12 Little Red Flags For Investing In Chinese Firms

Noted short-sell researcher Alfred Little has a list of 12 red flags that he uses to pinpoint suspicious Chinese firms. He advises investors to avoid investing in Chinese companies that display more than one or two of 12 warning signs.
1. Reverse mergers with high short interest.

2. Management misappropriation of funds to relatives.
3. Unnecessary dilutive share issuances when the company has excess cash or production capacity.
4. Amazing revenue and earnings growth relative to peers.
5. Drastic divergence between financials filed with with SEC and Chinese regulators.
6. Weak balance sheets with large receivables relative to sales and unwillingness to disclose customer, distributor or supplier details.
7. Large growth by acquisitions that appear unusually accretive.
8. Weak governance indicated by high CFO and auditor turnover and lack of involvement of truly independent directors.
9. Past involvement of unscrupulous stock promoters.
10. Huge cash and shares fees paid to investment banks and other middlemen.
11. Wildly promotional press releases or frequent press releases.
12. Company provides very detailed financial guidance and always meets it.