Original subtitles

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)