FBI searches offices of firm linked to Chinese reverse takeovers
The Federal Bureau of Investigation has conducted a search of the offices of New York Global Group, a private equity investment and corporate advisory firm. New York Global, led by Benjamin Wey, helped Chinese companies go public in the US through reverse takeovers and several of these companies have since been embroiled in accounting scandals.
A New York FBI spokesman said that the search was conducted last Wednesday as part of a continuing investigation, but declined to comment on the scope of the investigation or whether New York Global was a target of the probe, The Wall Street Journal reported.
Reverse takeovers have proved popular among Chinese companies because they are cheaper and easier than a full IPO and involve less regulatory oversight - 159 took place between 2007 and the first quarter of 2010 alone, according to the US Public Company Accounting Oversight Board. After financial inconsistencies were uncovered in filings made by several of these companies, short-sellers and hedge funds have begun to scrutinize many more, searching for weaknesses.
The US Securities and Exchange Commission said last year that it was looking at options to address concerns about the proliferation of reverse takeovers, but the chain of scandals has succeeded in stemming the flow without regulatory intervention. Meanwhile, the chairmen of various companies accused of fraudulent behavior by short sellers have sought to go private - often backed by private equity investors - with a view to relisting in Asia.
Wey has in the past been punished by US financial regulators on two occasions. He was fined and briefly suspended by the National Association of Securities Dealers in 2002 and censured by the Oklahoma Department of Securities in 2005. On both occasions, he neither admitted nor denied wrongdoing.
Regarding reverse mergers specifically, Wey featured prominently in shareholder suit that claimed Bodisen Biotech had made insufficient or inaccurate disclosures about its relationship with New York Global. Bodisen, a Chinese manufacturer of organic fertilizers, delisted in the US in 2007 and the suit was dismissed in 2008.
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