William K. Black
December 18, 2018 Bloomington, MN
On December 13, 2018, the Wall Street Journal published an interesting op ed by Jesse M. Fried, a famous law professor in multiple areas of corporate law, and Matthew Schoenfeld, who works at a hedge fund that is the leading funder of civil lawsuits, primarily fraud and tort suits. The title is “Will China Cheat American Investors? The answer, of course, is yes – it will continue to cheat American (and non-American) investors. Fried also has a strong background in economics, which is relevant to his op ed and my blog article.
The op ed is interesting in part because it was published just after a documentary on Chinese stock fraud (“The China Hustle”) had its general video release. The China Hustle explores the pervasive defrauding of primarily U.S. investors by those that control Chinese corporations. Though the documentary does not make the point, it is describing “accounting control fraud.” A ‘control fraud’ is a seemingly legitimate entity used by the person that controls it as a “weapon” to defraud or predate. For the sake of brevity, I use “CEO” rather than “the person that controls the corporation.”