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Betting on China: Chinese Stocks, American Stock Markets, and the Wagers on a New Dynamic in Global Capitalism by Robert W. Koepp

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Chapter 6

Longtop Financial

The Costs of Dirty Dealing

China’s Longtop Financial Technologies Ltd. . . . shares soared in their U.S. stock market debut on Wednesday, the year’s best by a Chinese company. Longtop’s American Depository Shares closed up 85 percent, making it the latest in a string of hot Chinese IPOs that have posted double-digit percentage gains in first-day trading on the Nasdaq or the New York Stock Exchange.

—Reuters, October 25, 20071

The Longtop Shocker

The flurry of accusations and short attacks against Chinese issuances that emerged, peaked, and then dropped off between mid-2010 and mid-2011 focused mainly on Chinese reverse mergers (CRMs). The prevailing assumption was that Chinese backdoor IPO issuers—audited by small, disinterested certified public accountant (CPA) firms—were the source of problems. A once-stellar IPO and NYSE-listed company, Longtop Financial Technologies Ltd. (NYSE:LFT), provided a shocking exception to this rule.

A software developer for banks and other financial services companies in China, Longtop listed on the New York Stock Exchange in late October 2007. The company raised $184 million in an IPO that saw the price for each of Longtop’s 10.4 million American Depository Shares (ADSs) close at $32.40 on the first day of trading—an 85 percent pop. The offering as described in a Reuters article—noting that it was “the latest in a string of hot Chinese IPOs that have posted double-digit percentage gains in first-day trading”—captures ...

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