:18,558 --> 00:29:19,893
- Man: What happened
- to the chairman?

849
00:29:20,960 --> 00:29:22,128
Nothing.

850
00:29:22,128 --> 00:29:23,329
I mean, he's kept the money.

851
00:29:24,497 --> 00:29:25,999
- And that's what this
- is all about, right?

852
00:29:26,166 --> 00:29:27,967
That's $113 million that has

853
00:29:27,967 --> 00:29:29,736
just, poof, vanished

854
00:29:30,537 --> 00:29:31,938
Ah, because they never really

855
00:29:31,938 --> 00:29:33,340
did that kind of volume.

856
00:29:35,342 --> 00:29:37,844
- Narrator: Dan realized he'd made
- money off of companies' lies,

857
00:29:38,311 --> 00:29:39,379
And it gnawed at him,

858
00:29:40,130 --> 00:29:41,414
because he knew he'd crossed

859
00:29:41,681 --> 00:29:42,882
into what a lot of people see

860
00:29:42,882 --> 00:29:44,500
as the dark side of finance--

861
00:29:44,551 --> 00:29:45,552
Short selling.

862
00:29:48,888 --> 00:29:51,691
(jingle playing)

863
00:29:52,525 --> 00:29:53,727
Herb: What is short selling?

864
00:29:53,993 --> 00:29:55,128
Hmm, let me think about this.

865
00:29:55,261 --> 00:29:56,896
- I want to-- this is always
- a difficult one.

866
00:29:57,630 --> 00:29:58,531
But short-- (chuckles)

867
00:29:58,698 --> 00:30:00,567
What is-- (chuckling)

868
00:30:00,834 --> 00:30:02,535
- Well, the first short
- economically

869
00:30:02,702 --> 00:30:04,400
Was probably some transaction

870
00:30:04,400 --> 00:30:05,338
between, you know,

871
00:30:05,505 --> 00:30:07,700
two Cro-Magnon person,

872
00:30:07,173 --> 00:30:08,608
promising some guy--

873
00:30:08,608 --> 00:30:10,430
Some other Cro-Magnon

874
00:30:10,210 --> 00:30:11,344
part of a saber-tooth tiger.

875
00:30:11,578 --> 00:30:13,790
Narrator: This is Jim Chanos.

876
00:30:13,246 --> 00:30:14,481
He's the dean of short sellers.

877
00:30:15,548 --> 00:30:17,917
- And he's brought down some of
- the biggest frauds in history.

878
00:30:18,551 --> 00:30:20,186
- If you want to think
- about short selling,

879
00:30:20,353 --> 00:30:22,689
- All kinds of commercial
- transactions are short selling.

880
00:30:22,856 --> 00:30:24,570
An airline that sells you

881
00:30:24,570 --> 00:30:25,258
an advance-purchase ticket,

882
00:30:25,425 --> 00:30:26,593
for example,

883
00:30:26,593 --> 00:30:27,761
is shorting you a seat.

884
00:30:28,194 --> 00:30:29,496
Short selling is betting

885
00:30:29,496 --> 00:30:30,797
that a stock is gonna go down,

886
00:30:31,640 --> 00:30:32,132
as opposed to go up.

887
00:30:32,365 --> 00:30:33,700
So shorting a stock,

888
00:30:33,900 --> 00:30:35,301
you'll often hear it referred to

889
00:30:35,301 --> 00:30:36,703
as "borrowing shares."

890
00:30:36,936 --> 00:30:38,905
- Narrator: This is where
- a lot of people get confused.

891
00:30:39,305 --> 00:30:40,407
- Here's a simple way
- to think of it.

892
00:30:41,608 --> 00:30:43,243
- Narrator:
- Say I want to short sugar.

893
00:30:43,710 --> 00:30:45,612
- I think that sugar
- is overvalued

894
00:30:45,779 --> 00:30:46,913
And it's going to cost less

895
00:30:46,913 --> 00:30:48,480
in, say, six months

896
00:30:48,214 --> 00:30:49,482
than it does today.

897
00:30:50,250 --> 00:30:51,551
I see a business opportunity.

898
00:30:51,918 --> 00:30:53,319
I go to my neighbor

899
00:30:53,319 --> 00:30:54,721
and borrow one pound of sugar.

900
00:30:54,921 --> 00:30:55,955
Then I turn right around

901
00:30:55,955 --> 00:30:56,956
and sell that sugar

902
00:30:57,123 --> 00:30:58,825
- for the going rate
- of $1 a pound.

903
00:30:59,590 --> 00:31:00,600
Manly Voice: Yeah!

904
00:31:00,226 --> 00:31:01,561
Narrator: In about six months,

905
00:31:01,828 --> 00:31:03,797
- when I have to give my neighbor
- a pound of sugar back,

906
00:31:04,397 --> 00:31:05,932
I go buy it on the open market,

907
00:31:05,932 --> 00:31:07,467
where the price has come down,

908
00:31:08,100 --> 00:31:09,502
and it only costs me 50 cents.

909
00:31:09,803 --> 00:31:11,438
- I give my neighbor
- a pound of sugar back,

910
00:31:11,604 --> 00:31:13,173
- plus a little extra
- for interest,

911
00:31:13,573 --> 00:31:14,607
And pocket

912
00:31:14,607 --> 00:31:15,642
the 50-cent difference.

913
00:31:15,942 --> 00:31:17,510
She's got her sugar back,

914
00:31:17,510 --> 00:31:19,790
and I've made money on my bet.

915
00:31:19,813 --> 00:31:21,181
You want everybody else

916
00:31:21,181 --> 00:31:22,515
who's trading in that stock

917
00:31:22,682 --> 00:31:24,851
to believe what you're saying

918
00:31:25,180 --> 00:31:26,953
- if you think that
- the company is a fraud

919
00:31:27,120 --> 00:31:28,355
Or you think that something

920
00:31:28,355 --> 00:31:29,622
about the company is not true.

921
00:31:29,789 --> 00:31:30,824
The person that's most

922
00:31:30,824 --> 00:31:31,858
attracted to short selling

923
00:31:32,250 --> 00:31:34,461
- is probably those who've been
- dropped on their heads at birth.

924
00:31:34,661 --> 00:31:36,363
They're iconoclasts.

925
00:31:36,529 --> 00:31:38,198
- Do I believe that their
- motivation was to--

926
00:31:38,365 --> 00:31:40,266
Was justice for the world?

927
00:31:40,433 --> 00:31:42,502
- No, I think their motivation
- was to profit from this.

928
00:31:42,669 --> 00:31:43,703
It's about cleaning

929
00:31:43,703 --> 00:31:44,704
our financial markets.

930
00:31:44,871 --> 00:31:46,106
It's about stopping a fraud.

931
00:31:46,272 --> 00:31:47,841
What I really want to do is,

932
00:31:48,800 --> 00:31:49,142
I want to reach in...

933
00:31:49,342 --> 00:31:51,378
- Narrator: Remember this guy,
- Dick Fuld?

934
00:31:51,811 --> 00:31:53,480
- He ran Lehman Brothers,
- the bank whose collapse

935
00:31:53,646 --> 00:31:54,814
Set off the financial crisis

936
00:31:54,814 --> 00:31:55,982
in 2008.

937
00:31:56,649 --> 00:31:58,385
- He's got an opinion
- about short sellers.

938
00:31:58,618 --> 00:32:00,120
Rip out their heart,

939
00:32:00,120 --> 00:32:01,654
and eat it before they die.

940
00:32:02,220 --> 00:32:03,390
(crowd laughing)

941
00:32:03,723 --> 00:32:05,525
- Mitch: So there are
- a lot of problems here.

942
00:32:05,692 --> 00:32:07,600
- There are a lot
- of problems here.

943
00:32:08,495 --> 00:32:09,996
- Dan:
- When I bet against a company,

944
00:32:10,563 --> 00:32:12,198
It's because I believe

945
00:32:12,365 --> 00:32:14,340
that they're misrepresenting.

946
00:32:14,834 --> 00:32:17,300
- And their trend line
- doesn't matter to me at all.

947
00:32:18,204 --> 00:32:19,873
I am somebody that will

948
00:32:19,873 --> 00:32:21,508
bet against fraud.

949
00:32:26,746 --> 00:32:27,847
- Narrator: As Dan and Carson
- began looking

950
00:32:28,140 --> 00:32:29,582
- for other Chinese companies
- to short,

951
00:32:30,150 --> 00:32:32,850
- Matt was just getting back
- from his safari.

952
00:32:33,860 --> 00:32:34,154
He'd been out of the loop

953
00:32:34,154 --> 00:32:35,221
and wanted to make sense

954
00:32:35,388 --> 00:32:36,523
of what he'd been a part of.

955
00:32:37,223 --> 00:32:38,391
So he asked his friend Soren,

956
00:32:38,858 --> 00:32:40,560
- a finance industry lawyer
- from New York,

957
00:32:41,270 --> 00:32:42,729
- to meet him for a weekend
- in the mountains

958
00:32:42,996 --> 00:32:44,397
- and take a look
- at some of the documents

959
00:32:44,564 --> 00:32:46,199
- he'd saved
- from his time at Roth.

960
00:32:47,267 --> 00:32:48,435
In the process,

961
00:32:48,468 --> 00:32:49,602
they would discover a new way

962
00:32:49,769 --> 00:32:51,538
- to look at the whole
- landscape of fraud.

963
00:32:52,706 --> 00:32:53,907
Matt said,

964
00:32:53,907 --> 00:32:55,108
"Just look at these companies.

965
00:32:55,842 --> 00:32:56,843
Tell me what you think."

966
00:33:01,915 --> 00:33:03,516
L&L Energy was nominally

967
00:33:03,516 --> 00:33:05,118
a coal company.

968
00:33:08,588 --> 00:33:10,230
- Soren:
- Very typical of an RTO fraud

969
00:33:10,190 --> 00:33:11,224
In that

970
00:33:11,224 --> 00:33:12,258
its financial performance

971
00:33:12,425 --> 00:33:13,760
was simply too good to be true.

972
00:33:14,260 --> 00:33:17,263
(man speaking Mandarin)

973
00:33:19,599 --> 00:33:21,134
Soren: The notion

974
00:33:21,134 --> 00:33:22,702
that a small reverse merger

975
00:33:22,902 --> 00:33:25,438
from rural China could somehow

976
00:33:25,605 --> 00:33:27,400
efficiently mine

977
00:33:27,400 --> 00:33:28,441
and process coal

978
00:33:28,942 --> 00:33:30,276
so much better than the best

979
00:33:30,276 --> 00:33:31,578
coal companies in the world

980
00:33:32,245 --> 00:33:33,380
was just not credible.

981
00:33:34,714 --> 00:33:35,949
- Narrator:
- Digging into the papers,

982
00:33:36,616 --> 00:33:37,784
They uncovered a new way

983
00:33:37,951 --> 00:33:39,819
- to understand
- what was really going on

984
00:33:39,986 --> 00:33:41,388
- with the hundreds
- of Chinese companies

985
00:33:41,554 --> 00:33:43,390
Listed on U.S. exchanges.

986
00:33:44,124 --> 00:33:45,625
What we came back with were

987
00:33:45,625 --> 00:33:47,127
what are called SAIC filings.

988
00:33:47,894 --> 00:33:49,129
They're these filings

989
00:33:49,129 --> 00:33:50,397
from the State Office of, uh...

990
00:33:50,930 --> 00:33:52,899
- Oh, my gosh, can't believe
- I'm blanking on this.

991
00:33:53,466 --> 00:33:55,769
State Office of, uh, Adminis--

992
00:33:55,935 --> 00:33:57,837
- State Administrative Office.
- Is that right?

993
00:33:58,710 --> 00:34:00,306
- Richard: The interesting part
- here was that

994
00:34:00,674 --> 00:34:02,742
The filings in China

995
00:34:02,742 --> 00:34:04,811
tended to be very accurate

996
00:34:04,978 --> 00:34:07,130
or more accurate than

997
00:34:07,130 --> 00:34:09,150
the fictions that were filed

998
00:34:09,449 --> 00:34:11,117
- with the Securities
- and Exchange Commission.

999
00:34:12,152 --> 00:34:13,420
Narrator: In China,

1000
00:34:13,420 --> 00:34:14,654
a company might accurately say

1001
00:34:14,821 --> 00:34:15,955
they made $10 million,

1002
00:34:15,955 --> 00:34:17,900
while in the U.S.,

1003
00:34:17,257 --> 00:34:18,425
they could report

1004
00:34:18,425 --> 00:34:19,626
making $100 million or more.

1005
00:34:20,760 --> 00:34:22,529
- These SAIC filings
- were dead reliable.

1006
00:34:22,829 --> 00:34:23,863
They showed exactly

1007
00:34:23,863 --> 00:34:24,931
what was going on.

1008
00:34:25,165 --> 00:34:26,766
(crows cawing)

1009
00:34:28,435 --> 00:34:30,437
- Dan: And this is-- this is
- the cultural difference,

1010
00:34:31,771 --> 00:34:34,700
We can't find auditors

1011
00:34:34,700 --> 00:34:36,276
in China that will help us,

1012
00:34:36,643 --> 00:34:37,644
- because let me
- tell you something,

1013
00:34:37,811 --> 00:34:40,113
If we do find those people,

1014
00:34:40,680 --> 00:34:42,649
- the government of China
- will kill 'em.

1015
00:34:43,216 --> 00:34:44,551
- I mean, they will take
- their *** out

1016
00:34:44,884 --> 00:34:46,653
- And shoot them
- in the ****ing head.

1017
00:34:48,788 --> 00:34:50,490
- Soren: This was, from the
- beginning, a deception.

1018
00:34:51,240 --> 00:34:52,359
The purpose of it

1019
00:34:52,359 --> 00:34:53,660
was to deceive,

1020
00:34:53,827 --> 00:34:54,961
from day one, and we'd

1021
00:34:54,961 --> 00:34:56,620
never really seen that

1022
00:34:56,363 --> 00:34:57,630
at this scale

1023
00:34:57,630 --> 00:34:58,898
in the United States market.

1024
00:34:59,132 --> 00:35:01,000
- And that's probably why
- it took everyone by surprise.

1025
00:35:03,300 --> 00:35:04,204
Narrator: That included Matt,

1026
00:35:04,204 --> 00:35:05,372
and his reaction was telling,

1027
00:35:06,306 --> 00:35:08,141
- maybe it says something
- about human nature,

1028
00:35:08,708 --> 00:35:10,677
- about why we keep getting
- into these messes.

1029
00:35:12,780 --> 00:35:13,980
- He realized that hundreds
- of millions of dollars

1030
00:35:14,147 --> 00:35:15,248
In Chinese reverse mergers

1031
00:35:15,248 --> 00:35:16,349
that he'd sold were frauds,

1032
00:35:17,250 --> 00:35:18,918
but he didn't react

1033
00:35:18,918 --> 00:35:20,553
with shame, just pragmatism.

1034
00:35:21,221 --> 00:35:22,455
He wanted to make sure he got

1035
00:35:22,455 --> 00:35:23,690
a piece of the ride down,

1036
00:35:24,391 --> 00:35:25,692
so he switched sides

1037
00:35:25,859 --> 00:35:27,861
- and became a short seller,
- like Dan.

1038
00:35:29,596 --> 00:35:31,664
I-- I did it

1039
00:35:31,664 --> 00:35:33,700
and made 78 percent in...

1040
00:35:34,367 --> 00:35:35,869
four days.

1041
00:35:42,542 --> 00:35:44,711
Eventually LLEN collapsed.

1042
00:35:45,445 --> 00:35:47,280
- Narrator: For short sellers
- like Dan and Matt,

1043
00:35:47,681 --> 00:35:49,282
- the filings were the final
- piece of the puzzle--

1044
00:35:50,830 --> 00:35:52,218
- not just evidence
- from one company or another

1045
00:35:52,752 --> 00:35:54,354
- but data from
- all the companies.

1046
00:35:55,355 --> 00:35:56,589
- For the first time,
- they could see

1047
00:35:56,756 --> 00:35:58,291
- the full scope
- of the deception.

1048
00:35:59,192 --> 00:36:00,694
- Carson: I don't know
- what the numbers are,

1049
00:36:00,894 --> 00:36:02,429
- But it's well into
- the billions of dollars

1050
00:36:02,595 --> 00:36:04,230
That U.S. investors have lost.

1051
00:36:04,397 --> 00:36:06,466
- $30 billion, I think
- the number was $30 billion.

1052
00:36:06,633 --> 00:36:07,934
- $20 billion.
- $50 billion.

1053
00:36:08,101 --> 00:36:10,360
- It's between
- $20 billion and $50 billion

1054
00:36:10,203 --> 00:36:11,538
Of market capitalization

1055
00:36:11,538 --> 00:36:12,872
of stock that's listed

1056
00:36:13,390 --> 00:36:14,474
here in the United States

1057
00:36:14,474 --> 00:36:15,909
that might be worth zero.

1058
00:36:16,142 --> 00:36:17,377
Individual

1059
00:36:17,377 --> 00:36:18,578
mom-and-pop investors

1060
00:36:18,745 --> 00:36:20,480
and mutual funds were invested

1061
00:36:20,480 --> 00:36:22,215
in these Chinese companies,

1062
00:36:22,549 --> 00:36:24,751
so it really does affect

1063
00:36:24,918 --> 00:36:26,753
- the average person
- on the street as well.

1064
00:36:29,789 --> 00:36:30,957
Soren: If this one company

1065
00:36:30,957 --> 00:36:32,125
is so brazenly fraudulent,

1066
00:36:33,460 --> 00:36:35,495
- what does that say
- about the rest of the market?

1067
00:36:37,630 --> 00:36:38,798
Soren:

1068
00:36:38,798 --> 00:36:39,933
Over 300 reverse mergers

1069
00:36:40,300 --> 00:36:41,368
with businesses operating

1070
00:36:41,368 --> 00:36:42,435
in China.

1071
00:36:44,571 --> 00:36:46,720
- This whole thing
- could be fraudulent.

1072
00:36:47,974 --> 00:36:49,776
- And that money
- could never be recovered,

1073
00:36:50,143 --> 00:36:51,544
And if you got caught,

1074
00:36:51,544 --> 00:36:52,946
there was no consequences.

1075
00:36:54,800 --> 00:36:55,348
- When you talk about
- the investment banks,

1076
00:36:55,515 --> 00:36:56,649
Especially the bigger ones,

1077
00:36:57,350 --> 00:36:59,319
fraud is baked

1078
00:36:59,319 --> 00:37:01,254
into the income statement.

1079
00:37:02,489 --> 00:37:03,690
How many investment banks

1080
00:37:04,591 --> 00:37:06,259
have had to pay fines this year

1081
00:37:06,259 --> 00:37:07,927
for fraud?

1082
00:37:09,462 --> 00:37:11,798
Wells Fargo? Check.

1083
00:37:12,532 --> 00:37:14,434
- Bank of America has in the past.
- Check.

1084
00:37:14,768 --> 00:37:16,503
- Morgan Stanley has in the past.
- Check.

1085
00:37:17,300 --> 00:37:18,380
Nobody's going to jail.

1086
00:37:18,380 --> 00:37:19,105
It's a fine.

1087
00:37:19,706 --> 00:37:21,207
So it becomes part--

1088
00:37:21,808 --> 00:37:22,842
It becomes part

1089
00:37:22,842 --> 00:37:23,843
of what you budget.

1090
00:37:24,511 --> 00:37:25,979
You budget for fraud.

1091
00:37:26,146 --> 00:37:28,114
(traffic whooshing)

1092
00:37:30,150 --> 00:37:31,351
Narrator: Maybe Dan's fixation

1093
00:37:31,351 --> 00:37:32,552
on fraud comes from the fact

1094
00:37:32,719 --> 00:37:33,720
that Flint, Michigan,

1095
00:37:33,753 --> 00:37:34,721
where he grew up,

1096
00:37:35,121 --> 00:37:36,990
- is the victim
- of a kind of fraud.

1097
00:37:37,290 --> 00:37:38,792
(train whistle blows)

1098
00:37:39,359 --> 00:37:40,660
Big companies made big promises

1099
00:37:40,660 --> 00:37:41,961
to the people who lived there,

1100
00:37:42,162 --> 00:37:44,300
- and in the end,
- they couldn't keep them.

1101
00:37:45,732 --> 00:37:47,233
Dan saw firsthand how lies

1102
00:37:47,267 --> 00:37:48,735
coming from corporate offices

1103
00:37:48,968 --> 00:37:50,870
- actually affect
- real people on the ground.

1104
00:37:52,305 --> 00:37:54,174
- Where other finance guys
- see market machinations,

1105
00:37:54,741 --> 00:37:56,209
Dan sees his hometown,

1106
00:37:57,770 --> 00:37:59,546
busted, full of ghosts.

1107
00:38:12,192 --> 00:38:13,860
- Dan: This was a pretty nice area
- 30 years ago.

1108
00:38:17,597 --> 00:38:18,865
Hmm.

1109
00:38:25,672 --> 00:38:26,873
Dan: This was a school.

1110
00:38:30,777 --> 00:38:32,679
- Dan: By today's standards,
- it was pretty violent.

1111
00:38:35,215 --> 00:38:36,783
I mean, I can't even imagine

1112
00:38:36,783 --> 00:38:38,385
10, 11, and 12-year-old kids

1113
00:38:38,551 --> 00:38:40,387
- swinging bats
- at each other today.

1114
00:38:49,362 --> 00:38:50,430
No, I was definitely--

1115
00:38:50,597 --> 00:38:52,980
- I was happy growing up here,
- for sure.

1116
00:38:58,371 --> 00:38:59,706
Dan: Companies lie.

1117
00:39:01,574 --> 00:39:02,909
Companies lie.

1118
00:39:07,470 --> 00:39:08,581
Companies have companies'

1119
00:39:08,581 --> 00:39:10,116
best interests at heart--

1120
00:39:11,510 --> 00:39:12,152
Not a community's,

1121
00:39:12,152 --> 00:39:13,286
not a people's.

1122
00:39:14,421 --> 00:39:15,655
The people need to have

1123
00:39:15,655 --> 00:39:16,923
their own interests at heart.

1124
00:39:21,895 --> 00:39:22,962
Flint's an awesome town.

1125
00:39:23,563 --> 00:39:24,998
- It's always been
- an awesome town.

1126
00:39:27,434 --> 00:39:28,668
Very hardworking community.

1127
00:39:30,236 --> 00:39:31,638
Very hardworking community.

1128
00:39:37,677 --> 00:39:38,678
All right, look.

1129
00:39:41,981 --> 00:39:44,784
I saw myself growing up in Flint

1130
00:39:45,850 --> 00:39:46,619
and staying there forever.

1131
00:39:49,155 --> 00:39:50,490
And then the jobs were gone.

1132
00:39:53,360 --> 00:39:54,694
(thud)

1133
00:39:55,962 --> 00:39:58,198
(wind blowing)

1134
00:40:01,634 --> 00:40:03,300
- Narrator: Dan had investigated
- the companies

1135
00:40:03,169 --> 00:40:04,170
From the ground up.

1136
00:40:04,637 --> 00:40:05,972
- Matt had seen
- the bird's-eye view

1137
00:40:06,139 --> 00:40:07,440
Of their SEC filings.

1138
00:40:08,208 --> 00:40:09,809
Together they began to realize

1139
00:40:09,976 --> 00:40:10,977
how shockingly simple

1140
00:40:10,977 --> 00:40:11,978
the whole thing was.

1141
00:40:13,713 --> 00:40:15,648
- Let's say that you wanted
- to construct a fraud.

1142
00:40:18,818 --> 00:40:20,520
- Matt: What you would do is,
- you would have a factory.

1143
00:40:20,820 --> 00:40:21,855
You would have a chairman.

1144
00:40:22,622 --> 00:40:23,890
- And then you would find
- someone,

1145
00:40:24,570 --> 00:40:25,325
A gatekeeper, for example.

1146
00:40:25,492 --> 00:40:27,600
A finder says,

1147
00:40:27,600 --> 00:40:28,628
"This is your business.

1148
00:40:29,362 --> 00:40:30,430
What could you do

1149
00:40:30,430 --> 00:40:31,498
with $100 million?"

1150
00:40:31,664 --> 00:40:32,699
Matt: He would help with

1151
00:40:32,699 --> 00:40:33,733
connections with auditors,

1152
00:40:34,000 --> 00:40:35,735
legal tier-three banks.

1153
00:40:36,403 --> 00:40:37,837
- Dan: This operator in China
- would be like,

1154
00:40:38,304 --> 00:40:39,439
"Well, that'd be--

1155
00:40:39,439 --> 00:40:40,573
It would be a game changer."

1156
00:40:40,974 --> 00:40:42,842
- "I'd buy up my competition.
- I could do this.

1157
00:40:43,900 --> 00:40:44,844
- I could do that.
- I'd be this big."

1158
00:40:45,178 --> 00:40:46,179
Get to the United States.

1159
00:40:46,479 --> 00:40:48,480
- Dan: This guy or this company
- in China

1160
00:40:48,381 --> 00:40:50,830
- would say,
- "Okay, I'm gonna get you

1161
00:40:50,250 --> 00:40:51,651
A $100 million,

1162
00:40:51,651 --> 00:40:53,530
but this is what you have to do.

1163
00:40:53,420 --> 00:40:54,821
You have to tell people

1164
00:40:54,821 --> 00:40:56,189
that you're already this big."

1165
00:40:56,823 --> 00:40:58,825
- You just had to make sure
- that you checked all the boxes

1166
00:40:59,359 --> 00:41:01,327
In order to get it to be sold.

1167
00:41:01,494 --> 00:41:02,762
Dan: And don't worry,

1168
00:41:02,762 --> 00:41:04,300
because if they even find out

1169
00:41:04,197 --> 00:41:05,298
that we're lying,

1170
00:41:05,298 --> 00:41:06,399
you won't go to jail.

1171
00:41:06,533 --> 00:41:07,934
- You're in China."
- All you needed was

1172
00:41:08,680 --> 00:41:09,402
- The collusion
- of a couple players,

1173
00:41:09,536 --> 00:41:11,400
- And you could defraud
- anyone you wanted.

1174
00:41:11,104 --> 00:41:12,539
- Dan: And if we're lucky enough
- to get the money

1175
00:41:12,706 --> 00:41:13,840
And they find out you're lying,

1176
00:41:13,873 --> 00:41:14,908
you get to keep the money.

1177
00:41:15,442 --> 00:41:17,777
- So there's really no risk here.
- I'll do all the work.

1178
00:41:18,345 --> 00:41:19,446
All you have to do

1179
00:41:19,446 --> 00:41:20,580
is continue to tell the lie.

1180
00:41:20,780 --> 00:41:22,248
(money counter whirs)

1181
00:41:22,415 --> 00:41:24,184
- You know,
- if you're gonna be a CEO

1182
00:41:24,351 --> 00:41:26,520
- Of a public company,
- you've got to be educated,

1183
00:41:27,687 --> 00:41:30,724
Gone to college, got an MBA.

1184
00:41:30,890 --> 00:41:33,260
These guys had zero of that.

1185
00:41:34,600 --> 00:41:35,695
Zero, a lot of these guys.

1186
00:41:36,196 --> 00:41:37,597
They came from second,

1187
00:41:37,597 --> 00:41:39,320
third-tier cities in China.

1188
00:41:39,199 --> 00:41:41,301
- They came from a different way
- of doing business...

1189
00:41:43,737 --> 00:41:44,771
- Like running
- their own candy store

1190
00:41:44,938 --> 00:41:46,306
Type of way doing business.

1191
00:41:46,473 --> 00:41:48,410
(chickens clucking)

1192
00:41:48,274 --> 00:41:50,143
Dan: A Chinese chicken farmer

1193
00:41:50,143 --> 00:41:51,978
does not wake up one day

1194
00:41:52,545 --> 00:41:54,614
and understand how to defraud

1195
00:41:54,614 --> 00:41:56,649
the U.S. capital markets.

1196
00:41:57,250 --> 00:41:58,385
From the creation

1197
00:41:58,385 --> 00:41:59,486
of these little companies,

1198
00:42:00,320 --> 00:42:01,988
- it's all about
- stock market fraud.

1199
00:42:02,222 --> 00:42:03,923
(applause and bell ringing)

1200
00:42:04,900 --> 00:42:05,592
- Narrator: Once Dan, Matt,
- and the other shorts

1201
00:42:05,759 --> 00:42:07,627
- figured out
- the basic characteristics

1202
00:42:07,794 --> 00:42:09,396
Of the China frauds,

1203
00:42:09,396 --> 00:42:10,964
they started taking them out,

1204
00:42:12,332 --> 00:42:14,200
Puda Coal, the chairman,

1205
00:42:14,200 --> 00:42:16,690
stole investors' shares.

1206
00:42:16,770 --> 00:42:17,904
SINO Clean Energy,

1207
00:42:17,904 --> 00:42:19,720
super technology.

1208
00:42:19,239 --> 00:42:21,740
- This company puts advertisements
- on buses.

1209
00:42:21,908 --> 00:42:23,943
- Dan: They would crush coal,
- mix it with water,

1210
00:42:24,277 --> 00:42:25,679
And that was energy...

1211
00:42:25,679 --> 00:42:27,800
phenomenal.

1212
00:42:27,947 --> 00:42:29,916
They hired none other

1213
00:42:29,916 --> 00:42:31,851
than Loeb & Loeb to sue us.

1214
00:42:32,585 --> 00:42:33,920
China Integrated Energy,

1215
00:42:34,821 --> 00:42:36,189
for weeks and weeks and weeks,

1216
00:42:36,189 --> 00:42:37,590
there was nothing happening

1217
00:42:37,957 --> 00:42:39,926
- All of a sudden,
- things get turned on.

1218
00:42:40,326 --> 00:42:41,628
Lights start working.

1219
00:42:42,295 --> 00:42:43,530
The next day,

1220
00:42:43,530 --> 00:42:44,798
Rodman & Renshaw shows up

1221
00:42:44,998 --> 00:42:46,166
with a busload of investors.

1222
00:42:47,701 --> 00:42:49,202
Take a tour of the facility,

1223
00:42:49,202 --> 00:42:50,670
get back on the bus, leave.

1224
00:42:51,304 --> 00:42:52,472
All the lights go back off.

1225
00:42:54,941 --> 00:42:55,942
Rodman investors,

1226
00:42:55,942 --> 00:42:56,976
invest in a bunch.

1227
00:42:58,678 --> 00:43:00,413
You continue to find really

1228
00:43:00,413 --> 00:43:02,148
interesting anomalies in China.

1229
00:43:02,349 --> 00:43:03,550
I talked to the people

1230
00:43:03,550 --> 00:43:04,718
who were running

1231
00:43:04,884 --> 00:43:06,152
that were feeding a steel mill.

1232
00:43:06,219 --> 00:43:08,210
- "We're making a profit
- on this now,"

1233
00:43:08,221 --> 00:43:09,823
- And then they said,
- "Yes, but there's a problem.

1234
00:43:10,323 --> 00:43:11,691
It seems that

1235
00:43:11,691 --> 00:43:13,590
the gauges were wrong,

1236
00:43:13,326 --> 00:43:15,161
and we, uh, did not deliver

1237
00:43:15,161 --> 00:43:16,996
as much gas

1238
00:43:17,197 --> 00:43:19,320
- as we charged
- the steel mill for."

1239
00:43:19,232 --> 00:43:20,567
- I said,
- "When did you find this out?"

1240
00:43:20,734 --> 00:43:22,168
They said, "Just last week."

1241
00:43:22,736 --> 00:43:24,637
- I said, "And how much were
- the gauges wrong?"

1242
00:43:24,971 --> 00:43:26,720
"Uh, by the exact amount

1243
00:43:26,720 --> 00:43:27,207
of our profit.

1244
00:43:29,142 --> 00:43:30,210
It's very strange."

1245
00:43:48,595 --> 00:43:50,563
- I've been told I am addressing
- the Honorable Ho,

1246
00:43:51,398 --> 00:43:53,433
- Whose ancestors have been
- the glory of their provinces.

1247
00:43:53,867 --> 00:43:55,468
I am humble Ho,

1248
00:43:55,468 --> 00:43:57,700
whose name stands in deep shadow

1249
00:43:57,404 --> 00:43:59,272
- before the tincture
- of the great company.

1250
00:43:59,539 --> 00:44:01,708
In China, business is done

1251
00:44:01,708 --> 00:44:03,877
following a tradition

1252
00:44:04,177 --> 00:44:05,812
of not having a particularly

1253
00:44:05,812 --> 00:44:07,447
strong legal system.

1254
00:44:07,781 --> 00:44:09,749
So people rely more on trust

1255
00:44:09,749 --> 00:44:11,718
and on personal relationships.

1256
00:44:11,918 --> 00:44:13,186
I shall gain merit in the eyes

1257
00:44:13,186 --> 00:44:14,421
of the company

1258
00:44:15,622 --> 00:44:17,223
There's a lot of focus

1259
00:44:17,223 --> 00:44:18,792
on building those relationships

1260
00:44:19,920 --> 00:44:20,927
so that you can build the trust.

1261
00:44:21,227 --> 00:44:23,229
The Chinese call this network

1262
00:44:23,229 --> 00:44:25,231
of personal relationships,

1263
00:44:25,699 --> 00:44:27,233
Paul: And so I give you small

1264
00:44:27,233 --> 00:44:28,768
gifts and I do you favors,

1265
00:44:29,202 --> 00:44:30,303
and then you owe me one.

1266
00:44:30,303 --> 00:44:31,404
You scratch my back,

1267
00:44:31,705 --> 00:44:32,706
I'll scratch yours.

1268
00:44:33,740 --> 00:44:35,642
- Paul: If you do enough favors
- of people,

1269
00:44:35,942 --> 00:44:37,143
You have the ability

1270
00:44:37,143 --> 00:44:38,311
to call on them

1271
00:44:38,611 --> 00:44:39,979
for a favor that might be

1272
00:44:39,979 --> 00:44:41,381
quite inconvenient for them.

1273
00:44:42,415 --> 00:44:43,583
And that they would feel

1274
00:44:43,583 --> 00:44:44,751
an obligation

1275
00:44:44,984 --> 00:44:46,152
to actually go forward.

1276
00:44:50,900 --> 00:44:51,624
Narrator: This notion

1277
00:44:51,624 --> 00:44:53,126
that guanxi

1278
00:44:53,660 --> 00:44:54,961
but represented something

1279
00:44:54,961 --> 00:44:56,262
more powerful is crucial.

1280
00:44:58,732 --> 00:45:00,734
- Dan had told me that going
- after Chinese companies,

1281
00:45:00,967 --> 00:45:02,235
Could be dangerous.

1282
00:45:02,235 --> 00:45:03,470
But it wasn't until he told me

1283
00:45:03,770 --> 00:45:05,171
the story of Alfred Little

1284
00:45:05,171 --> 00:45:06,573
that I really understood

1285
00:45:08,800 --> 00:45:10,176
- Dune: When these short reports
- started coming out,

1286
00:45:10,477 --> 00:45:12,120
- There was a website
- called Alfred Little.

1287
00:45:13,790 --> 00:45:14,514
And it started publishing these

1288
00:45:14,514 --> 00:45:15,982
very interesting reports,

1289
00:45:16,316 --> 00:45:17,684
- the sort of the shoe leather,
- like,

1290
00:45:18,180 --> 00:45:19,252
"We've gone out and we sat

1291
00:45:19,252 --> 00:45:20,453
in front of this factory,

1292
00:45:20,920 --> 00:45:22,880
and this is what we found."

1293
00:45:23,523 --> 00:45:25,191
The website described

1294
00:45:25,191 --> 00:45:26,826
Alfred Little

1295
00:45:27,160 --> 00:45:28,862
as an investor

1296
00:45:28,862 --> 00:45:30,530
with 35 years of experience,

1297
00:45:30,797 --> 00:45:32,499
- I think he was supposed
- to have worked at Deloitte.

1298
00:45:32,799 --> 00:45:34,300
- You know, maybe he lived
- in Shanghai.

1299
00:45:34,501 --> 00:45:36,202
- I mean, there was this whole
- backstory, right?

1300
00:45:37,704 --> 00:45:39,305
Dan: He basically says that,

1301
00:45:39,673 --> 00:45:41,341
- all these companies
- in China are fraud,

1302
00:45:42,642 --> 00:45:43,743
Are just wholesale bullshit.

1303
00:45:44,644 --> 00:45:45,845
And I was dismissive of it.

1304
00:45:46,179 --> 00:45:47,247
I can't remember the date,

1305
00:45:47,247 --> 00:45:48,314
but I got an email saying,

1306
00:45:48,782 --> 00:45:50,383
"I'm gonna be in New York.

1307
00:45:50,383 --> 00:45:51,985
Let's meet."

1308
00:45:52,552 --> 00:45:53,887
I was like, "Oh, okay,"

1309
00:45:53,887 --> 00:45:55,221
so I go to this hotel,

1310
00:45:55,822 --> 00:45:57,624
- and there's this guy,
- and he's like,

1311
00:45:57,824 --> 00:45:58,825
"Oh, I'm Jon Carnes."

1312
00:45:59,392 --> 00:46:01,270
- Like,
- "I'm the guy who's been...

1313
00:46:01,227 --> 00:46:02,495
- You know, I'm Alfred Little."
- (laughs)

1314
00:46:08,301 --> 00:46:11,805
(alarm bell ringing)

1315
00:46:12,138 --> 00:46:13,340
Narrator: As one of the few

1316
00:46:13,340 --> 00:46:14,541
Westerners still working

1317
00:46:14,741 --> 00:46:15,809
inside China,

1318
00:46:16,343 --> 00:46:17,577
Carnes knew how to be careful

1319
00:46:17,577 --> 00:46:18,845
and cover his tracks.

1320
00:46:20,800 --> 00:46:21,810
Posing as Alfred Little

1321
00:46:21,810 --> 00:46:22,820
had served him well.

1322
00:46:23,750 --> 00:46:25,719
- But when he decided
- to take on Silvercorp,

1323
00:46:26,190 --> 00:46:27,187
A mining company

1324
00:46:27,187 --> 00:46:28,355
in rural Hunan province,

1325
00:46:29,155 --> 00:46:30,657
he and his investigators

1326
00:46:30,657 --> 00:46:32,158
would find out the dark side

1327
00:46:32,892 --> 00:46:35,280
- You know, some companies
- are more aggressive than others,

1328
00:46:35,428 --> 00:46:37,831
But in general, I've found that

1329
00:46:37,831 --> 00:46:40,233
the more truthful the report,

1330
00:46:40,600 --> 00:46:42,502
the more difficult it is

1331
00:46:42,502 --> 00:46:44,404
for a company to explain

1332
00:46:45,672 --> 00:46:46,840
these negative truths,

1333
00:46:48,800 --> 00:46:49,943
the more likely they're going

1334
00:46:49,943 --> 00:46:51,878
to commit some form

1335
00:46:52,746 --> 00:46:53,847
Because if

1336
00:46:53,847 --> 00:46:54,948
a company can't answer

1337
00:46:55,115 --> 00:46:56,149
the questions raised

1338
00:46:56,149 --> 00:46:57,183
by the short seller,

1339
00:46:57,917 --> 00:47:00,453
then they look for other means

1340
00:47:00,453 --> 00:47:03,230
to stop the negative reports.

1341
00:47:03,289 --> 00:47:05,525
(wind blowing)

1342
00:47:06,590 --> 00:47:07,293
Narrator: As Alfred Little

1343
00:47:07,293 --> 00:47:08,561
began to publicly

1344
00:47:09,290 --> 00:47:10,630
- the company's stock price
- started to drop.

1345
00:47:11,531 --> 00:47:13,660
- Company officials called
- in favors

1346
00:47:13,266 --> 00:47:14,467
With the local authorities.

1347
00:47:15,535 --> 00:47:17,437
- Police began to threaten
- Little's chief researcher,

1348
00:47:17,904 --> 00:47:18,905
Kun Huang,

1349
00:47:19,939 --> 00:47:20,974
detaining him for hours

1350
00:47:20,974 --> 00:47:22,420
or days at a time,

1351
00:47:22,776 --> 00:47:24,744
- demanding to know whom
- he was really working for.

1352
00:47:24,944 --> 00:47:26,980
(siren wailing)

1353
00:47:27,380 --> 00:47:29,416
- Carnes knew that
- there was no cavalry coming.

1354
00:47:30,216 --> 00:47:32,520
He'd asked the SEC for help,

1355
00:47:32,520 --> 00:47:33,887
and they said their phones,

1356
00:47:34,554 --> 00:47:35,955
- let alone protect him
- and his team.

1357
00:47:36,122 --> 00:47:38,391
(speaking in Mandarin)

1358
00:47:38,758 --> 00:47:39,859
He sent another researcher

1359
00:47:39,859 --> 00:47:40,960
to secretly record evidence

1360
00:47:41,294 --> 00:47:42,729
that local police

1361
00:47:42,729 --> 00:47:44,164
officials were doing

1362
00:47:44,764 --> 00:47:46,466
He would use the videos

1363
00:47:46,466 --> 00:47:48,168
as leverage to try

1364
00:47:48,802 --> 00:47:50,437
(in Mandarin)

1365
00:48:25,171 --> 00:48:28,208
(man speaking Mandarin)

1366
00:48:38,184 --> 00:48:41,855
Kun: (in Mandarin)

1367
00:49:04,177 --> 00:49:05,578
- Narrator:
- Kun had made secret videos

1368
00:49:05,745 --> 00:49:07,414
- of Silvercorp's
- under performing mines,

1369
00:49:08,140 --> 00:49:09,883
- and some of the local officials
- they had bribed.

1370
00:49:10,817 --> 00:49:12,180
He was detained briefly

1371
00:49:12,180 --> 00:49:13,219
twice in late 2011,

1372
00:49:13,920 --> 00:49:15,588
- and officials promised
- to leave him alone

1373
00:49:15,822 --> 00:49:17,524
- if he would expose
- and denounce Alfred Little.

1374
00:49:18,591 --> 00:49:19,659
He refused,

1375
00:49:19,659 --> 00:49:20,694
and later that year,

1376
00:49:20,894 --> 00:49:22,262
he was stopped at the border

1377
00:49:22,262 --> 00:49:23,596
as he tried to flee

1378
00:49:25,980 --> 00:49:30,103
(in Mandarin)

1379
00:49:38,378 --> 00:49:40,180
(indistinct voices over radio)

1380
00:51:08,100 --> 00:51:11,638
(siren wailing)

1381
00:51:13,873 --> 00:51:15,275
Dan: What...

1382
00:51:15,275 --> 00:51:16,643
how many shares short am I?

1383
00:51:22,215 --> 00:51:23,216
No shit.

1384
00:51:23,516 --> 00:51:24,651
- (knocking at door)
- Hmm.

1385
00:51:26,152 --> 00:51:27,253
Narrator:

1386
00:51:27,253 --> 00:51:28,355
Before Jon was exposed

1387
00:51:28,655 --> 00:51:30,230
Dan thought he was a crackpot.

1388
00:51:30,156 --> 00:51:31,358
Jon: Hey...

1389
00:51:31,791 --> 00:51:33,360
- Narrator: Now, along
- with Carson, Matt, and Soren,

1390
00:51:33,793 --> 00:51:34,961
- they're part of
- a loose-knit tribe.

1391
00:51:36,196 --> 00:51:37,530
Activist short sellers chasing

1392
00:51:37,530 --> 00:51:38,832
down frauds in China.

1393
00:51:40,330 --> 00:51:41,670
Most of them are realists,

1394
00:51:41,735 --> 00:51:42,802
believing the market finds

1395
00:51:42,802 --> 00:51:43,870
the truth on its own.

1396
00:51:45,205 --> 00:51:46,373
Dan is different.

1397
00:51:47,474 --> 00:51:48,541
He takes it personally.

1398
00:51:50,844 --> 00:51:52,212
Jon: Kun keeps going to

1399
00:51:52,212 --> 00:51:53,546
the psychologist once a week.

1400
00:51:55,515 --> 00:51:57,217
- That was a great thing
- you did, though...

1401
00:51:59,520 --> 00:52:00,530
Not cutting him loose.

1402
00:52:01,421 --> 00:52:03,189
- Taking care of him
- while he was over there.

1403
00:52:05,325 --> 00:52:07,160
- How many of these other guys
- we know would've
Just cut him loose.

1404
00:52:08,328 --> 00:52:09,329
We owe him a lot.

1405
00:52:10,930 --> 00:52:12,599
- Narrator:
- Kun's imprisonment changed Dan.

1406
00:52:13,400 --> 00:52:14,534
As far as he was concerned,

1407
00:52:15,101 --> 00:52:17,570
- this wasn't about
- just uncovering frauds anymore.

1408
00:52:18,538 --> 00:52:20,400
It was about right and wrong.

1409
00:52:22,575 --> 00:52:23,877
His friend had gone to jail,

1410
00:52:24,511 --> 00:52:26,460
- and millions of people
- were being ripped off.

1411
00:52:26,613 --> 00:52:28,114
He wanted government action,

1412
00:52:28,381 --> 00:52:29,616
- even if it meant
- putting himself

1413
00:52:29,883 --> 00:52:31,418
- and the other shorts
- out of business.

1414
00:52:32,850 --> 00:52:33,353
So he hired a lobbyist and came

1415
00:52:33,353 --> 00:52:34,587
up with a plan to try

1416
00:52:34,754 --> 00:52:36,122
- and make Congress
- pay attention.

1417
00:52:37,223 --> 00:52:38,625
Both Toomey and Casey, are

1418
00:52:38,625 --> 00:52:40,260
on the Senate Finance Committee.

1419
00:52:40,694 --> 00:52:42,195
- Mm-hmm.
- So what I was asking for is

1420
00:52:42,429 --> 00:52:43,863
A Senate Finance hearing.

1421
00:52:44,197 --> 00:52:45,799
- You're, you're talking
- to staffers who bounce

1422
00:52:45,965 --> 00:52:47,534
- From meeting to meeting
- to meeting to meeting
To meeting.

1423
00:52:47,701 --> 00:52:49,436
- So I think a lot
- of people don't even know,
This really happened.

1424
00:52:49,736 --> 00:52:51,237
- Anyone I talked to,
- anyone even involved

1425
00:52:51,404 --> 00:52:52,405
- In the stock market,
- doesn't even know.

1426
00:52:52,572 --> 00:52:53,573
A lot of people don't know.

1427
00:52:53,606 --> 00:52:54,941
So here's the frustrating part.

1428
00:52:55,141 --> 00:52:57,610
- It was the first meeting
- that we had with Toomey's staff.

1429
00:52:57,977 --> 00:52:59,679
Um, he, he actually suggested,

1430
00:52:59,679 --> 00:53:01,381
after an hour and a half,

1431
00:53:01,648 --> 00:53:03,149
- a letter-writing campaign.
- Right.

1432
00:53:03,450 --> 00:53:04,918
Number one, you know,

1433
00:53:04,918 --> 00:53:06,386
welcome to 2016.

1434
00:53:07,320 --> 00:53:09,456
- Um,
- but I guess those still work.

1435
00:53:09,789 --> 00:53:12,920
- Two, I spent an hour explaining
- to him,

1436
00:53:12,726 --> 00:53:14,227
- That nobody knows
- they're being ripped off.

1437
00:53:14,894 --> 00:53:16,596
- How do I get people
- to write a letter

1438
00:53:16,896 --> 00:53:18,298
- About what they don't know
- is happening?

1439
00:53:18,498 --> 00:53:20,200
If we give up, you know

1440
00:53:20,200 --> 00:53:21,901
what happens out of Washington,

1441
00:53:22,602 --> 00:53:24,637
- You have to be at the hearing.
- You have to consider yourself
An expert.

1442
00:53:24,838 --> 00:53:25,839
- That's why we're going
- to Washington,

1443
00:53:26,720 --> 00:53:26,906
- That's where we're trying
- to effect change.

1444
00:53:28,675 --> 00:53:29,776
(hand thumps table)

1445
00:53:30,176 --> 00:53:31,911
- It's a very frustrating thing.
- Mm-hmm.

1446
00:53:32,245 --> 00:53:33,246
And I just...

1447
00:53:35,150 --> 00:53:36,983
- don't want to hear how
- the world works anymore.

1448
00:53:41,454 --> 00:53:45,158
(wind whistling)

1449
00:53:45,525 --> 00:53:46,526
Narrator: Dan had a plan.

1450
00:53:47,160 --> 00:53:49,963
(train rattling)

1451
00:53:50,864 --> 00:53:52,980
There was a Senate hearing

1452
00:53:52,980 --> 00:53:53,299
on whether or not

1453
00:53:53,666 --> 00:53:55,502
- poses a strategic danger
- to our economy.

1454
00:53:56,636 --> 00:53:58,104
He'd use it as

1455
00:53:58,104 --> 00:53:59,539
an opportunity to meet

1456
00:54:00,600 --> 00:54:01,775
- And get him to listen
- to his concerns.

1457
00:54:02,420 --> 00:54:03,209
- Would you vote for him
- at this point?

1458
00:54:04,144 --> 00:54:05,845
- How'd I vote?
- Oh, right, right.

1459
00:54:06,112 --> 00:54:07,981
- I'm sorry, I'm sorry.
- I'm having a casual conversation

1460
00:54:08,181 --> 00:54:09,182
With you and I forget.

1461
00:54:11,217 --> 00:54:13,119
- Well, let me just say this,
- I won't vote

1462
00:54:13,286 --> 00:54:14,287
For the mother****er.

1463
00:54:14,554 --> 00:54:17,190
(train rattling)

1464
00:54:28,301 --> 00:54:30,370
- Dan: I think that there are
- a great many people

1465
00:54:30,704 --> 00:54:32,372
- that it's their job
- to give a shit.

1466
00:54:33,390 --> 00:54:34,541
If you're going to run

1467
00:54:34,541 --> 00:54:36,900
for office on the idea

1468
00:54:36,242 --> 00:54:37,811
that you're there to protect

1469
00:54:37,811 --> 00:54:39,346
citizens' interests...

1470
00:54:40,747 --> 00:54:42,615
The rights of citizens,

1471
00:54:42,615 --> 00:54:44,484
then you should do your job.

1472
00:54:44,818 --> 00:54:45,819
Thank you, sir.

1473
00:54:46,886 --> 00:54:48,755
- Or let somebody else do it,
- that will do it.

1474
00:54:57,597 --> 00:54:59,165
(indistinct chatter)

1475
00:55:06,172 --> 00:55:07,240
(gavel banging)

1476
00:55:09,576 --> 00:55:11,778
- Shelby: Today, the Committee
- will hear testimony

1477
00:55:12,112 --> 00:55:13,513
On the Chinese economy

1478
00:55:13,513 --> 00:55:14,914
and the risk it may pose

1479
00:55:15,215 --> 00:55:16,216
to the United States.

1480
00:55:17,830 --> 00:55:19,386
- Some believe
- that China's economic stimulus,

1481
00:55:19,619 --> 00:55:20,954
Following the 2008

1482
00:55:20,954 --> 00:55:22,255
financial crisis,

1483
00:55:22,689 --> 00:55:24,457
has left the financial system

1484
00:55:24,791 --> 00:55:26,192
with an unusually high

1485
00:55:26,192 --> 00:55:27,560
percentage of bad debts.

1486
00:55:27,861 --> 00:55:29,429
China's not transitioned, uh,

1487
00:55:29,429 --> 00:55:30,964
to a market economy.

1488
00:55:31,131 --> 00:55:32,966
- It's not lived up
- to the commitments it made

1489
00:55:33,233 --> 00:55:34,968
- When it joined
- the World Trade Organization.

1490
00:55:35,201 --> 00:55:37,370
- Chinese government props
- up its state-owned enterprises,

1491
00:55:37,237 --> 00:55:38,772
Also called SOEs,

1492
00:55:39,205 --> 00:55:40,807
and designated private firms,

1493
00:55:40,807 --> 00:55:42,409
while limiting market access

1494
00:55:42,642 --> 00:55:43,977
- for U.S.
- and other foreign firms.

1495
00:55:45,145 --> 00:55:46,813
- Narrator: Dan had hoped
- that Senator Toomey

1496
00:55:46,980 --> 00:55:48,948
- would address some of
- the questions he'd raised
With his staff.

1497
00:55:50,583 --> 00:55:51,785
But he left the hearing early.

1498
00:55:53,253 --> 00:55:54,788
- And it went downhill
- from there.

1499
00:55:55,588 --> 00:55:57,590
I'm not sure that I see this

1500
00:55:57,590 --> 00:55:59,592
as something that we really need

1501
00:55:59,893 --> 00:56:00,927
to be too worried about.

1502
00:56:01,127 --> 00:56:03,630
- What we do need
- to be worried about more,

1503
00:56:03,663 --> 00:56:05,398
Is the continuation

1504
00:56:05,398 --> 00:56:07,100
of the imbalances in China

1505
00:56:07,567 --> 00:56:09,135
and what that might imply...

1506
00:56:09,302 --> 00:56:10,303
(gavel banging)

1507
00:56:16,309 --> 00:56:17,510
How fast is

1508
00:56:17,510 --> 00:56:18,745
the Chinese economy growing?

1509
00:56:19,346 --> 00:56:20,914
I don't know exactly.

1510
00:56:20,914 --> 00:56:22,449
We don't have reliable figures.

1511
00:56:22,749 --> 00:56:23,817
- Desmond: You know,
- I pretty much agree

1512
00:56:24,170 --> 00:56:25,318
That China's not growing

1513
00:56:25,318 --> 00:56:26,619
at 6.7 percent.

1514
00:56:27,120 --> 00:56:28,188
It's rather growing

1515
00:56:28,188 --> 00:56:29,255
at something, uh,

1516
00:56:29,823 --> 00:56:31,358
So, if the Chinese

1517
00:56:31,358 --> 00:56:32,926
credit bubble pops,

1518
00:56:33,760 --> 00:56:35,495
whether it's sooner or later,

1519
00:56:36,129 --> 00:56:37,430
dragging the Chinese economy

1520
00:56:37,430 --> 00:56:38,765
down with it,

1521
00:56:39,320 --> 00:56:40,600
what kinds of vulnerabilities

1522
00:56:40,600 --> 00:56:42,168
might we see?

1523
00:56:42,369 --> 00:56:44,204
I don't see the impact as being

1524
00:56:44,204 --> 00:56:46,390
through direct exposure

1525
00:56:46,306 --> 00:56:47,540
- of United States companies...

1526
00:56:47,540 --> 00:56:48,808
- So, so you're not worried

1527
00:56:49,109 --> 00:56:50,377
about the exposure

1528
00:56:50,377 --> 00:56:51,678
through derivatives

1529
00:56:51,878 --> 00:56:53,713
- that, for example,
- put our banks,

1530
00:56:54,848 --> 00:56:56,516
Deeply engaged on the question

1531
00:56:56,516 --> 00:56:58,184
of commodity prices

1532
00:56:58,385 --> 00:56:59,486
or other financial

1533
00:56:59,486 --> 00:57:00,553
transactions more direct?

1534
00:57:00,854 --> 00:57:03,223
Not through China itself...

1535
00:57:03,656 --> 00:57:08,328
(indistinct chatter)

1536
00:57:10,563 --> 00:57:11,965
I'm Dan David.

1537
00:57:11,965 --> 00:57:13,333
I believe Tom gave you

1538
00:57:13,666 --> 00:57:14,701
- Oh, yes.
- Yeah.

1539
00:57:14,968 --> 00:57:15,735
I'll believe you'll find that--

1540
00:57:15,902 --> 00:57:16,736
"The China Hustle."

1541
00:57:16,870 --> 00:57:18,638
That's right. That's right.

1542
00:57:19,172 --> 00:57:20,540
- If you, uh, read that
- and you're interested,

1543
00:57:20,707 --> 00:57:22,375
- I'd love to talk
- to you about it.

1544
00:57:22,542 --> 00:57:24,911
- Okay.
- So, couple of hundred billion
In fraud, and it continues.

1545
00:57:25,812 --> 00:57:27,514
- It's not over.
- It goes on every day.

1546
00:57:27,814 --> 00:57:29,150
- Great.
- Yeah, any one of them.

1547
00:57:32,552 --> 00:57:34,354
Dan: Very cursory and...

1548
00:57:34,688 --> 00:57:36,489
- Okay.
- ...dismissive and generic.

1549
00:57:37,570 --> 00:57:38,224
- Anecdotal.
- The only thing I heard

1550
00:57:38,425 --> 00:57:39,426
At the end

1551
00:57:39,426 --> 00:57:40,427
was Shelby saying, uh,

1552
00:57:40,727 --> 00:57:42,195
- you know, we got
- to face reality.

1553
00:57:43,290 --> 00:57:44,497
- That was it.
- Okay, the reality is,

1554
00:57:44,664 --> 00:57:46,366
- They're gonna do nothing
- about it.
- Right.

1555
00:57:47,267 --> 00:57:48,601
The biggest, eh, you know,

1556
00:57:48,601 --> 00:57:49,903
you can guarantee losing

1557
00:57:50,403 --> 00:57:51,871
- by not doing anything.
- Dan: That's right.

1558
00:57:52,372 --> 00:57:53,373
(door closes with a thud)

1559
00:57:57,344 --> 00:57:58,912
- Man: Uh, why did you come down
- to Washington?

1560
00:58:00,800 --> 00:58:01,247
Dan: I was hoping

1561
00:58:01,247 --> 00:58:02,415
to move the ball forward,

1562
00:58:03,830 --> 00:58:04,551
- advocating
- for investors' rights,

1563
00:58:04,851 --> 00:58:06,353
To... show up and see

1564
00:58:06,353 --> 00:58:07,887
what's actually done

1565
00:58:08,188 --> 00:58:09,189
at a committee hearing.

1566
00:58:10,357 --> 00:58:11,725
- Man:
- What happened at the hearing?

1567
00:58:12,525 --> 00:58:13,526
Not much.

1568
00:58:17,970 --> 00:58:19,650
(siren wailing)

1569
00:58:19,366 --> 00:58:20,500
Jon: I think

1570
00:58:20,500 --> 00:58:21,634
that what Dan's doing to try

1571
00:58:21,868 --> 00:58:23,970
to get Congress to take action,

1572
00:58:23,970 --> 00:58:26,720
is a good thing.

1573
00:58:27,640 --> 00:58:28,875
Do I think that's the way

1574
00:58:28,875 --> 00:58:30,760
to solve the problem? No.

1575
00:58:31,770 --> 00:58:32,780
I don't think so.

1576
00:58:34,314 --> 00:58:35,515
The entire staff of

1577
00:58:35,515 --> 00:58:36,716
the SEC hasn't busted,

1578
00:58:37,250 --> 00:58:38,718
- more than one or two
- of these frauds.

1579
00:58:39,586 --> 00:58:41,588
- A handful of short sellers
- have busted,

1580
00:58:41,788 --> 00:58:43,230
Forty or fifty of these frauds.

1581
00:58:54,100 --> 00:58:55,301
Dan: Coach, you need one?

1582
00:58:55,735 --> 00:58:57,637
- Yeah, I guess so.
- Is he still living out
In France?

1583
00:58:58,471 --> 00:59:00,140
- Dan: Excuse me, ladies,
- can I get you anything?

1584
00:59:00,573 --> 00:59:01,608
Soda, water, beer?

1585
00:59:02,976 --> 00:59:04,577
Pop, can you get Sean a beer?

1586
00:59:05,578 --> 00:59:07,480
- No, he can help himself.
- (all laugh)

1587
00:59:07,781 --> 00:59:08,782
He's a big guy.

1588
00:59:08,948 --> 00:59:10,183
- (all laugh)

1589
00:59:10,183 --> 00:59:11,418
- Uh-huh.

1590
00:59:11,785 --> 00:59:13,253
- Dan: Geo Investing.
- Man: G-O?

1591
00:59:13,687 --> 00:59:14,688
Dan: G-E-O.

1592
00:59:15,210 --> 00:59:16,489
(indistinct chatter)

1593
00:59:16,656 --> 00:59:18,191
- Dan: I'll bet against them.
- (all laugh)

1594
00:59:18,491 --> 00:59:20,360
- And I'll write a report,
- and I'll publish it.

1595
00:59:21,127 --> 00:59:22,395
And I'll say they're a fraud

1596
00:59:22,395 --> 00:59:23,663
and I'm short.

1597
00:59:24,831 --> 00:59:26,166
But when they do go to zero,

1598
00:59:26,866 --> 00:59:29,602
I win, but you all lose.

1599
00:59:30,370 --> 00:59:31,371
We're losing our ***.

1600
00:59:32,272 --> 00:59:33,773
- Started out good.
- We didn't get any...

1601
00:59:33,873 --> 00:59:36,420
- Dan: This is the skim that comes
- out of everybody's account.

1602
00:59:36,876 --> 00:59:38,440
It's pennies from everyone...

1603
00:59:39,479 --> 00:59:40,547
that adds up

1604
00:59:40,547 --> 00:59:41,648
to hundreds of billions.

1605
00:59:42,515 --> 00:59:43,717
So you're campaigning

1606
00:59:43,717 --> 00:59:44,951
to get something to happen.

1607
00:59:46,319 --> 00:59:47,954
- Dan: So that I won't
- make money anymore.

1608
00:59:48,988 --> 00:59:50,190
- You're a good man, Danny.
- Yeah.

1609
00:59:50,357 --> 00:59:51,524
- I always thought
- you were like that.

1610
00:59:51,691 --> 00:59:53,159
- No, you didn't.
- (all laugh)

1611
00:59:53,326 --> 00:59:54,561
And I'm not. I'm not. I'm not.

1612
00:59:54,561 --> 00:59:55,829
It just...

1613
00:59:56,696 --> 00:59:58,198
- just doesn't sit well,
- that's all.

1614
00:59:59,466 --> 01:00:01,634
- Explain to me again,
- why you make money and we don't.

1615
01:00:02,202 --> 01:00:03,803
- You bet against them.
- That's short them.

1616
01:00:04,904 --> 01:00:05,905
Okay.

1617
01:00:07,640 --> 01:00:09,409
Graduating with a 1.6...

1618
01:00:09,642 --> 01:00:12,178
(laughter)

1619
01:00:12,345 --> 01:00:13,813
(all speaking at once)

1620
01:00:14,140 --> 01:00:15,648
- I'm kidding. I'm kidding.
- Dan: There's two things there.

1621
01:00:15,815 --> 01:00:17,684
- Dan: One, I had no idea
- I actually graduated.

1622
01:00:17,917 --> 01:00:20,186
(laughing)

1623
01:00:22,322 --> 01:00:23,323
Carol read something

1624
01:00:24,391 --> 01:00:25,725
about something going on

1625
01:00:25,725 --> 01:00:27,600
in China right now,

1626
01:00:27,260 --> 01:00:29,195
where they've discovered

1627
01:00:29,195 --> 01:00:31,970
what they think to be aliens.

1628
01:00:31,731 --> 01:00:33,233
- Wasn't it deep down,
- they found 'em?

1629
01:00:33,400 --> 01:00:35,902
(woman speaking indistinctly)

1630
01:00:36,202 --> 01:00:37,404
- Well, that would be
- a new wrinkle.

1631
01:00:38,338 --> 01:00:39,372
Well, that would make

1632
01:00:39,372 --> 01:00:40,407
what I've been doing

1633
01:00:40,774 --> 01:00:42,800
- Nothin'.
- (laughs)

1634
01:00:42,208 --> 01:00:44,110
- Thousands of years ago.
- Yeah.

1635
01:00:45,450 --> 01:00:46,179
Yup, I think he might not

1636
01:00:46,179 --> 01:00:47,347
come home in one piece.

1637
01:00:48,480 --> 01:00:50,717
(laughter)

1638
01:00:56,289 --> 01:00:57,757
Jim: At the end of the day,

1639
01:00:57,757 --> 01:00:59,225
investors counting on the SEC

1640
01:01:00,126 --> 01:01:02,629
to save them from their own lack

1641
01:01:02,629 --> 01:01:05,980
of due diligence, or greed,

1642
01:01:05,565 --> 01:01:06,900
are kidding themselves.

1643
01:01:07,600 --> 01:01:09,803
- Mitch: We have more opportunity
- in our markets than anywhere
In the world.

1644
01:01:10,270 --> 01:01:11,771
But, at the same time,

1645
01:01:12,405 --> 01:01:14,207
we don't have a regulator

1646
01:01:14,207 --> 01:01:15,975
that looks over our, our filings

1647
01:01:16,109 --> 01:01:18,278
- and says, "I want to protect
- the public from this."

1648
01:01:19,779 --> 01:01:21,581
- Our system... you know,
- we file with the SEC,

1649
01:01:21,781 --> 01:01:23,483
- and the SEC reads
- the disclosure,
And they comment

1650
01:01:23,717 --> 01:01:25,285
on, on the disclosure.

1651
01:01:25,618 --> 01:01:27,870
- They don't determine
- whether it's viable
To be public or not.

1652
01:01:27,287 --> 01:01:28,488
- They don't make
- that determination.

1653
01:01:28,722 --> 01:01:30,490
- They let the free market make
- the determination.

1654
01:01:31,791 --> 01:01:32,859
Warren:

1655
01:01:32,859 --> 01:01:33,927
The SEC should do its job.

1656
01:01:34,427 --> 01:01:35,462
Your job is to look out

1657
01:01:35,462 --> 01:01:36,496
for investors,

1658
01:01:36,730 --> 01:01:37,964
but you've put the interests

1659
01:01:37,964 --> 01:01:39,232
of the Chamber of Commerce

1660
01:01:39,432 --> 01:01:41,234
and their big-business members

1661
01:01:41,668 --> 01:01:42,736
at the top

1662
01:01:42,736 --> 01:01:43,803
of your priority list.

1663
01:01:44,938 --> 01:01:46,239
Narrator: It is the SEC's job

1664
01:01:46,239 --> 01:01:47,574
to protect investors.

1665
01:01:48,174 --> 01:01:50,100
- But it was chartered
- in the 1930s,

1666
01:01:50,810 --> 01:01:51,911
At a time when stock prices

1667
01:01:51,911 --> 01:01:53,130
rolled off of ticker tape

1668
01:01:53,680 --> 01:01:54,948
and the markets closed at four.

1669
01:01:55,949 --> 01:01:57,170
Now, they're outgunned

1670
01:01:57,170 --> 01:01:58,118
and outmanned,

1671
01:01:58,485 --> 01:01:59,853
like Keystone Cops chasing

1672
01:01:59,853 --> 01:02:01,187
the starship "Enterprise."

1673
01:02:02,155 --> 01:02:03,590
Even if the SEC

1674
01:02:03,590 --> 01:02:05,250
gets its entire wish list

1675
01:02:05,325 --> 01:02:06,593
of documents from the company

1676
01:02:06,826 --> 01:02:09,129
- and they have enough evidence
- to pursue a case,

1677
01:02:09,429 --> 01:02:11,640
The Chinese people responsible

1678
01:02:11,640 --> 01:02:12,699
for this, don't really care.

1679
01:02:12,999 --> 01:02:14,367
- Dan: When somebody breaks
- the law here,

1680
01:02:14,634 --> 01:02:16,202
There is a process

1681
01:02:16,202 --> 01:02:17,771
where they're accountable.

1682
01:02:18,171 --> 01:02:20,106
- At some point
- in a China-based company,

1683
01:02:20,473 --> 01:02:21,841
That accountability ends.

1684
01:02:22,642 --> 01:02:24,210
And it ends at the ocean.

1685
01:02:24,511 --> 01:02:25,712
Narrator: This is one of

1686
01:02:25,712 --> 01:02:26,880
the first things

1687
01:02:27,514 --> 01:02:29,150
In China, it's not illegal to

1688
01:02:29,150 --> 01:02:30,517
steal from foreign investors.

1689
01:02:32,686 --> 01:02:34,988
- I couldn't believe
- the SEC would allow companies

1690
01:02:35,288 --> 01:02:36,489
To list on U.S. markets,

1691
01:02:36,489 --> 01:02:37,691
if it really had no way

1692
01:02:37,891 --> 01:02:39,125
to police them.

1693
01:02:39,893 --> 01:02:41,227
So I found an employee

1694
01:02:41,227 --> 01:02:42,562
of the Chinese

1695
01:02:42,996 --> 01:02:45,365
- who was willing to take a risk
- to confirm the truth.

1696
01:02:47,801 --> 01:02:49,302
(in Mandarin)

1697
01:03:25,572 --> 01:03:26,606
Bottom line is,

1698
01:03:27,400 --> 01:03:28,842
- the Chinese government
- and the U.S. government,

1699
01:03:29,175 --> 01:03:30,443
On most levels,

1700
01:03:30,443 --> 01:03:31,711
don't work that well together.

1701
01:03:32,780 --> 01:03:33,680
(sirens wailing)

1702
01:03:33,947 --> 01:03:35,749
Dan: You can't compel somebody

1703
01:03:36,449 --> 01:03:37,584
that has stolen millions

1704
01:03:37,584 --> 01:03:38,718
and millions of dollars

1705
01:03:39,386 --> 01:03:40,754
from U.S. investors

1706
01:03:40,754 --> 01:03:42,880
to come here from China.

1707
01:03:43,523 --> 01:03:45,225
- You can't compel them
- to testify.

1708
01:03:46,926 --> 01:03:48,395
You can't even find them.

1709
01:03:49,462 --> 01:03:50,897
- Dan: Forget about
- the average person

1710
01:03:51,640 --> 01:03:53,366
- who thinks that their broker
- or the SEC will protect them.

1711
01:03:54,300 --> 01:03:55,802
- Even someone
- like Crocker Coulson,

1712
01:03:56,269 --> 01:03:57,470
Who worked inside the system,

1713
01:03:57,470 --> 01:03:58,705
couldn't find out

1714
01:03:58,905 --> 01:04:01,107
- what was really going on
- with these Chinese companies.

1715
01:04:01,608 --> 01:04:02,976
- Crocker: You're in
- an alternate universe.

1716
01:04:03,243 --> 01:04:04,444
There's kind of this arms race

1717
01:04:04,477 --> 01:04:05,979
to do the simplest things.

1718
01:04:06,246 --> 01:04:07,814
- You can't even look
- at the bank statement.

1719
01:04:08,480 --> 01:04:09,282
You can't even go into

1720
01:04:09,282 --> 01:04:10,550
the local bank and ask them.

1721
01:04:10,984 --> 01:04:13,219
- A lot of times,
- the manager of the local bank,

1722
01:04:13,420 --> 01:04:14,621
Will actually reprogram

1723
01:04:14,621 --> 01:04:15,789
the books of the bank

1724
01:04:16,560 --> 01:04:17,257
to make it look like the books

1725
01:04:17,257 --> 01:04:18,458
of his client are better

1726
01:04:20,126 --> 01:04:21,428
Gregory: Anytime you have

1727
01:04:21,428 --> 01:04:22,729
a country like China,

1728
01:04:22,962 --> 01:04:24,640
where information

1729
01:04:24,640 --> 01:04:25,165
is not easily obtained,

1730
01:04:25,432 --> 01:04:27,434
any society like that

1731
01:04:27,434 --> 01:04:29,436
is a much greater risk.

1732
01:04:29,803 --> 01:04:31,400
In the United States,

1733
01:04:31,400 --> 01:04:32,238
we can go directly to a firm

1734
01:04:32,439 --> 01:04:33,440
and we can subpoena

1735
01:04:33,440 --> 01:04:34,441
those records.

1736
01:04:34,607 --> 01:04:36,776
- To get records out of China
- is significantly more difficult,

1737
01:04:37,770 --> 01:04:38,345
If not impossible.

1738
01:04:39,746 --> 01:04:40,947
If you wanted to set out

1739
01:04:40,947 --> 01:04:42,148
to be a criminal,

1740
01:04:42,615 --> 01:04:44,451
- probably the best place
- to be a criminal

1741
01:04:44,617 --> 01:04:46,252
Is someplace with no cops,

1742
01:04:46,252 --> 01:04:47,921
and that was China.

1743
01:04:48,154 --> 01:04:49,756
It was the Wild West.

1744
01:04:50,123 --> 01:04:51,658
(airplane engines whooshing)

1745
01:04:51,925 --> 01:04:55,295
(indistinct chatter)

1746
01:05:17,784 --> 01:05:18,852
(horn honking)

1747
01:05:28,528 --> 01:05:30,300
I am delivered.

1748
01:05:30,300 --> 01:05:31,498
I'm at the airport.

1749
01:05:32,399 --> 01:05:34,000
Just headin' to the hotel.

1750
01:05:45,478 --> 01:05:46,579
Narrator:

1751
01:05:46,579 --> 01:05:47,681
Dan was like Nicolas Cage

1752
01:05:47,881 --> 01:05:49,282
where he's the only one

1753
01:05:49,282 --> 01:05:50,684
who knows that

1754
01:05:51,518 --> 01:05:52,686
He's screaming about it,

1755
01:05:52,686 --> 01:05:53,853
but nobody cares.

1756
01:05:55,922 --> 01:05:57,724
The auditors, the bankers,

1757
01:05:57,724 --> 01:05:59,526
Congress, the SEC...

1758
01:05:59,826 --> 01:06:00,860
(murmuring indistinctly)

1759
01:06:01,161 --> 01:06:02,495
- None of them see
- the financial tsunami

1760
01:06:02,662 --> 01:06:04,531
- that Dan sees
- coming from China.

1761
01:06:06,366 --> 01:06:07,500
So he decides to do

1762
01:06:07,500 --> 01:06:08,601
the one thing he can do,

1763
01:06:09,369 --> 01:06:10,570
take the criminals' money.

1764
01:06:23,850 --> 01:06:24,951
Dan: Their share count

1765
01:06:24,951 --> 01:06:26,520
has ballooned,

1766
01:06:26,619 --> 01:06:28,880
from a whopping 4.9 billion

1767
01:06:28,880 --> 01:06:29,556
shares four years ago

1768
01:06:29,889 --> 01:06:32,559
to 6.5 billion shares today.

1769
01:06:32,926 --> 01:06:34,928
- It appears that the only way
- that they can continue

1770
01:06:35,195 --> 01:06:36,596
- To sustain
- their business operation,

1771
01:06:36,863 --> 01:06:38,264
Is through dilutive financing.

1772
01:06:40,300 --> 01:06:42,435
(camera clicking, whooshing)

1773
01:06:44,237 --> 01:06:45,472
Narrator: Normally,

1774
01:06:45,472 --> 01:06:46,740
Dan publishes

1775
01:06:47,574 --> 01:06:48,675
But this time,

1776
01:06:48,675 --> 01:06:49,776
there's too much at stake,

1777
01:06:50,310 --> 01:06:51,778
a nearly $2 billion company,

1778
01:06:51,778 --> 01:06:53,246
Tech Pro.

1779
01:06:54,280 --> 01:06:55,482
- He believes
- the company's chairman,

1780
01:06:55,648 --> 01:06:57,584
- is misallocating
- shareholder money

1781
01:06:57,817 --> 01:06:59,152
To lavish on pet projects.

1782
01:06:59,953 --> 01:07:02,322
- If he can convince the markets,
- he'll wipe the company out.

1783
01:07:02,922 --> 01:07:04,657
- It'll be his
- biggest short ever.

1784
01:07:05,759 --> 01:07:07,494
- Dan: Now, I don't know
- what that tells anybody else,

1785
01:07:07,794 --> 01:07:09,496
- But, there's something going
- on here.

1786
01:07:10,630 --> 01:07:12,650
Our due diligence,

1787
01:07:12,650 --> 01:07:13,466
is a lot of black smoke,

1788
01:07:14,000 --> 01:07:15,268
lot of black smoke

1789
01:07:15,268 --> 01:07:16,503
coming out of this company.

1790
01:07:16,936 --> 01:07:17,937
That's a fire.

1791
01:07:20,306 --> 01:07:21,474
That needs to be looked into.

1792
01:07:30,650 --> 01:07:33,787
(indistinct speech over radio)

1793
01:07:34,120 --> 01:07:36,790
(radio stations changing)

1794
01:07:37,757 --> 01:07:41,528
(overlapping speech)

1795
01:07:42,328 --> 01:07:45,965
(alternative rock music playing)

1796
01:07:55,442 --> 01:07:57,444
♪ To change the world ♪

1797
01:07:57,944 --> 01:07:59,846
♪ I want to ♪

1798
01:08:00,146 --> 01:08:01,648
- Joining us on the floor
- of the exchange right now,

1799
01:08:01,948 --> 01:08:03,316
Dan David. He's co-founder

1800
01:08:03,516 --> 01:08:04,751
of due-diligence firm,

1801
01:08:04,751 --> 01:08:05,985
Geolnvesting.

1802
01:08:06,286 --> 01:08:08,121
- And I see here,
- you also specialize in China?

1803
01:08:08,688 --> 01:08:10,690
- We do.
- My Sohn presentation in June

1804
01:08:10,890 --> 01:08:12,292
On Tech Pro,

1805
01:08:12,292 --> 01:08:13,693
Tech Pro's down 91 percent.

1806
01:08:14,270 --> 01:08:15,829
- Woman Host: Is it vindication
- for you when you see a stock

1807
01:08:15,962 --> 01:08:17,797
- Like that plummet?
- Well, it was inevitable.

1808
01:08:18,640 --> 01:08:20,330
- I... The stock was always going
- to plummet.

1809
01:08:20,867 --> 01:08:22,202
Are you bullish

1810
01:08:22,202 --> 01:08:23,503
on China at all or is it just...

1811
01:08:23,903 --> 01:08:27,240
(cello playing)

1812
01:08:27,841 --> 01:08:29,409
Dan: What is capitalism?

1813
01:08:32,412 --> 01:08:34,581
Is it an economic system?

1814
01:08:35,810 --> 01:08:36,683
Or is it an apparatus

1815
01:08:36,683 --> 01:08:38,251
that we can use

1816
01:08:38,485 --> 01:08:40,186
to make more money

1817
01:08:40,186 --> 01:08:41,888
for ourselves and take

1818
01:08:45,580 --> 01:08:47,930
At its heart,

1819
01:08:47,930 --> 01:08:49,950
it rewards those who work hard,

1820
01:08:49,929 --> 01:08:51,297
but it also rewards those

1821
01:08:51,297 --> 01:08:52,665
who are willing

1822
01:08:52,932 --> 01:08:54,701
to take advantage of others.

1823
01:09:08,882 --> 01:09:10,550
- Narrator: When we describe
- a fraud like this one,

1824
01:09:11,384 --> 01:09:13,253
- we use terms like
- "white-collar crime"

1825
01:09:13,520 --> 01:09:14,587
To distinguish it.

1826
01:09:17,791 --> 01:09:19,759
But really, it's just theft,

1827
01:09:20,794 --> 01:09:23,630
- in its way, as violent
- as being mugged in the street.

1828
01:09:26,299 --> 01:09:27,567
It can be traumatic to chart

1829
01:09:27,567 --> 01:09:28,802
the trail of personal loss.

1830
01:09:31,137 --> 01:09:32,305
How much was stolen

1831
01:09:32,305 --> 01:09:33,440
from each pension fund,

1832
01:09:34,407 --> 01:09:35,408
each retirement fund,

1833
01:09:36,576 --> 01:09:37,610
each of us.

1834
01:09:40,113 --> 01:09:41,648
Soren: The real story

1835
01:09:41,648 --> 01:09:43,149
is the aggregate value.

1836
01:09:44,500 --> 01:09:45,885
It's the investors who,

1837
01:09:45,885 --> 01:09:47,721
by the end,

1838
01:09:47,987 --> 01:09:49,322
These were mostly

1839
01:09:49,322 --> 01:09:50,623
just people playing

1840
01:09:51,257 --> 01:09:53,226
- who looked at the financials
- and believed them.

1841
01:09:54,427 --> 01:09:56,429
- Alexandra: That money is money
- that belonged

1842
01:09:56,663 --> 01:09:57,997
To individual

1843
01:09:57,997 --> 01:09:59,332
mom-and-pop investors

1844
01:09:59,632 --> 01:10:01,568
who thought, "Hey, I want to be

1845
01:10:01,568 --> 01:10:03,503
a part of

1846
01:10:04,404 --> 01:10:05,405
And they were also shares

1847
01:10:05,405 --> 01:10:06,406
that belonged

1848
01:10:06,639 --> 01:10:08,174
to mutual funds, like Vanguard,

1849
01:10:08,975 --> 01:10:10,510
that manage money for,

1850
01:10:10,510 --> 01:10:12,780
for example, The New York Times,

1851
01:10:12,512 --> 01:10:13,947
- right?
- The employees.

1852
01:10:14,514 --> 01:10:15,949
My pension fund money.

1853
01:10:16,950 --> 01:10:18,818
Roddy: We sold ourselves

1854
01:10:18,818 --> 01:10:20,687
on a myth of China

1855
01:10:20,920 --> 01:10:23,356
as a really compelling market.

1856
01:10:23,757 --> 01:10:24,991
A nation that wanted

1857
01:10:24,991 --> 01:10:26,192
the leveling effects

1858
01:10:26,359 --> 01:10:27,594
of free trade.

1859
01:10:29,696 --> 01:10:30,830
- Matt: You should
- have known better.

1860
01:10:31,131 --> 01:10:32,365
Man: Well, what I would pay,

1861
01:10:32,665 --> 01:10:33,967
if I have my money in Fidelity,

1862
01:10:34,134 --> 01:10:35,368
- isn't that...
- why do I pay these guys?

1863
01:10:35,668 --> 01:10:36,870
I don't know. I don't pay 'em.

1864
01:10:36,936 --> 01:10:38,171
- I don't give 'em any
- of my money.

1865
01:10:40,940 --> 01:10:41,941
It's like a game

1866
01:10:41,941 --> 01:10:42,942
of musical chairs,

1867
01:10:43,309 --> 01:10:44,544
when the music stops,

1868
01:10:44,778 --> 01:10:46,513
- if you're left holding
- the paper,

1869
01:10:46,946 --> 01:10:48,348
- If you're left holding
- the shares,

1870
01:10:48,948 --> 01:10:49,949
You are the victim.

1871
01:10:50,350 --> 01:10:55,822
(sirens wailing)

1872
01:10:56,823 --> 01:10:58,692
Okay, um, my name is David Yee,

1873
01:10:59,359 --> 01:11:00,660
and I live in Atlanta, Georgia.

1874
01:11:01,528 --> 01:11:03,290
My name is Ray Snader.

1875
01:11:03,463 --> 01:11:04,564
I'm a print and broadcast

1876
01:11:04,564 --> 01:11:05,665
journalist

1877
01:11:06,320 --> 01:11:08,100
in Newport, Tennessee.

1878
01:11:08,368 --> 01:11:10,203
Tom Snodgrass

1879
01:11:10,203 --> 01:11:12,500
from, uh, Spring, Texas.

1880
01:11:13,390 --> 01:11:15,241
- David: What attracted me
- to U.S.-listed Chinese stocks,

1881
01:11:15,542 --> 01:11:16,676
Were the high returns.

1882
01:11:16,976 --> 01:11:18,578
- There was a lot of hype
- about them and

1883
01:11:18,878 --> 01:11:19,879
A lot of attention.

1884
01:11:20,547 --> 01:11:22,482
I was hoping to have

1885
01:11:22,482 --> 01:11:24,417
a nice retirement egg

1886
01:11:24,651 --> 01:11:25,985
for my wife and myself.

1887
01:11:27,153 --> 01:11:28,755
I do not have

1888
01:11:28,755 --> 01:11:30,390
a retirement plan at my job.

1889
01:11:31,157 --> 01:11:32,559
My wife doesn't have

1890
01:11:32,559 --> 01:11:33,993
a retirement plan at her job.

1891
01:11:35,610 --> 01:11:36,830
Roth Capital, issued

1892
01:11:36,830 --> 01:11:38,598
a buy recommendation.

1893
01:11:39,366 --> 01:11:40,667
The first company that really

1894
01:11:40,667 --> 01:11:41,935
kind of caught my eye,

1895
01:11:42,202 --> 01:11:43,770
- was AgFeed.
- Allegedly they were

1896
01:11:44,300 --> 01:11:45,438
The largest

1897
01:11:45,438 --> 01:11:46,906
feed producer in China.

1898
01:11:47,874 --> 01:11:49,542
My last shares,

1899
01:11:49,542 --> 01:11:51,211
that I purchased,

1900
01:11:51,411 --> 01:11:52,946
were $9 a share.

1901
01:11:57,170 --> 01:11:58,885
We recouped... 12 cents

1902
01:11:58,885 --> 01:12:00,754
on the share.

1903
01:12:01,588 --> 01:12:03,757
And, we had a total

1904
01:12:03,757 --> 01:12:05,892
of about 26,000 shares.

1905
01:12:07,894 --> 01:12:09,290
Man: What kind of loss did

1906
01:12:09,290 --> 01:12:10,130
that represent for you,

1907
01:12:11,431 --> 01:12:12,732
It represented,

1908
01:12:13,233 --> 01:12:14,901
about a $150,000.

1909
01:12:16,770 --> 01:12:18,705
I think I lost well,

1910
01:12:18,705 --> 01:12:20,640
well in excess of a $100,000.

1911
01:12:20,974 --> 01:12:23,209
- My investment in these
- U.S. listed Chinese companies,

1912
01:12:23,376 --> 01:12:24,711
Represented at least 50 percent

1913
01:12:24,711 --> 01:12:26,790
of my assets.

1914
01:12:26,713 --> 01:12:28,248
The prices tanked,

1915
01:12:28,415 --> 01:12:30,583
and they were eventually, um,

1916
01:12:30,583 --> 01:12:32,752
delisted and not tradable.

1917
01:12:33,887 --> 01:12:35,288
- Man: Worth zero.

1918
01:12:35,288 --> 01:12:36,656
- Worth $0 per share.

1919
01:12:36,790 --> 01:12:40,226
We put our faith in the market,

1920
01:12:40,727 --> 01:12:41,828
in our government

1921
01:12:41,828 --> 01:12:42,929
to police that market.

1922
01:12:43,163 --> 01:12:45,198
And I think, uh, we got burned

1923
01:12:45,198 --> 01:12:47,233
on literally every turn,

1924
01:12:47,734 --> 01:12:49,936
in that particular transaction.

1925
01:12:51,971 --> 01:12:53,673
Ray: Roth Capital issued

1926
01:12:53,673 --> 01:12:55,342
a buy recommendation.

1927
01:12:57,577 --> 01:12:59,346
I'm not sure that they visited

1928
01:12:59,346 --> 01:13:01,114
the plant at all in China.

1929
01:13:01,448 --> 01:13:03,283
In fact, today,

1930
01:13:04,484 --> 01:13:06,653
I'm not sure that there was

1931
01:13:06,653 --> 01:13:08,788
a China Electric Motor company.

1932
01:13:12,250 --> 01:13:13,493
- How old are you, Ray?

1933
01:13:13,493 --> 01:13:14,961
- I'm 68 years old.

1934
01:13:17,497 --> 01:13:20,266
(cello playing)

1935
01:13:20,600 --> 01:13:21,868
- Narrator: So where
- did the money go?

1936
01:13:25,380 --> 01:13:26,339
To the bankers and lawyers,

1937
01:13:26,606 --> 01:13:27,974
who helped set up the deals.

1938
01:13:29,442 --> 01:13:30,643
And to the Chinese executives

1939
01:13:30,643 --> 01:13:31,845
who made millions

1940
01:13:32,450 --> 01:13:33,380
- while their
- companies collapsed.

1941
01:13:35,215 --> 01:13:36,349
I don't know what's worse,

1942
01:13:36,983 --> 01:13:39,520
- that the executives were beyond
- the reach of the law,

1943
01:13:39,853 --> 01:13:41,988
- or that the enablers
- on Wall Street were operating

1944
01:13:42,188 --> 01:13:43,456
Inside the law,

1945
01:13:43,456 --> 01:13:44,691
just doing their jobs.

1946
01:13:46,192 --> 01:13:47,394
One way or another, almost all

1947
01:13:47,394 --> 01:13:48,628
of them got away with it,

1948
01:13:48,962 --> 01:13:49,963
scot-free.

1949
01:13:50,630 --> 01:13:51,898
One exception,

1950
01:13:51,898 --> 01:13:53,199
was Rodman & Renshaw.

1951
01:13:53,533 --> 01:13:54,968
- Do you have just a moment,
- General?

1952
01:13:55,301 --> 01:13:56,469
No.

1953
01:13:56,803 --> 01:13:58,338
- During the heyday
- of the reverse-merger boom,

1954
01:13:58,872 --> 01:13:59,873
They doled out

1955
01:13:59,873 --> 01:14:00,874
almost $18 million

1956
01:14:01,740 --> 01:14:02,375
in bonuses to their executives.

1957
01:14:02,909 --> 01:14:04,477
- But their problems
- caught up with them.

1958
01:14:05,378 --> 01:14:06,379
In 2012,

1959
01:14:06,846 --> 01:14:08,982
they paid a $315,000 fine

1960
01:14:09,482 --> 01:14:11,217
- and surrendered
- their brokers license.

1961
01:14:12,850 --> 01:14:14,200
- Soon after,
- they filed for bankruptcy.

1962
01:14:15,722 --> 01:14:16,990
- Wesley: So I want
- to make sure you understand.

1963
01:14:17,257 --> 01:14:18,391
My investment bank

1964
01:14:18,391 --> 01:14:19,492
is called Enverra.

1965
01:14:19,826 --> 01:14:21,261
- Man: Right.
- It's not Rodman & Renshaw.

1966
01:14:21,494 --> 01:14:23,960
- Right.
- I was the chairman
Of Rodman & Renshaw,

1967
01:14:23,263 --> 01:14:24,564
I was not a banker

1968
01:14:24,564 --> 01:14:25,865
at Rodman & Renshaw.

1969
01:14:26,990 --> 01:14:27,567
I didn't have anything to do

1970
01:14:27,567 --> 01:14:29,350
with the financial transactions

1971
01:14:29,769 --> 01:14:31,171
That wasn't me.

1972
01:14:31,538 --> 01:14:33,707
- I'm the guy that told them,
- "You got a problem with it."

1973
01:14:34,207 --> 01:14:35,542
And I left the company, uh,

1974
01:14:35,542 --> 01:14:36,876
a year or so,

1975
01:14:37,110 --> 01:14:38,745
- 18 months after that,
- from the board.

1976
01:14:39,450 --> 01:14:40,680
My question is,

1977
01:14:40,680 --> 01:14:42,282
who did he tell?

1978
01:14:43,490 --> 01:14:44,500
How about, "And then

1979
01:14:44,840 --> 01:14:45,850
I went down to Washington

1980
01:14:45,452 --> 01:14:47,387
- and saw all the people
- that I know while I was running

1981
01:14:47,587 --> 01:14:48,588
For president...

1982
01:14:49,189 --> 01:14:50,957
- and told them
- what was going on"?

1983
01:14:51,910 --> 01:14:52,625
- I don't think I want
- to be in the film.

1984
01:14:52,759 --> 01:14:54,627
I think it's just...

1985
01:14:54,627 --> 01:14:56,529
it, it invites attacks on me.

1986
01:14:56,796 --> 01:14:58,965
- And I don't need that.
- I'm trying to build a business.

1987
01:14:59,232 --> 01:15:00,467
I don't want to be attacked.

1988
01:15:00,467 --> 01:15:01,735
I didn't do anything wrong.

1989
01:15:01,901 --> 01:15:03,403
- You're chairman of the board.
- What role was it?

1990
01:15:03,603 --> 01:15:04,938
- A non-executive chairman
- of the board?

1991
01:15:05,238 --> 01:15:06,606
- Was he the person
- who ran the business,

1992
01:15:06,773 --> 01:15:08,408
- Or was he really there
- as a figurehead,

1993
01:15:08,775 --> 01:15:10,477
- To lend his name
- to the credibility

1994
01:15:10,710 --> 01:15:11,711
Of this situation?

1995
01:15:12,780 --> 01:15:13,146
I mean, that's the classic.

1996
01:15:13,947 --> 01:15:15,248
It's like Monica Lewinsky.

1997
01:15:15,448 --> 01:15:17,250
- Forget about Monica Lewinsky.
- It doesn't matter

1998
01:15:17,417 --> 01:15:18,485
What you say about it.

1999
01:15:18,485 --> 01:15:19,586
It's a bad story.

2000
01:15:20,320 --> 01:15:22,155
- So let's, let's
- just cancel this session, okay?

2001
01:15:22,322 --> 01:15:24,570
- I'm sorry I wasted your time.
- Matt: Do I,

2002
01:15:24,257 --> 01:15:25,892
- Do I send
- shame on people?

2003
01:15:26,826 --> 01:15:28,940
Do I say, "Shame on you

2004
01:15:28,395 --> 01:15:29,929
- for not asking
- the right questions?

2005
01:15:30,230 --> 01:15:31,331
Shame on the auditors

2006
01:15:31,331 --> 01:15:32,465
for allowing this shit

2007
01:15:32,766 --> 01:15:34,300
- Shame on the regulators
- for not making

2008
01:15:34,501 --> 01:15:36,736
- The, the requirements
- more stringent and difficult"?

2009
01:15:37,303 --> 01:15:39,239
- So, you don't think
- we have a problem here?

2010
01:15:39,472 --> 01:15:40,507
You want to blame this

2011
01:15:40,507 --> 01:15:41,574
on any one or two people?

2012
01:15:41,908 --> 01:15:42,809
- (stammers)
- Ridiculous.

2013
01:15:43,677 --> 01:15:44,911
It's ridiculous.

2014
01:15:44,911 --> 01:15:46,146
The whole thing is b...

2015
01:15:47,480 --> 01:15:48,748
It's broken.

2016
01:15:49,182 --> 01:15:51,184
- Wesley: Let's get out of this.
- This is a mistake for me.

2017
01:15:51,484 --> 01:15:53,119
- It's a mistake for the people
- that depend on me.

2018
01:15:53,319 --> 01:15:54,320
I've got a firm.

2019
01:15:54,587 --> 01:15:56,220
- I've got people
- that work for me.

2020
01:15:56,523 --> 01:15:58,158
I owe them my best opportunity

2021
01:15:58,158 --> 01:15:59,759
to give them a living.

2022
01:16:00,260 --> 01:16:01,294
And, this doesn't help.

2023
01:16:01,294 --> 01:16:02,328
This hurts.

2024
01:16:02,829 --> 01:16:04,130
So I want out of this.

2025
01:16:05,632 --> 01:16:06,633
Man: Well, I'm not...

2026
01:16:07,267 --> 01:16:09,200
- This is not an attack piece
- on you, sir.

2027
01:16:09,169 --> 01:16:10,537
Wesley: It doesn't help...

2028
01:16:10,770 --> 01:16:12,472
- Man: That's not,
- that's not my intention,
Nor is that...

2029
01:16:12,639 --> 01:16:13,773
Wesley: Uh, I thought

2030
01:16:13,773 --> 01:16:14,874
I could do this

2031
01:16:15,410 --> 01:16:16,876
but I realize I can't.

2032
01:16:17,777 --> 01:16:18,645
- You know?
- I...

2033
01:16:22,349 --> 01:16:24,384
Roddy: China is fundamentally

2034
01:16:25,218 --> 01:16:26,619
a broken

2035
01:16:26,619 --> 01:16:28,210
or ****ed-up societal system.

2036
01:16:28,288 --> 01:16:29,689
The people who get to the top,

2037
01:16:30,223 --> 01:16:31,658
get to the top

2038
01:16:31,658 --> 01:16:33,590
by breaking rules.

2039
01:16:33,793 --> 01:16:34,828
Good people who want

2040
01:16:34,828 --> 01:16:35,862
to play by the rules,

2041
01:16:36,396 --> 01:16:38,398
- get stepped on and pushed
- to the bottom of the pile.

2042
01:16:38,698 --> 01:16:40,734
- This, in some ways,
- has nothing to do with China.

2043
01:16:40,900 --> 01:16:42,369
- If you gave American
- management teams

2044
01:16:42,535 --> 01:16:43,636
That incentive structure,

2045
01:16:44,170 --> 01:16:46,172
- oh, my God, we'd have
- the same amount of fraud here.

2046
01:16:47,173 --> 01:16:49,420
- It was just a no-brainer
- for them.

2047
01:16:49,409 --> 01:16:51,745
Bulls versus bears, constantly.

2048
01:16:52,712 --> 01:16:54,481
And now that I'm deemed a bear,

2049
01:16:55,582 --> 01:16:56,816
I don't know if I'm ever

2050
01:16:56,816 --> 01:16:58,510
gonna be able to go back

2051
01:17:03,423 --> 01:17:05,191
- But, no regrets working
- for them.

2052
01:17:06,393 --> 01:17:07,427
My clients made money.

2053
01:17:07,427 --> 01:17:08,495
(inhales)

2054
01:17:11,564 --> 01:17:13,233
Ping:

2055
01:17:26,460 --> 01:17:27,614
- We've never seen
- a credit buildup

2056
01:17:27,914 --> 01:17:29,749
- To the likes of what
- China is doing today,

2057
01:17:30,500 --> 01:17:31,985
That hasn't been followed by a,

2058
01:17:31,985 --> 01:17:33,920
a major, major financial crisis.

2059
01:17:34,454 --> 01:17:35,755
So, stay tuned.

2060
01:17:37,570 --> 01:17:38,124
We, we have, by far,

2061
01:17:38,124 --> 01:17:39,192
the most vibrant markets

2062
01:17:39,359 --> 01:17:40,460
in the world. By far!

2063
01:17:41,461 --> 01:17:42,896
And so, that freedom,

2064
01:17:42,896 --> 01:17:44,297
leaving those decisions

2065
01:17:44,464 --> 01:17:46,433
to the private sector, you know,

2066
01:17:46,700 --> 01:17:47,867
it, it frees up

2067
01:17:47,867 --> 01:17:49,350
a lot, a lot of capital.

2068
01:17:49,269 --> 01:17:50,804
- This is the largest
- financial crime

2069
01:17:51,710 --> 01:17:52,372
Of the last 25 years, with

2070
01:17:52,372 --> 01:17:53,707
the exception of Bernie Madoff.

2071
01:17:54,207 --> 01:17:55,942
It's still way too easy

2072
01:17:55,942 --> 01:17:57,711
for the bad guys in finance

2073
01:17:58,440 --> 01:17:59,612
- to keep Washington
- off their backs.

2074
01:18:00,747 --> 01:18:02,315
We're cutting regulations.

2075
01:18:02,615 --> 01:18:04,170
I would say 70 percent

2076
01:18:04,170 --> 01:18:05,418
of the regulations can go.

2077
01:18:07,530 --> 01:18:08,288
I think you see a lot

2078
01:18:08,288 --> 01:18:09,556
of the similarities with

2079
01:18:09,789 --> 01:18:11,224
in, in '08

2080
01:18:11,224 --> 01:18:12,659
and the China situation.

2081
01:18:12,992 --> 01:18:14,394
We had our chances,

2082
01:18:14,394 --> 01:18:15,795
post-global financial crisis,

2083
01:18:15,962 --> 01:18:17,731
- in my opinion,
- and we missed it.

2084
01:18:17,931 --> 01:18:20,400
This was sort of the appetizer,

2085
01:18:20,600 --> 01:18:21,935
in, in that these were

2086
01:18:21,935 --> 01:18:23,269
the small, crappy companies

2087
01:18:23,503 --> 01:18:24,504
that, often times,

2088
01:18:24,504 --> 01:18:25,505
were demonstrable frauds.

2089
01:18:25,805 --> 01:18:27,440
We point to $50 billion,

2090
01:18:27,741 --> 01:18:29,309
- and that's like
- an empirical number.

2091
01:18:29,843 --> 01:18:30,877
That's a number

2092
01:18:30,877 --> 01:18:31,911
we can say, "Boom."

2093
01:18:32,345 --> 01:18:33,613
We can point to this

2094
01:18:33,613 --> 01:18:34,848
and this fraud

2095
01:18:35,150 --> 01:18:36,916
and tie it in nicely on a bow.

2096
01:18:37,650 --> 01:18:39,853
What we don't talk about

2097
01:18:40,620 --> 01:18:42,550
is that there's hundreds

2098
01:18:42,550 --> 01:18:43,490
of billions of dollars

2099
01:18:43,823 --> 01:18:45,759
- that we can't even
- begin to touch.

2100
01:18:46,626 --> 01:18:48,428
- And the fraud
- that can be perpetrated...

2101
01:18:49,295 --> 01:18:50,296
Through China

2102
01:18:50,330 --> 01:18:51,331
by other means.

2103
01:18:52,980 --> 01:18:53,333
So it's not $50 billion,

2104
01:18:53,767 --> 01:18:54,768
and it's not

2105
01:18:54,768 --> 01:18:55,769
some investment banks,

2106
01:18:56,269 --> 01:18:57,337
and it's not some people

2107
01:18:57,337 --> 01:18:58,371
in the United States.

2108
01:18:59,372 --> 01:19:00,874
It's everybody.

2109
01:19:00,874 --> 01:19:02,375
It's every bank.

2110
01:19:02,676 --> 01:19:04,277
(sirens wailing,

2111
01:19:04,277 --> 01:19:05,845
(bell ringing)

2112
01:19:10,817 --> 01:19:12,180
Whether they know it or not.

2113
01:19:13,653 --> 01:19:16,222
The Chinese e-commerce giant,

2114
01:19:16,222 --> 01:19:18,792
Alibaba, took Wall Street

2115
01:19:19,159 --> 01:19:21,270
- The company
- had its initial public offering

2116
01:19:21,194 --> 01:19:22,629
On the New York Stock Exchange.

2117
01:19:22,862 --> 01:19:23,997
Woman Reporter 2: The share

2118
01:19:23,997 --> 01:19:25,131
price jumped 38 percent...

2119
01:19:25,398 --> 01:19:26,466
This is a perfect storm.

2120
01:19:28,668 --> 01:19:30,360
This is a perfect storm.

2121
01:19:30,170 --> 01:19:31,404
Yeah, the eBay and Amazon

2122
01:19:31,404 --> 01:19:32,672
and PayPal is pretty easy,

2123
01:19:32,906 --> 01:19:34,874
- but it's a Netflix;
- it's a Groupon...

2124
01:19:35,208 --> 01:19:36,576
I mean, it's a perfect storm.

2125
01:19:36,810 --> 01:19:39,245
- It's the first time
- a major Chinese Internet company

2126
01:19:39,412 --> 01:19:41,181
- Has gone public
- in the United States.

2127
01:19:44,417 --> 01:19:46,553
- Uh, there's an old joke that
- the biggest lie on Wall Street,

2128
01:19:47,320 --> 01:19:49,189
- Is that this time,
- it's different. (chuckles)

2129
01:19:49,389 --> 01:19:51,257
- Woman Reporter 2: Alibaba's
- profit for the second quarter,

2130
01:19:51,424 --> 01:19:53,590
Jumped some 179 percent

2131
01:19:53,590 --> 01:19:54,694
to $2 billion.

2132
01:19:55,950 --> 01:19:56,229
It's a perfect storm.

2133
01:19:57,630 --> 01:19:58,498
That's what this is.

2134
01:19:58,698 --> 01:19:59,866
You don't have the ability,

2135
01:19:59,866 --> 01:20:01,340
to really research it.

2136
01:20:01,267 --> 01:20:02,769
You're buying lottery tickets.

2137
01:20:03,370 --> 01:20:05,338
Alibaba is lottery tickets.

2138
01:20:06,272 --> 01:20:08,575
- Woman Reporter 2:
- Charismatic founder, Jack Ma,
Has the stage presence

2139
01:20:08,708 --> 01:20:10,176
to rival many tech icons.

2140
01:20:10,377 --> 01:20:11,611
Should we jump in

2141
01:20:11,611 --> 01:20:12,846
and buy Alibaba stock?

2142
01:20:13,113 --> 01:20:14,514
Yeah, it's China.

2143
01:20:14,681 --> 01:20:16,449
- Is there something looming
- down the pike

2144
01:20:16,616 --> 01:20:18,385
That's even crappier than this?

2145
01:20:18,385 --> 01:20:20,120
I, I could make that argument.

2146
01:20:20,754 --> 01:20:22,689
- Male Reporter: There's Jack Ma,
- having met with the president.

2147
01:20:23,223 --> 01:20:24,591
Jack and I, are gonna do some

2148
01:20:24,891 --> 01:20:25,892
- great things.
- Small business.

2149
01:20:26,126 --> 01:20:27,394
- Thank you, Jack.
- Thank you, sir.

2150
01:20:29,290 --> 01:20:30,897
The CEO of Alibaba,

2151
01:20:30,930 --> 01:20:32,799
Jack Ma, says,

2152
01:20:33,199 --> 01:20:34,467
In this country,

2153
01:20:34,467 --> 01:20:35,735
when anyone says,

2154
01:20:35,902 --> 01:20:37,904
- "Just trust us,"
- the first thing you do is,

2155
01:20:38,405 --> 01:20:39,539
Hold on to your wallet.

2156
01:20:40,400 --> 01:20:41,541
You don't trust anybody,

2157
01:20:41,908 --> 01:20:43,977
- and you don't trust anything,
- you can't see and research

2158
01:20:44,110 --> 01:20:45,311
For yourself.

2159
01:20:45,912 --> 01:20:47,380
And that goes for Alibaba too.

2160
01:20:51,510 --> 01:20:53,420
- Man: So why do you keep at it?
- **** 'em.

2161
01:20:55,789 --> 01:20:56,790
They're lying.

2162
01:20:57,757 --> 01:21:01,961
(crowd cheering)

2163
01:21:02,328 --> 01:21:03,830
(pop music playing)

2164
01:21:04,831 --> 01:21:06,466
- Performer: Hot masseuse,
- hot masseuse, right there.

2165
01:21:07,000 --> 01:21:09,200
- Here we go.
- Joe, bring your drink down here.

2166
01:21:09,302 --> 01:21:10,437
Come on.

2167
01:21:10,437 --> 01:21:11,571
Wait, we got it.

2168
01:21:12,238 --> 01:21:13,406
I just want to raise a toast

2169
01:21:13,406 --> 01:21:14,574
to all of us, all right?

2170
01:21:14,774 --> 01:21:16,776
I want to raise a toast

2171
01:21:16,776 --> 01:21:18,778
to an awesome 2015,

2172
01:21:19,179 --> 01:21:20,814
- to a great year,
- to being blessed,

2173
01:21:21,114 --> 01:21:22,949
- To everything you want.
- Here it comes, all right?

2174
01:21:23,116 --> 01:21:24,984
- Let's raise 'em up.
- Let's raise 'em up.

2175
01:21:25,118 --> 01:21:26,119
Raise your arms up.

2176
01:21:26,353 --> 01:21:27,687
(crowd cheering)

2177
01:21:28,880 --> 01:21:29,756
(guitar riff)

2178
01:21:29,989 --> 01:21:31,658
(crowd cheering)

2179
01:21:31,825 --> 01:21:33,927
- Give us some house music.
- Let's keep this party going.

2180
01:21:34,260 --> 01:21:38,465
(crowd cheering)

2181
01:21:39,990 --> 01:21:44,471
(drums playing)