Who’s in the black in China? Yum Brands, owner of Kentucky Fried Chicken is, as taste buds in each and every province of the land have been captured by the 11 spices and herbs of the Colonel. Even Nike’s doing well there either and Apple’s annual sales have multiplied to $5 billion in the Middle Kingdom. Though this may be in the favor of U.S. companies but the story takes a complete U-turn when U.S. investors are spoken of.

A post-apocalyptic wasteland is the best description of the stock scene in U.S.-traded China. It is refused with the burnt vestiges of those who dared to gamble in having just 50% of the information required before switching on the “Buy” button. The due diligence done by investors making use of the commercial filings of China Inc. has made no major difference, the reason being that one’s analytical aptitude reduces to zilch if the company’s filings comprise of exaggerated or fabricated data.

This was all related to the United States. This past winter it has been discovered that 2 of the most commonly traded stocks of China, namely Rino International & China Media Express are fraud, according to the homework done by professional short-sellers.

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Agile traders managed to quickly get out on the rumors; however, good number of investors during a market stoppage, were trapped in these stocks. And when trading resumed on the stocks, they became blazing caverns in the ground where once lived investment capital.

China Media Express saw a drop of $22 per share from $24 to less than 2 bucks, while Rino International sank to 50 cents from $19.

Everything soon became sanguine once a few months passed, and until Chinese blow-ups of a smaller-profile started mounding. The transcription of these stocks is done one after another through short-seller research and their auditor’s resignation. By April, China stocks were exploding like fireworks. Long top Financial & other issues which were larger-cap saw vaporization right before our eyes.

The latest in the list is Sina Corp, whose shares fell 40 points in a passel of investor doubt related to its loose and fast play with its financials. In succession was a colossal invasion on the shares of Sino-Forest, a timber company whose estate of forest was being oppugned.

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Sino-Forest and Long top, both were owned a great deal by institutional investors and large hedge funds, which implied the big boys suffering from huge losses. The insinuation here is that if the most knowledgeable and powerful pros and aficionados too could fall into the trap, how can the individual investor defend himself? These sham companies were initially reverse merger stocks, the import being that their identity was that of a penny stock shell which the Chinese companies had molded themselves into, similar to a backdoor Initial Public Offer.

This kind of a thing is assisted and abetted by stock promoters, bankers, accountants and lawyers who have formed an entire cottage industry in the U.S. which has consequently made a plethora of public Chinese companies appear on legitimate exchanges such as NASDAQ. What poses a problem for the investors is that the source of these stocks is not at all times instantaneously noticeable.

There is a reverse merger stock index which is also Chinese, with Bloomberg and the massacre suffered by the entire group is immeasurable. The period between January and early June has seen a reduction of 48% in the index and with the weekly revelation of more and more villains; the pain is less likely to face abatement. This phenomenon has been termed as the “Red Collar Crime Wave”, with the investors being counseled to play China in a better way or to simply miss out on the theme entirely till the time they are able to find a handle on the defective treatment of the companies with their investors.

However the only good news is that whatever needs to be done is being done by the regulators.  are on the case. A bulletin was issued to the investors by the SEC or the Securities and Exchange Commission last week, related to the risks that these kinds of stocks pose. In the current week, the agency started “stop order proceedings” in opposition to 2 of them namely, China Century Dragon Media Inc and China Intelligent Lighting and Electronics Inc. As of now it is quite difficult to differentiate the good from the bad. Therefore it is suggested that all the claims and disclaimers made by these companies are taken with some amount of soy sauce. It will be good for you if you are on your own guard as regards these misfortune cookies and be responsible for your own investments.