After the Great Recession, American investors turned to China. It was the new gold rush, booming with double-digit growth. There was just one problem: Americans couldn’t directly invest in the market.

A compelling new documentary, The China Hustle, outlines how investors got around the restriction—and what it describes as the massive fraud behind it. Small investment banks, including Roth Capital Partners in California and New York’s Rodman & Renshaw, brought dozens of Chinese companies to the doorstep of American investors without audits or oversight. The film says Roth alone delivered more than 40 Chinese companies, totalling US$31 billion. How?

Reverse mergers.

An active Chinese company would “merge” with a dormant shell company already listed on the NASDAQ, for example. The shell company no longer operated but legally existed on the exchange. Suddenly, Orient Paper was trading in America. And the best part? “No one asks any questions,” says one business journalist in the film, which is critical of both the SEC and the big accounting firms.

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Investment banks would woo hedge fund managers and bankers at decadent, boozy bashes, where celebs like Billy Idol and Henry Kissinger entertained. The investment banks made fees for bringing Chinese companies to North America, but their real payday came when the big banks sold shares (granted as part of the deal). The banks’ analysts and salespeople, like Matt Wiechert of Roth Capital Partners, would hype the Chinese companies to investors. Once the stocks rose high enough, the banks would cash out and leave their investors holding shares that often plummeted.

In the film, Pennsylvania hedge fund manager Dan David recalls making 500% on these companies, yanking him out of the 2008 hole. But then Carson Block, an American short-seller with the famed firm Muddy Waters Research, researched Orient Paper on behalf of his stockbroker father. Block said it was in disarray, with broken machines and mountains of cardboard rotting outside its factory grounds. How could Orient Paper grow 50% a year to $100 million in annual revenues?

Block’s report triggered a chain reaction that rocked Chinese reverse mergers and made skeptics—and short sellers—of folks like David. Even Wiechert said in the film that he felt betrayed by his own CEO at Roth Capital. Block’s report accused Orient of overstating revenue by 40 times. Orient denied the claims and an independent audit later cleared it of wrongdoing, but its stock price plummeted after the report. It later reached a US$2-million out-of-court settlement with shareholders to resolve accusations of securities fraud.

Block also reported on TSX-listed Sino-Forest in 2011.

The film follows David as he exposes other Chinese frauds and takes his crusade to Capitol Hill. But David admits he’s no hero. He’s profiting by short selling. Wiechert also made money, though he betrays a shade of guilt. While his boss refused to appear in the film, Rodman & Renshaw’s then chairman, retired general and former Democratic presidential candidate Wesley Clark, speaks on camera; however, he merely calls the accounting discrepancies “very strange.” After further questions, he storms off.

Produced by the same filmmakers who made Enron: The Smartest Guys in the Room, this film of Wall St. greed is entertaining, even funny at times, and deftly explains the complicated shell game with the help of journalists from The New York Times, The Wall Street Journal and Bloomberg. The China Hustle shows actual Chinese fraud using David’s hidden photos and videos. But the most sobering moment spotlights three ordinary retail investors, including a retiree, who lost more than $100,000 each—or 50% of their respective net worths.

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The film also exposes China’s corrupt old boys’ network working in cahoots with the cops. The closest thing to a hero in the film is Kun Huang, a Chinese researcher working for an American short seller who exposes the fraudulent miner, Silvercorp. He was sent to prison for two years.

The China Hustle warns that with Trump’s deregulation of Wall St. and the rise of Chinese companies such as Alibaba, the shell game may not be over. The film is a well-researched history lesson about the dark side of capitalism.

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