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Strategies & Market Trends : Greater China Stocks

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From: tom pope	1/20/2011 8:40:24 AM
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I wasn't aware of this structure. Sounds like a tracking stock, and that fad was not successful in the end. I do not know if the shareholders are as vulnerable as the writer makes out. From Seeking Alpha According to NY Global Group, a leading China expert on Wall Street, "China-based companies with VIE (variable interest entity) structures are the single biggest “time bombs” in the U.S. Markets." In a VIE structure, the public shareholders do not own the underlying assets in the operating entity – the actual business that generates revenues and earnings for common shareholders. Instead, all of the sales and incomes reported by the public company and filed with the SEC are booked through contractual agreements whereby a company’s management and founders agree to transfer their rights to sales and incomes from the operating business to the public company. The original founders retain the ownerships of the underlying tangible hard assets such as cash, factories, land use rights, machinery, customers etc. In theory and in reality, company management and founders can choose to walk away and leave the public shareholders with no legal claims to the assets of an operating entity. Doesn’t this sound crazy? It certainly does.

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