All language subtitles for 1 The.China.Hustle.2017.720p.WEB.x264-SKGTV

Richard Nixon: And so let us
start a long march... together.

Not in lockstep

but on different roads

leading to the same goal.

The goal of building
a world structure

of peace and justice,

in which all may stand together
with equal dignity.

Bill Clinton: First of all,

our markets are already open
to China.

This agreement
will open China's market to us.

George W. Bush: I would call
our relationship with China

very positive... and complex.

Barack Obama: The free market
is the greatest force

for economic progress
in human history.

Donald Trump:
I will make a great deal

and lots of great deals
for the American people.

(echoing) Believe me!

(siren wailing)

Dan: What is capitalism?

Is it an economic system?

Or is it an apparatus
that we can use

to make more money
for ourselves

and take more money
from others?

I think, at its heart,

it rewards those who work hard,

but it also rewards
those who...

are willing to...
take advantage of others.

(indistinct chatter)
(sirens and horns blaring)

There are no good guys
in this story...

including me.

(crew murmuring indistinctly)

- Yeah, yeah, that's good.
- Okay...

Man: What's your earliest memory
from childhood?

- That's a trick question.
- Man: Is it?

I... was not expecting it.

I don't know what my earliest
memory from childhood was.

I imagine I was two years old
and I was busting

a fraud somewhere.

(chuckles)

Narrator: This is Dan David.

(train rattling)

The first time I met him,
we had a couple of drinks

at a TGI Fridays
in Penn Station,

and he told me
an almost unbelievable story.

Before the dust had settled

on the economic collapse
of 2008,

Wall Street had already
figured out a new way

to package garbage as gold.

They were engineering
an enormous fraud

that spanned the globe.

But this time,
the lies at the center

of the scam were
100 percent legal.

This time,
the crime was based in China.

(train rattling)

(crow cawing)

Narrator: Dan's part
of the story begins here,

far from Wall Street.

The small investment shop
he ran with his partner Maj

had just been crushed
by the stock market crash.

Three o'clock. What's goin' on?

Dan: People who had hedge funds
in 2008

closed their funds
and started a new fund.

- Chris, you got anything?
- Finishing working on

what I'm working on now.
I'm just gonna...

We decided right away
we weren't gonna do that.

We were gonna make everybody
their money back.

Narrator: They needed big gains,
quickly.

But with the whole
Western world

on the brink
of another depression,

prospects seemed bleak.

(thunder rumbling)

Narrator: It wasn't hopeless
everywhere, though.

The people in the know
steered Dan to China.

It was this exploding market.

Soren: It was the only market
that people actually

were confident
would go up, was China.

Mitch: This is gonna be
the largest economy in the world.

Let's invest in it now.

It blew my mind 'cause
it was so completely different

from what I thought
it would be it was booming.

Crocker: There were certain
cities, you'd go one time,

and you'd go a year later
again, and suddenly there'd be

a whole new shopping district
that didn't exist last time.

Gold rush.

There was almost no company
that you could invest in

in 2009 that was China-based
that you would lose money on.

Roddy: For an American
set of eyes looking at this,

you were just like,
"Well, my gosh,

"China really is
this golden land

of rapid economic growth."

I really thought,
"Well, jeez, you know,

"the American century
is over now.

This is it."

(seagulls screeching,
waves crashing)

Narrator: Everyone wanted
a piece of China.

There was just one problem,

foreigners like Dan
couldn't invest directly

in Chinese markets.

That's where the small
California bank

Roth Capital came in.

(indistinct chatter,
phone ringing)

Narrator: Roth found a niche
that the big banks

had overlooked,
taking small Chinese companies

and listing them directly
on U.S. stock exchanges.

Now Dan and others like him
could participate

in the Chinese
economic miracle,

and the bank's
young salesmen had the chance

to make a killing
with the right pitch.

Hey, Jed,
how are you doing today?

Great, what do you got?

Well, we're working
on this new company.

Would you like to hear
about a transaction?

Two days go by. Five days go by.

Do you have
any interest in this?

This is what we feel
the company's capacity

can go to
after this acquisition.

These are fully registered
securities.

What do you want to do?

If they did have interest,

they would come back to you.

Yes. Yes.

Yeah, I'm interested.

$2 million worth.

Put me in for that.

Okay, great.

And that would be it.

I tried to make myself
be in the flow.

Think of a running river.

21 million bucks?
That's a pretty good fee.

- So let's say this is--
- Man: I'm worried, though.

I'm worried that the numbers
don't hold up from China.

Well, I never got asked that.

(chuckles)
No one ever asked that.

(seagulls screeching)

Roth is a second, third-tier

boutique investment bank
from California.

Someone else had described it
as a frat house.

(chuckles)

Herb: Roth Capital would
get behind small companies

and push them out
into the market.

They definitely
were heating up 2010, 2011.

Dan: Roth was well known
for doing China deals

at a time when we were looking.

We went to a couple
of Roth conferences.

It was a good time.

(static crackling)

Woman: Roth Capital Partners
has been organizing conferences

for years in Orange County, California.

This has got to be
the best conference in America.

Company after company you
may have never heard of before

makes pitches
to people with money.

And their business model
was kind of simplicity itself.

Roddy: They'd have
a three-day extravaganza--

100, 150 companies--
and these CEOs would be saying,

"For these six or seven
or eight or ten reasons,

we think we're gonna grow
revenues 75 percent next year."

Dan: China has gone,
in the last few years,

from interesting to important.

And then it turns
into entertainment time.

(crowd cheering)

Matt: Snoop Dogg, Billy Idol,
dancers,

ice sculptures,
Trojan theme night, buses,

trains, planes--
and then baijiu,

which looks like motor oil
in a can.

You drank and you drank.

You ganbei,
you cheers to somebody,

and then they have
to cheers to somebody else,

and it goes on and on and on.

The Chinese wanted to see

what kind of a person
you were,

and some of them felt like
the more drunk you got,

the more of your natural persona
would come out.

Narrator:
The master of ceremonies

at these conferences
was often the bank's

stage-diving chairman,
Byron Roth.

♪ I wanna rock and roll
All night ♪

Performer: Get him up!

♪ And party every day,
I wanna rock and roll ♪

Roddy: You know, this is a guy
who started out

in the commodities business
when he was 16 years old.

His dad had a feedlot business,

and they'd bid on cows at
auctions and stuff like that.

I mean, this is not
an unsophisticated man.

We just do things that are--
that are different.

And that's kind of
the way we are

as an investment banking firm.

(crowd cheering)

Narrator: For Byron Roth
and Matt and Dan,

it was time to party.

Between 2006 and 2011,
Roth hosted over a dozen

conferences and raised
billions for Chinese companies.

Performer:

(rock music playing)

Performer: Whoo!
(cheers and applause)

(traffic humming)

Narrator:
Roth wasn't the only bank

cashing in on the China boom.

In New York, a small operator

named Rodman & Renshaw
ran investment conferences

with a slightly different feel,

centered
on the political star power

of its chairman,
General Wesley Clark.

Male Announcer: In the Balkans,
he helped negotiate a peace

between bitter enemies

and led a multinational force

that stopped
a campaign of terror.

Wes Clark's life is simply
an American story,

but he will make

an extraordinary American president.

First I want to ask you
to just tell us who you are,

and tell me a bit
about your background.

Yeah, I'm retired general
Wes Clark.

Graduated from West Point
in 1966.

Went to Oxford, went to Vietnam,
came home on a stretcher.

Signed as a NATO
Supreme Allied Commander.

I ran for president
in 2003, 2004.

Went into investment banking.

Narrator: Rodman & Renshaw
had a troubled past.

After years
of management turmoil,

they declared bankruptcy
in the late '90s.

But with a luminary
like General Clark

as their public face,
they'd reemerged

as a respectable-looking bank,

hosting parties
and selling Chinese stock.

They would typically invite
presidents,

ex-presidents, Colin Powell,

Diana Ross, Henry Kissinger.

Roddy: For an hour or two,
having Henry Kissinger

or George Bush
or Wesley Clark speak--

boy, oh, boy,
like you're going into

some inner sanctum of knowledge,
when, you know,

Kissinger's 90 years old,
talking out his ass.

You can see
what's happening there.

They're renting a name
for an hour or two.

Wesley: These people all work
for fees.

That's how they make money.

When luminaries speak at it,

more power to 'em.

Narrator: During the six years
that General Clark was chairman,

Rodman & Renshaw brought
over 40 Chinese companies

to U.S. markets,
with an aggregate value

of over $31 billion.

Narrator: While Rodman and Roth
made fees

for bringing Chinese companies
to the U.S.,

the real paydays came

when the companies listed
on major stock exchanges

Their analysts would
recommend the risky stocks

as great investments,
and then their salesmen--

like Matt, would push them
on their investment network.

(tickers clicking)

Narrator: Once the stocks rose
high enough,

the banks and insiders
could cash out,

leaving others holding
the overvalued shares.

The catch was,
listing a company

on the stock exchange
normally required audits

and public vetting,

but the banks found a way
around all that.

They used a backdoor process
called a reverse merger.

It's dollar denominated.
It trades onshore,

the New York Stock Exchange,
the NASDAQ.

It's normally a shell company

that is a public-traded stock

that has no operations
underneath it.

You need to go to Nevada.

A lot of them were there,

that had started off as
mining companies or whatever,

and they were just sort of
sitting there, waiting,

you know, to find
the right partner

who could merge into them.

So you need the shell company.

Narrator: Here's how
these reverse mergers work.

a Chinese company
looking for a way

into American exchanges
merges with the shell

of a defunct U.S. company
that no longer operates

but still legally exists
and has a listing

on a U.S. stock exchange.

The Chinese company then takes

the shell company's place
in the market.

Presto! You just appear.

You're a stock
that's trading in the U.S.,

and you've got a story to tell.

And no one asks any questions.

(applause)

Narrator: Between 2006 and 2012,

over 400 Chinese companies
listed on U.S. markets.

80 percent of them
were reverse mergers.

Our exchanges
are monitoring them.

Our banks are vetting
these companies.

You don't have
to worry about them

because they're
on the U.S. exchanges.

Dan: Oh, you're in Hong Kong?

Late on the 30th.

Dan: Between 2009 and mid-2010,

the average China-based
reverse merger

was up several hundred percent--
the average!

Could you tell me
what China did last night?

We stuck with
our value-investing approach.

And with that approach
and with our guidelines,

that took us to a lot
of China-based companies.

And we made
several hundred percent

on all of 'em.

Longwei Petroleum,
bought them, $1, $1.50.

We sold, $5, $6,
500 percent profit.

L&L Energy,

bought them for under $2,
sold it between $9 and $10.

Puda Coal, bought them
for around $4,

sold them for around $7,
great company.

China Agriculture, CAGC.

$9, sold them at $28.

All great companies.

We were back.

Narrator: By 2010,

Dan and the guys
at Roth and Rodman

were making a killing
on the China stocks.

It seemed like
it would never end,

and maybe it wouldn't have,
had it not been

for one earnest young
American businessman

who'd gone to Shanghai to seek

a completely different
type of fortune.

Carson: The business I set up

was the first
self-storage business

in mainland China.

It was called
Love Box Self Storage.

World-class.

And we did win an award

for self-storage facility
of the year.

On the way to setting up
that business,

I co-authored "Doing Business
in China For Dummies."

Narrator: Carson's father,
a stockbroker back in the U.S.,

wanted to invest
in Orient Paper,

a company that Roth Capital
had brought to the markets

through a reverse merger.

The company claimed that
it was doing $100 million

in business a year
and shipping tons

of high-quality paper
all over China.

It was one of
the fast-growing companies

that Roth and Rodman had sold

and that investors
like Dan had bought.

Richard: The goal was
to do some research,

make sure that it was legit.

His father would
write up the report.

Again, a fairly easy
to understand

and analyze business

the opposite of
an American software company.

Narrator: Carson and a friend
went to check out the factory,

but right away,
something seemed off.

Carson: It was a country road.
It was in poor shape.

That road could not support
the massive trucks

that would be going in and out
of that facility all day.

Then we got into the factory.

(indistinct chatter)

Roddy: It was a complete dump.

Half the machines were broken,
weren't working.

Garbage rotting
out in the front yard,

no signage.

And this is their main
manufacturing facility.

There's water everywhere,
all right?

This is a company
that's a paper company.

Carson: The company had just
claimed to have clocked in

$100 million U.S. in revenue,

which was up substantially
from the year before.

How was this growing
50 percent a year?

On the balance sheet,
they were showing about...

$5 million in raw materials.

Carson: And so they had
heaps and heaps

of this old corrugated
cardboard out front.

Carson: My friend climbed
one of those heaps

to take a look at the expanse
of rotting cardboard,

and when he came down,
he said,

"If this is worth $5 million,

the world's a much richer place
than I knew."

Carson and his dad looked
at each other at that point

ah, and said, "There's probably
something to do in this stock,

but it has nothing to do
with owning it."

(camera shutter clicking,
flashbulb whining)

Carson: This business
was a complete sham.

This is going to zero.
It's a total fraud.

I've never seen
anything like this.

Narrator: Carson wrote a report
of his findings

and announced that he was
going to back his claims

by making a bet in the market

that the stock would collapse.

It would change
the course of his life,

but more importantly,
it was the first time

anyone had poked a hole
in the Chinese miracle.

I sent it out into the ether

in late June of 2010.

I stayed up for a little bit
to watch it close,

and going into the close,

it just moved down a little bit.

And so as I went to sleep,

I wondered whether that was
a reaction to the report.

Well, the next day
answered the question

down 25 percent.

And it ended up trading down

as much as 55 percent

from where
we had put out the report.

Even though it's China
and it's a fast-growing economy,

pigs do not fly in China,
and I think that...

There's a proverb in Chinese,

"Muddy waters makes it
easy to catch fish."

(speaking Mandarin)

Yeah, so it means water.

Huh.

That saying,
"Muddy waters makes it easy

to catch fish,"
explains so much

about what goes on
in China.

Opacity creates opportunities

for people to make money.

That's China's view,
muddy waters.

I thought that
that was a very apropos name

for the firm and chose it.

The "Muddy Waters Report"

was the first major claim

against a Chinese company,
and it began to resonate

throughout the industry

nowhere more so
than at Roth Capital,

who'd engineered the deal.

Target price,
less than a dollar.

You have pictures
of dirty factories.

You have pictures
of recycled paper on the ground.

You have people climbing...
pictures.

This is a $150-million company.

It's pretty crazy though.

Matt: I had sold
over $22 million of that deal.

Matt: I remember
going into Byron's office,

asking, "What's going on here?"

Narrator: What was "going on"
was that the company

had deployed a classic move
in the reverse-merger playbook:

get a stamp of approval
from a trusted source.

Deloitte and Touche
had come out

with an independent
investigation saying

that the company was
accurately telling

about its financial statements.

In the mortgage crisis,

banks used rating agencies

to disguise
crappy mortgage bonds.

Now Orient Paper was using

an even more
recognizable cover

one of the Big Four
global audit firms.

Every day,
all around the world,

Deloitte professionals are
making an impact that matters...

It turns out that dozens

of Chinese reverse mergers

used the same trick
hiding shady financials

behind audits
from the Big Four.

It was like handing investors
a shiny, thin file

- stamped, "Trust me."

Because when it comes
to living our purpose,

it all starts with integrity.

Carson: Whether it's Deloitte
or PwC,

they expect these brands
to have significant value

wherever they are in the world,
but in actuality,

the way these partnerships
are structured

is that each office
is its own entity.

Roddy: So they were able
to dollarize

renting their name out,
effectively.

All they hoped was that
this company didn't collapse.

(indistinct chatter)

Many of these companies
would say, "Well, look.

We're being audited
by Pricewaterhouse."

No, they're not.

They're being audited
by Pricewaterhouse China,

which is like a franchise.

It's not really
Pricewaterhouse.

(siren wailing,
indistinct chatter)

Jim: In the United States,
whenever we've had

a massive fraud--
that we've been short

people always ask me,
"Well, who were the auditors?"

And I always say,
"Who cares?"

It's important to understand,

and most people
don't know this,

that the financial statements
are prepared by management,

not by the auditors.

(siren wailing)

Jim: Auditor's job is to simply
review management's work.

And if management is trying
to hide something

or has co-opted the auditors,
they will hide it.

If hiding it doesn't work,

they opt for plan B.

hire a good lawyer.

Orient Paper brought in
Mitch Nussbaum of Loeb & Loeb

to respond
to Muddy Waters' allegations.

Mitch had helped bring dozens
of Chinese companies to market,

and he knew how to fight back.

You have short sellers who--
who go ahead

and put a short position
on the company

and then throw all sorts
of allegations against them...

Narrator: Nussbaum's firm
led an investigation.

His unsurprising conclusion

was that Carson's allegations
were false

and that his report
amounted to slander.

How-- do I know what anybody's
telling me is true?

- Host: That's a huge problem.
- It's a huge problem.

Host: All right,

Man: Let's talk about
a case where you did a type

of forensic investigation--

- um hmm.
- Producer: Orient Paper.

I wouldn't be prepared
in these circumstances

to discuss or present any more
or additional information

than what we disclosed publicly,
because that wouldn't be,

you know, appropriate.

Narrator: The Chinese businesses
were a huge profit center

for Loeb & Loeb,

but I imagined
that the company's

often-shoddy paperwork

posed a problem for Nussbaum
and his colleagues.

I wondered how just how much
diligence they had to do

to satisfy regulators.

Forget about the lawyer.
Forget about the banker.

The banker doesn't go
into the books

and records of the company.

The lawyers don't go
into the books

and records of the companies.

We don't go check
to see whether

the shipments were received.

You know, we don't go visit
the customers' homes.

I mean, no law firm does this.

No law firm does this.

This is the part of the story

where I had to do
a double take.

All of the people who
we think of as gatekeepers,

the lawyers,
the bankers, the auditors,

the people making good money

to ensure that
the markets are clean,

weren't doing
anything of the sort.

They simply processed
the necessary paperwork,

took their fees, and moved on.

If the companies were lying,
so what?

The answers
that I was receiving

was insufficient
to thwart my concerns.

And I didn't feel they were
thorough enough

answers to questions.

(thunder crashing)

Matt: And that's when

everything significantly
changed for me.

My eyes were open
to this concept

that there was another side
to this company.

Matt: I knew what my job was.
I knew what I couldn't do

if I was sitting
in that seat still.

So for me, it was... quit,

go take a break,
and see what happens.

I went on safari.

I'm at a Rodman & Renshaw
conference,

and a firm by the name
of Muddy Waters

puts out a report
on Orient Paper,

and it goes down significantly.

And this is the first time
that we're actually hearing

somebody's publishing a report
and calling it fraud.

Dan: We decided that

we were either good
at what we do

or we were lucky,
and if we were lucky,

we were about
to go out of business.

Chris: I'm trying to reach
either the general manager

or the property manager...

Dan: So we hired our own team.

And our own team went to China

to vet some of these companies
that were accused of fraud.

Man: Let's talk about
China Green Agriculture.

China Green Agriculture
came to our attention

originally in 2009.

Dan: And we invested long
into what we thought was

a great fertilizer company.

Their stock was pumping.

Press releases were coming out
about deals they were making

with Nestlé and whoever else.

Narrator: Dan calculated that

in order
to fulfill these contracts,

dozens of trucks
would have to be loading

and unloading goods all day.

So even though
monitoring private companies

is illegal in China,

his team risked
lengthy jail terms

to set up surveillance cameras
outside the factory gates.

We filmed them for 344 days.

Tapes showed us
of very little activity going,

very few employees
coming in and out.

Narrator: Dan figured that
if the company was doing

what it said it was,
it would have

hundreds of employees
and dozens of drivers.

Dan: So what we do is,
we have our investigator

pose as a tea salesman.

So he shows up,
and he's got a suitcase

full of tea samples,
says he's a tea salesman

and he wants to give
free tea samples for everybody.

(in Mandarin)

Dan: So tell me how many
employees you have here

so I can give you
enough samples.

We get that answer.

(in Mandarin)

Man: What did it mean that
they only had one truck driver?

It meant that their volume

was vastly less
than they had claimed.

In the first half of this year,

Ah, Yongye grew both revenues
and net income by about 100 percent.

Narrator: Calling out
China Green Agriculture meant

that Dan was also questioning
the integrity

of some of the guys he'd ridden
the China-stock wave up with.

guys like Crocker Coulson,

a stock promoter
who'd pushed this stock

and dozens like it.

What about, um,
China Green Agriculture?

Crocker: So that's another
fertilizer story that we were...

Again, this kind of goes back
a fair ways for me.

- Yeah.
- I believe that was

an organic fertilizer.

It was also supposed to have...

um...

I really don't remember
a whole lot about that company.

What we came up with is,
they were doing 10 percent

of the business
that they claimed.

And then the fight began.

Dan: Puts out a press release
calling us terrorists,

saboteurs, criminals.

There was a statement from
five Beijing finance professors

who alleged
wealthy and sophisticated

short sellers from overseas

were robbing
small Chinese investors

and ignoring risks
of market instability.

They didn't cite any evidence.

Just to be clear,
we put a lot of effort

into trying
to weed out companies,

you know,
before representing them

and then to flag problems,

serious problems,
if we saw them.

There was no way to know

which were the good actors
and bad actors.

A gate guard
knows what's happening.

(seagulls screeching)

Dan: So we went
to the investment banks.

We took them our evidence.
We said, "Look what we found.

If you hire us and our team
to do diligence,

you'll have a better product

to sell to
the American people."

They said, "Get out of here.

You're telling us to pay you
not to collect 10 percent fees

on every transaction
done through this bank.

The less we know, the better,
and by the way,

if you tell anybody
what you found, we'll sue you.

Go back to Skippack."

So we went back to Skippack.

We published our research.

Narrator: Dan's report laid out
his allegations

against China
Green Agriculture.

Dan: The stock trades
for a dollar today.

You know, it turns out
nobody believes them.

Man: What happened
to the chairman?

Nothing.
I mean, he's kept the money.

And that's what this
is all about, right?

That's $113 million that has
just, poof, vanished

Ah, because they never really
did that kind of volume.

Narrator: Dan realized he'd made
money off of companies' lies,

and it gnawed at him,

because he knew he'd crossed

into what a lot of people see
as the dark side of finance--

short selling.

(jingle playing)

Herb: What is short selling?

Hmm, let me think about this.

I want to-- this is always
a difficult one.

But short-- (chuckles)

What is-- (chuckling)

Well, the first short
economically

was probably some transaction
between, you know,

two Cro-Magnon person,

promising some guy--
some other Cro-Magnon

part of a saber-tooth tiger.

Narrator: This is Jim Chanos.

He's the dean of short sellers.

And he's brought down some of
the biggest frauds in history.

If you want to think
about short selling,

all kinds of commercial
transactions are short selling.

An airline that sells you
an advance-purchase ticket,

for example,
is shorting you a seat.

Short selling is betting
that a stock is gonna go down,

as opposed to go up.

So shorting a stock,

you'll often hear it referred to
as "borrowing shares."

Narrator: This is where
a lot of people get confused.

Here's a simple way
to think of it.

Say I want to short sugar.

I think that sugar
is overvalued

and it's going to cost less
in, say, six months

than it does today.

I see a business opportunity.

I go to my neighbor
and borrow one pound of sugar.

Then I turn right around
and sell that sugar

for the going rate
of $1 a pound.

Manly Voice: Yeah!

Narrator: In about six months,

when I have to give my neighbor
a pound of sugar back,

I go buy it on the open market,
where the price has come down,

and it only costs me 50 cents.

I give my neighbor
a pound of sugar back,

plus a little extra
for interest,

and pocket
the 50-cent difference.

She's got her sugar back,
and I've made money on my bet.

You want everybody else
who's trading in that stock

to believe what you're saying

if you think that
the company is a fraud

or you think that something
about the company is not true.

The person that's most
attracted to short selling

is probably those who've been
dropped on their heads at birth.

They're iconoclasts.

Do I believe that their
motivation was to--

was justice for the world?

No, I think their motivation
was to profit from this.

It's about cleaning
our financial markets.

It's about stopping a fraud.

What I really want to do is,

I want to reach in...

Narrator: Remember this guy,
Dick Fuld?

He ran Lehman Brothers,
the bank whose collapse

set off the financial crisis
in 2008.

He's got an opinion
about short sellers.

Rip out their heart,
and eat it before they die.

(crowd laughing)

Mitch: So there are
a lot of problems here.

There are a lot
of problems here.

When I bet against a company,

it's because I believe

that they're misrepresenting.

And their trend line
doesn't matter to me at all.

I am somebody that will
bet against fraud.

Narrator: As Dan and Carson
began looking

for other Chinese companies
to short,

Matt was just getting back
from his safari.

He'd been out of the loop
and wanted to make sense

of what he'd been a part of.

So he asked his friend Soren,

a finance industry lawyer
from New York,

to meet him for a weekend
in the mountains

and take a look
at some of the documents

he'd saved
from his time at Roth.

In the process,
they would discover a new way

to look at the whole
landscape of fraud.

Matt said,
"Just look at these companies.

Tell me what you think."

L&L Energy was nominally
a coal company.

Very typical of an RTO fraud

in that
its financial performance

was simply too good to be true.

(man speaking Mandarin)

Soren: The notion
that a small reverse merger

from rural China could somehow

efficiently mine and process coal

so much better than the best
coal companies in the world

was just not credible.

Digging into the papers,

they uncovered a new way

to understand
what was really going on

with the hundreds
of Chinese companies

listed on U.S. exchanges.

What we came back with were
what are called SAIC filings.

They're these filings
from the State Office of, uh...

Oh, my gosh, can't believe
I'm blanking on this.

State Office of, uh, Adminis--

State Administrative Office.
Is that right?

Richard: The interesting part
here was that

the filings in China
tended to be very accurate

or more accurate than
the fictions that were filed

with the Securities
and Exchange Commission.

Narrator: In China,
a company might accurately say

they made $10 million,
while in the U.S.,

they could report
making $100 million or more.

These SAIC filings
were dead reliable.

They showed exactly
what was going on.

(crows cawing)

Dan: And this is-- this is
the cultural difference,

we can't find auditors
in China that will help us,

because let me
tell you something,

if we do find those people,

the government of China
will kill 'em.

I mean, they will take
their ass out

and shoot them
in the fucking head.

Soren: This was, from the
beginning, a deception.

The purpose of it
was to deceive,

from day one, and we'd
never really seen that

at this scale
in the United States market.

And that's probably why
it took everyone by surprise.

Narrator: That included Matt,
and his reaction was telling,

maybe it says something
about human nature,

about why we keep getting
into these messes.

He realized that hundreds
of millions of dollars

in Chinese reverse mergers
that he'd sold were frauds,

but he didn't react
with shame, just pragmatism.

He wanted to make sure he got
a piece of the ride down,

so he switched sides

and became a short seller,
like Dan.

I-- I did it
and made 78 percent in...

four days.

Eventually LLEN collapsed.

Narrator: For short sellers
like Dan and Matt,

the filings were the final
piece of the puzzle--

not just evidence
from one company or another

but data from
all the companies.

For the first time,
they could see

the full scope
of the deception.

Carson: I don't know
what the numbers are,

but it's well into
the billions of dollars

that U.S. investors have lost.

$30 billion, I think
the number was $30 billion.

- $20 billion.
- $50 billion.

It's between
$20 billion and $50 billion

of market capitalization
of stock that's listed

here in the United States
that might be worth zero.

Individual mom-and-pop investors

and mutual funds were invested
in these Chinese companies,

so it really does affect

the average person
on the street as well.

Soren: If this one company
is so brazenly fraudulent,

what does that say
about the rest of the market?

Over 300 reverse mergers

with businesses operating
in China.

This whole thing
could be fraudulent.

And that money
could never be recovered,

and if you got caught,
there was no consequences.

When you talk about
the investment banks,

especially the bigger ones,

fraud is baked
into the income statement.

How many investment banks

have had to pay fines this year
for fraud?

Wells Fargo? Check.

Bank of America has in the past.
Check.

Morgan Stanley has in the past.
Check.

Nobody's going to jail.
It's a fine.

So it becomes part--

it becomes part
of what you budget.

You budget for fraud.

(traffic whooshing)

Narrator: Maybe Dan's fixation
on fraud comes from the fact

that Flint, Michigan,
where he grew up,

is the victim
of a kind of fraud.

(train whistle blows)

Big companies made big promises
to the people who lived there,

and in the end,
they couldn't keep them.

Dan saw firsthand how lies
coming from corporate offices

actually affect
real people on the ground.

Where other finance guys
see market machinations,

Dan sees his hometown,

busted, full of ghosts.

Dan: This was a pretty nice area
30 years ago.

Hmm.

Dan: This was a school.

Dan: By today's standards,
it was pretty violent.

I mean, I can't even imagine
10, 11, and 12-year-old kids

swinging bats
at each other today.

No, I was definitely--

I was happy growing up here,
for sure.

Dan: Companies lie.

Companies lie.

Companies have companies'
best interests at heart--

not a community's,
not a people's.

The people need to have
their own interests at heart.

Flint's an awesome town.

It's always been
an awesome town.

Very hardworking community.

Very hardworking community.

All right, look.

I saw myself growing up in Flint

and staying there forever.

And then the jobs were gone.

(thud)

(wind blowing)

Narrator: Dan had investigated
the companies

from the ground up.

Matt had seen
the bird's-eye view

of their SEC filings.

Together they began to realize

how shockingly simple
the whole thing was.

Let's say that you wanted
to construct a fraud.

Matt: What you would do is,
you would have a factory.

You would have a chairman.

And then you would find
someone,

a gatekeeper, for example.

A finder says,
"This is your business.

What could you do
with $100 million?"

Matt: He would help with
connections with auditors,

legal tier-three banks.

Dan: This operator in China
would be like,

"Well, that'd be--
it would be a game changer."

"I'd buy up my competition.
I could do this.

I could do that.
I'd be this big."

Get to the United States.

This guy or this company
in China

would say, "Okay, I'm gonna get you

a $100 million,
but this is what you have to do.

You have to tell people
that you're already this big."

You just had to make sure
that you checked all the boxes

in order to get it to be sold.

Dan: And don't worry,
because if they even find out

that we're lying,
you won't go to jail.

- You're in China."
- All you needed was

the collusion
of a couple players,

and you could defraud
anyone you wanted.

Dan: And if we're lucky enough
to get the money

and they find out you're lying,

you get to keep the money.

So there's really no risk here.
I'll do all the work.

All you have to do
is continue to tell the lie.

(money counter whirs)

You know,
if you're gonna be a CEO

of a public company,
you've got to be educated,

gone to college, got an MBA.

These guys had zero of that.

Zero, a lot of these guys.

They came from second,
third-tier cities in China.

They came from a different way
of doing business...

Like running
their own candy store

type of way doing business.

(chickens clucking)

Dan: A Chinese chicken farmer
does not wake up one day

and understand how to defraud
the U.S. capital markets.

From the creation
of these little companies,

it's all about
stock market fraud.

(applause and bell ringing)

Narrator: Once Dan, Matt,
and the other shorts

figured out the basic characteristics

of the China frauds, they started
taking them out, one by one.

Puda Coal, the chairman,
stole investors' shares.

SINO Clean Energy,
super technology.

This company puts advertisements
on buses.

Dan: They would crush coal,
mix it with water,

and that was energy...
phenomenal.

They hired none other
than Loeb & Loeb to sue us.

China Integrated Energy,

for weeks and weeks and weeks,
there was nothing happening
at this company.

All of a sudden,
things get turned on.

Lights start working.

The next day,
Rodman & Renshaw shows up

with a busload of investors.

Take a tour of the facility,
get back on the bus, leave.

All the lights go back off.

Rodman investors,
invest in a bunch.

You continue to find really
interesting anomalies in China.

I talked to the people who were
running the industrial gases

that were feeding a steel mill.

"We're making a profit
on this now,"

and then they said,
"Yes, but there's a problem.

It seems that
the gauges were wrong,

and we, uh, did not deliver
as much gas

as we charged
the steel mill for."

I said, "When did you find this out?"

They said, "Just last week."

I said, "And how much were
the gauges wrong?"

"Uh, by the exact amount
of our profit.

It's very strange."

I've been told I am addressing
the Honorable Ho,

whose ancestors have been
the glory of their provinces.

I am humble Ho,
whose name stands in deep shadow

before the tincture
of the great company.

In China, business is done
following a tradition

of not having a particularly
strong legal system.

So people rely more on trust
and on personal relationships.

I shall gain merit in the eyes
of the company by being so trusted.

There's a lot of focus
on building those relationships

so that you can build the trust.

The Chinese call this network
of personal relationships, guanxi.

Paul: And so I give you small
gifts and I do you favors,

and then you owe me one.
You scratch my back,

I'll scratch yours.

Paul: If you do enough favors
of people,

you have the ability
to call on them

for a favor that might be
quite inconvenient for them.

And that they would feel
an obligation

to actually go forward.

This notion that guanxi
wasn't just trading favors

but represented something
more powerful is crucial.

Dan had told me that going
after Chinese companies,

could be dangerous.
But it wasn't until he told me

the story of Alfred Little that I really
understood what he meant.

Dune: When these short reports
started coming out,

there was a website
called Alfred Little.

And it started publishing these
very interesting reports,

the sort of the shoe leather,
like,

"We've gone out and we sat
in front of this factory,

and this is what we found."

The website described
Alfred Little

as an investor with
35 years of experience,

I think he was supposed
to have worked at Deloitte.

You know, maybe he lived
in Shanghai.

I mean, there was this whole
backstory, right?

Dan: He basically says that,

all these companies
in China are fraud,

are just wholesale bullshit.

And I was dismissive of it.

I can't remember the date,
but I got an email saying,

"I'm gonna be in New York.
Let's meet."

I was like, "Oh, okay,"
so I go to this hotel,

and there's this guy,
and he's like,

"Oh, I'm Jon Carnes."

Like, "I'm the guy who's been...

you know, I'm Alfred Little."
(laughs)

(alarm bell ringing)

As one of the few Westerners
still working as a short seller

inside China,

Carnes knew how to be careful
and cover his tracks.

Posing as Alfred Little
had served him well.

But when he decided
to take on Silvercorp,

a mining company
in rural Hunan province,

he and his investigators would find
out the dark side of guanxi.

You know, some companies
are more aggressive than others,

but in general, I've found that
the more truthful the report,

the more difficult it is
for a company to explain

these negative truths,

the more likely they're going
to commit some form of retaliation.

Because if
a company can't answer

the questions raised
by the short seller,

then they look for other means
to stop the negative reports.

(wind blowing)

Narrator: As Alfred Little began
to publicly question Silvercorp,

the company's stock price
started to drop.

Company officials called
in favors

with the local authorities.

Police began to threaten
Little's chief researcher,

Kun Huang,

detaining him for hours
or days at a time,

demanding to know whom
he was really working for.

(siren wailing)

Carnes knew that
there was no cavalry coming.

He'd asked the SEC for help,
and they said

their phones couldn't even dial China,

let alone protect him
and his team.

(speaking in Mandarin)

He sent another researcher
to secretly record evidence

that local police officials were doing
Silvercorp's bidding.

He would use the videos as leverage to
try and keep Kun out of jail.

(in Mandarin)

(man speaking Mandarin)

Kun: (in Mandarin)

Kun had made secret videos

of Silvercorp's
under performing mines,

and some of the local officials
they had bribed.

He was detained briefly
twice in late 2011,

and officials promised
to leave him alone

if he would expose
and denounce Alfred Little.

He refused,
and later that year,

he was stopped at the border
as he tried to flee to Hong Kong.

(in Mandarin)

(indistinct voices over radio)

(siren wailing)

Dan: What...
how many shares short am I?

No shit.

(knocking at door)
- Hmm.

Narrator: Before Jon was exposed
as Alfred Little,

Dan thought he was a crackpot.

Jon: Hey...

Narrator: Now, along
with Carson, Matt, and Soren,

they're part of
a loose-knit tribe.

Activist short sellers chasing
down frauds in China.

Most of them are realists,

believing the market finds
the truth on its own.

Dan is different.

He takes it personally.

Jon: Kun keeps going to
the psychologist once a week.

That was a great thing
you did, though...

Not cutting him loose.

Taking care of him
while he was over there.

How many of these other guys
we know would've just cut him loose.

We owe him a lot.

Kun's imprisonment changed Dan.

As far as he was concerned,

this wasn't about
just uncovering frauds anymore.

It was about right and wrong.

His friend had gone to jail,

and millions of people
were being ripped off.

He wanted government action,

even if it meant
putting himself

and the other shorts
out of business.

So he hired a lobbyist and came
up with a plan to try

and make Congress
pay attention.

Both Toomey and Casey, are
on the Senate Finance Committee.

- Mm-hmm.
- So what I was asking for is

a Senate Finance hearing.

You're, you're talking
to staffers who bounce

from meeting to meeting
to meeting to meeting to meeting.

So I think a lot of people don't
even know, this really happened.

Anyone I talked to,
anyone even involved

in the stock market,
doesn't even know.

A lot of people don't know.

So here's the frustrating part.

It was the first meeting
that we had with Toomey's staff.

Um, he, he actually suggested,
after an hour and a half,

- a letter-writing campaign.
- Right.

Number one, you know,
welcome to 2016.

Um,
but I guess those still work.

Two, I spent an hour explaining
to him,

that nobody knows
they're being ripped off.

How do I get people
to write a letter

about what they don't know
is happening?

If we give up, you know what
happens out of Washington? Nothing.

You have to be at the hearing.
You have to consider yourself an expert.

That's why we're going
to Washington,

That's where we're trying
to effect change.

(hand thumps table)

- It's a very frustrating thing.
- Mm-hmm.

And I just...

don't want to hear how
the world works anymore.

(wind whistling)

Narrator: Dan had a plan.

(train rattling)

There was a Senate hearing on
whether or not the Chinese economy

poses a strategic danger
to our economy.

He'd use it as an opportunity to
meet with his senator Toomey.

And get him to listen
to his concerns.

Would you vote for him
at this point?

- How'd I vote?
- Oh, right, right.

I'm sorry, I'm sorry.
I'm having a casual conversation

with you and I forget.

Well, let me just say this,
I won't vote

for the motherfucker.

(train rattling)

Dan: I think that there are
a great many people

that it's their job
to give a shit.

If you're going to run
for office on the idea

that you're there to protect
citizens' interests...

The rights of citizens,
then you should do your job.

Thank you, sir.

Or let somebody else do it,
that will do it.

(indistinct chatter)

(gavel banging)

Shelby: Today, the Committee
will hear testimony

on the Chinese economy
and the risk it may pose

to the United States.

Some believe
that China's economic stimulus,

following the 2008
financial crisis,

has left the financial system

with an unusually high
percentage of bad debts.

China's not transitioned, uh,
to a market economy.

It's not lived up
to the commitments it made

when it joined
the World Trade Organization.

Chinese government props
up its state-owned enterprises,

also called SOEs,

and designated private firms,
while limiting market access

for U.S.
and other foreign firms.

Narrator: Dan had hoped
that Senator Toomey

would address some of the
questions he'd raised with his staff.

But he left the hearing early.

And it went downhill
from there.

I'm not sure that I see this
as something that we really need

to be too worried about.

What we do need
to be worried about more,

is the continuation
of the imbalances in China

and what that might imply...

(gavel banging)

How fast is
the Chinese economy growing?

I don't know exactly.
We don't have reliable figures.

Desmond: You know,
I pretty much agree

that China's not growing
at 6.7 percent.

It's rather growing at something, uh,
like 4 percent.

So, if the Chinese
credit bubble pops,

whether it's sooner or later,

dragging the Chinese economy
down with it,

what kinds of vulnerabilities
might we see?

I don't see the impact as being
through direct exposure

- of United States companies...
- So, so you're not worried

about the exposure
through derivatives

that, for example,
put our banks,

deeply engaged on the question
of commodity prices

or other financial
transactions more direct?

Not through China itself...

(indistinct chatter)

I'm Dan David.
I believe Tom gave you my book there.

- Oh, yes.
- Yeah.

I'll believe you'll find that--

"The China Hustle."

That's right. That's right.

If you, uh, read that
and you're interested,

I'd love to talk
to you about it.

Okay.

So, couple of hundred billion in fraud,
and it continues.

It's not over.
It goes on every day.

- Great.
- Yeah, any one of them.

Dan: Very cursory and...

- Okay.
- ...dismissive and generic.

- Anecdotal.
- The only thing I heard

at the end
was Shelby saying, uh,

you know, we got
to face reality.

- That was it.
- Okay, the reality is,

- they're gonna do nothing about it.
- Right.

The biggest, eh, you know,
you can guarantee losing

- by not doing anything.
- Dan: That's right.

(door closes with a thud)

Man: Uh, why did you come down
to Washington?

Dan: I was hoping
to move the ball forward,

advocating for investors' rights,

to... show up and see
what's actually done

at a committee hearing.

What happened at the hearing?

Not much.

(siren wailing)

Jon: I think
that what Dan's doing to try

to get Congress to take action,
is a good thing.

Do I think that's the way
to solve the problem? No.

I don't think so.

The entire staff of
the SEC hasn't busted,

more than one or two
of these frauds.

A handful of short sellers
have busted,

forty or fifty of these frauds.

Dan: Coach, you need one?

- Yeah, I guess so.
- Is he still living out in France?

Dan: Excuse me, ladies,
can I get you anything?

Soda, water, beer?

Pop, can you get Sean a beer?

- No, he can help himself.
- (all laugh)

He's a big guy.

- (all laugh)
- Uh-huh.

- Dan: Geo Investing.
- Man: G-O?

Dan: G-E-O.

(indistinct chatter)

- Dan: I'll bet against them.
- (all laugh)

And I'll write a report,
and I'll publish it.

And I'll say they're a fraud
and I'm short.

But when they do go to zero,

I win, but you all lose.

We're losing our ass.

Started out good.
We didn't get any...

Dan: This is the skim that comes
out of everybody's account.

It's pennies from everyone...

that adds up
to hundreds of billions.

So you're campaigning
to get something to happen.

Dan: So that I won't
make money anymore.

- You're a good man, Danny.
- Yeah.

I always thought
you were like that.

- No, you didn't.
- (all laugh)

And I'm not. I'm not. I'm not.
It just...

just doesn't sit well,
that's all.

Explain to me again,
why you make money and we don't.

You bet against them.
That's short them.

Okay.

Graduating with a 1.6...

(laughter)

(all speaking at once)

- I'm kidding. I'm kidding.
- Dan: There's two things there.

Dan: One, I had no idea
I actually graduated.

(laughing)

Carol read something

about something going on
in China right now,

where they've discovered
what they think to be aliens.

Wasn't it deep down,
they found 'em?

(woman speaking indistinctly)

Well, that would be
a new wrinkle.

Well, that would make what I've been
doing the last three years a waste.

- Nothin'.
- (laughs)

- Thousands of years ago.
- Yeah.

Yup, I think he might not
come home in one piece.

(laughter)

Jim: At the end of the day,
investors counting on the SEC

to save them from their own lack
of due diligence, or greed,

are kidding themselves.

Mitch: We have more opportunity in
our markets than anywhere in the world.

But, at the same time,

we don't have a regulator
that looks over our, our filings

and says, "I want to protect
the public from this."

Our system... you know,
we file with the SEC,

and the SEC reads the disclosure,
and they comment

on, on the disclosure.

They don't determine whether it's viable
to be public or not.

They don't make that determination.

They let the free market
make the determination.

The SEC should do its job.

Your job is to look out
for investors,

but you've put the interests
of the Chamber of Commerce

and their big-business members

at the top of your priority list.

Narrator: It is the SEC's job
to protect investors.

But it was chartered
in the 1930s,

at a time when stock prices
rolled off of ticker tape

and the markets closed at four.

Now, they're outgunned
and outmanned,

like Keystone Cops chasing
the starship "Enterprise."

Even if the SEC
gets its entire wish list

of documents from the company

and they have enough evidence
to pursue a case,

the Chinese people responsible
for this, don't really care.

Dan: When somebody breaks
the law here,

there is a process
where they're accountable.

At some point
in a China-based company,

that accountability ends.

And it ends at the ocean.

Narrator: This is one of the first
things that Dan ever told me.

In China, it's not illegal to
steal from foreign investors.

I couldn't believe
the SEC would allow companies

to list on U.S. markets,
if it really had no way

to police them.

So I found an employee of the Chinese
state financial news agency,

who was willing to take a risk
to confirm the truth.

(in Mandarin)

Bottom line is,

the Chinese government
and the U.S. government,

on most levels,
don't work that well together.

(sirens wailing)

Dan: You can't compel somebody

that has stolen millions
and millions of dollars

from U.S. investors
to come here from China.

You can't compel them
to testify.

You can't even find them.

Dan: Forget about
the average person

who thinks that their broker
or the SEC will protect them.

Even someone
like Crocker Coulson,

who worked inside the system,
couldn't find out

what was really going on
with these Chinese companies.

Crocker: You're in
an alternate universe.

There's kind of this arms race

to do the simplest things.

You can't even look
at the bank statement.

You can't even go into
the local bank and ask them.

A lot of times,
the manager of the local bank,

will actually reprogram
the books of the bank

to make it look like the books
of his client are better than they are.

Gregory: Anytime you have
a country like China,

where information
is not easily obtained,

any society like that
is a much greater risk.

In the United States,
we can go directly to a firm

and we can subpoena those records.

To get records out of China
is significantly more difficult,

if not impossible.

If you wanted to set out
to be a criminal,

probably the best place
to be a criminal

is someplace with no cops,
and that was China.

It was the Wild West.

(airplane engines whooshing)

(indistinct chatter)

(horn honking)

I am delivered.
I'm at the airport.

Just headin' to the hotel.

Dan was like Nicolas Cage
in that movie

where he's the only one who knows that
the world is going to end.

He's screaming about it,
but nobody cares.

The auditors, the bankers,
Congress, the SEC...

(murmuring indistinctly)

None of them see
the financial tsunami

that Dan sees
coming from China.

So he decides to do
the one thing he can do,

take the criminals' money.

Dan: Their share count
has ballooned,

from a whopping 4.9 billion
shares four years ago

to 6.5 billion shares today.

It appears that the only way
that they can continue

to sustain
their business operation,

is through dilutive financing.

(camera clicking, whooshing)

Narrator: Normally, Dan publishes
his reports online.

But this time,

there's too much at stake,

a nearly $2 billion company,
Tech Pro.

He believes the company's chairman,

is misallocating shareholder money

to lavish on pet projects.

If he can convince the markets,
he'll wipe the company out.

It'll be his biggest short ever.

Dan: Now, I don't know
what that tells anybody else,

but, there's something going on here.

Our due diligence,
is a lot of black smoke,

lot of black smoke
coming out of this company.

That's a fire.

That needs to be looked into.

(indistinct speech over radio)

(radio stations changing)

(overlapping speech)

(alternative rock music playing)

♪ To change the world ♪

♪ I want to ♪

Joining us on the floor
of the exchange right now,

Dan David. He's co-founder

of due-diligence firm,
GeoInvesting.

And I see here,
you also specialize in China?

We do.
My Sohn presentation in June

on Tech Pro,
Tech Pro's down 91 percent.

Woman Host: Is it vindication
for you when you see a stock

- like that plummet?
- Well, it was inevitable.

I... The stock was always going
to plummet.

Are you bullish
on China at all or is it just...

(cello playing)

Dan: What is capitalism?

Is it an economic system?

Or is it an apparatus
that we can use

to make more money for ourselves and
take more money from others?

At its heart,
it rewards those who work hard,

but it also rewards those
who are willing

to take advantage of others.

Narrator: When we describe
a fraud like this one,

we use terms like
"white-collar crime"

to distinguish it.

But really, it's just theft,

in its way, as violent
as being mugged in the street.

It can be traumatic to chart
the trail of personal loss.

How much was stolen
from each pension fund,

each retirement fund,

each of us.

Soren: The real story
is the aggregate value.

It's the investors who,
by the end,
were mostly retail investors.

These were mostly just people playing
the American stock market,

who looked at the financials
and believed them.

Alexandra: That money is money
that belonged

to individual mom-and-pop investors

who thought, "Hey, I want to be
a part of the China growth story."

And they were also shares
that belonged

to mutual funds, like Vanguard,

that manage money for,
for example, The New York Times,

right?
The employees.

My pension fund money.

Roddy: We sold ourselves
on a myth of China

as a really compelling market.

A nation that wanted
the leveling effects

of free trade.

Matt: You should
have known better.

Man: Well, what I would pay,

if I have my money in Fidelity,

isn't that...
why do I pay these guys?

I don't know. I don't pay 'em.

I don't give 'em any
of my money.

It's like a game
of musical chairs,

when the music stops,

if you're left holding
the paper,

if you're left holding
the shares,

you are the victim.

(sirens wailing)

Okay, um, my name is David Yee,

and I live in Atlanta, Georgia.

My name is Ray Snader.

I'm a print and broadcast
journalist

in Newport, Tennessee.

Tom Snodgrass
from, uh, Spring, Texas.

David: What attracted me
to U.S.-listed Chinese stocks,

were the high returns.

There was a lot of hype
about them and

a lot of attention.

I was hoping to have
a nice retirement egg

for my wife and myself.

I do not have
a retirement plan at my job.

My wife doesn't have
a retirement plan at her job.

Roth Capital, issued
a buy recommendation.

The first company that really
kind of caught my eye,

was AgFeed.
Allegedly they were

the largest
feed producer in China.

My last shares,
that I purchased,

were $9 a share.

We recouped...12 cents
on the share.

And, we had a total
of about 26,000 shares.

Man: What kind of loss did
that represent for you, personally?

It represented,

about a $150,000.

I think I lost well,
well in excess of a $100,000.

My investment in these
U.S. listed Chinese companies,

represented at least 50 percent
of my assets.

The prices tanked,

and they were eventually, um,
delisted and not tradable.

- Man: Worth zero.
- Worth $0 per share.

We put our faith in the market,

in our government
to police that market.

And I think, uh, we got burned
on literally every turn,

in that particular transaction.

Ray: Roth Capital issued
a buy recommendation.

I'm not sure that they visited
the plant at all in China.

In fact, today,

I'm not sure that there was
a China Electric Motor company.

- How old are you, Ray?
- I'm 68 years old.

(cello playing)

Narrator: So where
did the money go?

To the bankers and lawyers,

who helped set up the deals.

And to the Chinese executives
who made millions

while their
companies collapsed.

I don't know what's worse,

that the executives were beyond
the reach of the law,

or that the enablers
on Wall Street were operating

inside the law,
just doing their jobs.

One way or another, almost all
of them got away with it,

scot-free.

One exception,
was Rodman & Renshaw.

Do you have just a moment,
General?

No.

During the heyday
of the reverse-merger boom,

they doled out
almost $18 million

in bonuses to their executives.

But their problems
caught up with them.

In 2012,

they paid a $315,000 fine

and surrendered
their brokers license.

Soon after,
they filed for bankruptcy.

Wesley: So I want
to make sure you understand.

My investment bank
is called Enverra.

- Man: Right.
- It's not Rodman & Renshaw.

- Right.
- I was the chairman
of Rodman & Renshaw,

I was not a banker
at Rodman & Renshaw.

I didn't have anything to do
with the financial transactions
in China.

That wasn't me.

I'm the guy that told them,
"You got a problem with it."

And I left the company, uh,
a year or so,

18 months after that,
from the board.

My question is,
who did he tell?

How about, "And then
I went down to Washington

and saw all the people
that I know while I was running

for president...

and told them
what was going on"?

I don't think I want
to be in the film.

I think it's just...
it, it invites attacks on me.

And I don't need that.
I'm trying to build a business.

I don't want to be attacked.
I didn't do anything wrong.

You're chairman of the board.
What role was it?

A non-executive chairman
of the board?

Was he the person
who ran the business,

or was he really there
as a figurehead,

to lend his name
to the credibility

of this situation?

I mean, that's the classic.

It's like Monica Lewinsky.

Forget about Monica Lewinsky.
It doesn't matter

what you say about it.
It's a bad story.

So let's, let's
just cancel this session, okay?

- I'm sorry I wasted your time.
- Matt: Do I,

do I send
shame on people?

Do I say, "Shame on you

for not asking
the right questions?

Shame on the auditors
for allowing this shit
to go through?

Shame on the regulators
for not making

the, the requirements
more stringent and difficult"?

So, you don't think
we have a problem here?

You want to blame this
on any one or two people?

(stammers)
Ridiculous.

It's ridiculous.
The whole thing is b... is broken.

It's broken.

Wesley: Let's get out of this.
This is a mistake for me.

It's a mistake for the people
that depend on me.

I've got a firm.

I've got people
that work for me.

I owe them my best opportunity
to give them a living.

And, this doesn't help.
This hurts.

So I want out of this.

Man: Well, I'm not...

This is not an attack piece
on you, sir.

Wesley: It doesn't help...

Man: That's not, that's not
my intention, nor is that...

Wesley: Uh, I thought I could do this
in an academic way,

but I realize I can't.

You know?
I...

Roddy: China is fundamentally

a broken
or fucked-up societal system.

The people who get to the top,

get to the top
by breaking rules.

Good people who want
to play by the rules,

get stepped on and pushed
to the bottom of the pile.

This, in some ways,
has nothing to do with China.

If you gave American
management teams

that incentive structure,

oh, my God, we'd have
the same amount of fraud here.

It was just a no-brainer
for them.

Bulls versus bears, constantly.

And now that I'm deemed a bear,

I don't know if I'm ever gonna be
able to go back to the bull side.

But, no regrets working
for them.

My clients made money.

Ping:

We've never seen
a credit buildup

to the likes of what
China is doing today,

that hasn't been followed by a,
a major, major financial crisis.

So, stay tuned.

We, we have, by far,
the most vibrant markets

in the world. By far!

And so, that freedom,
leaving those decisions

to the private sector, you know,

it, it frees up
a lot, a lot of capital.

This is the largest
financial crime

of the last 25 years, with
the exception of Bernie Madoff.

It's still way too easy
for the bad guys in finance

to keep Washington
off their backs.

We're cutting regulations.

I would say 70 percent
of the regulations can go.

I think you see a lot
of the similarities with
the mortgage crisis

in, in '08
and the China situation.

We had our chances,
post-global financial crisis,

in my opinion,
and we missed it.

This was sort of the appetizer,

in, in that these were
the small, crappy companies

that, often times,
were demonstrable frauds.

We point to $50 billion,

and that's like
an empirical number.

That's a number
we can say, "Boom."

We can point to this
and this fraud

and tie it in nicely on a bow.

What we don't talk about

is that there's hundreds
of billions of dollars

that we can't even
begin to touch.

And the fraud
that can be perpetrated...

through China
by other means.

So it's not $50 billion,

and it's not
some investment banks,

and it's not some people
in the United States.

It's everybody.
It's every bank.

(sirens wailing,
bell ringing)

Whether they know it or not.

The Chinese e-commerce giant, Alibaba,
took Wall Street by storm today.

The company

had its initial public offering

on the New York Stock Exchange.

Woman Reporter 2: The share
price jumped 38 percent...

This is a perfect storm.

This is a perfect storm.

Yeah, the eBay and Amazon
and PayPal is pretty easy,

but it's a Netflix;
it's a Groupon...

I mean, it's a perfect storm.

It's the first time
a major Chinese Internet company

has gone public
in the United States.

Uh, there's an old joke that
the biggest lie on Wall Street,

is that this time,
it's different. (chuckles)

Woman Reporter 2: Alibaba's
profit for the second quarter,

jumped some 179 percent
to $2 billion.

It's a perfect storm.

That's what this is.

You don't have the ability,
to really research it.

You're buying lottery tickets.

Alibaba is lottery tickets.

Charismatic founder, Jack Ma,
has the stage presence

to rival many tech icons.

Should we jump in
and buy Alibaba stock?

Yeah, it's China.

Is there something looming
down the pike

that's even crappier than this?
I, I could make that argument.

Male Reporter: There's Jack Ma,
having met with the president.

Jack and I, are gonna do some

- great things.
- Small business.

- Thank you, Jack.
- Thank you, sir.

The CEO of Alibaba, Jack Ma, says,
"Just trust us, just trust."

In this country,
when anyone says,

"Just trust us,"
the first thing you do is,

hold on to your wallet.

You don't trust anybody,

and you don't trust anything,
you can't see and research

for yourself.

And that goes for Alibaba too.

- Man: So why do you keep at it?
- Fuck 'em.

They're lying.

(crowd cheering)

(pop music playing)

Performer: Hot masseuse,
hot masseuse, right there.

Here we go.
Joe, bring your drink down here.

Come on.
Wait, we got it.

I just want to raise a toast
to all of us, all right?

I want to raise a toast
to an awesome 2015,

to a great year,
to being blessed,

to everything you want.
Here it comes, all right?

Let's raise 'em up.
Let's raise 'em up.

Raise your arms up.

(crowd cheering)

(guitar riff)

(crowd cheering)

Give us some house music.
Let's keep this party going.

(crowd cheering)

(drums playing)