“What is capitalism?” a voice asks at the start of Jed Rothstein’s alarming The China Hustle. The question is posed as we’re shown ominous footage of Wall Street skyscrapers, close-ups of the famous brass bull and the crowds who snap reverent photos with it, of a literal house of cards literally collapsing. Fortunately, Rothstein’s film, for the most part, is more well-reported exposé than it is cliché-driven agitprop, a film that blows the whistle on ongoing financial crimes.
But that opening, cheap and obvious as it is, still fascinates: It’s a curious fact of American life that when we’re being sold the idea that the big banks and investment firms are good, usually in their own commercials, we’re fed images of purportedly regular people in homes and beaches and parks, beaming at one another in the certainty that their pensions will be just fine. When we’re being sold the idea that these institutions are rapacious, that they don’t care about our retirements, we’re shown their actual base of operations.
The China Hustle finds those institutions turning a profitably blind eye to fraud, even as a few small investors fought to expose the truth to indifferent and ineffectual regulators — and, in the meantime, short-sell their way toward something like justice. The cost of this fraud to American pension and retirement accounts? Some $14 billion. Through interviews (one surprisingly adversarial), hidden-camera footage and all the tools of documentary storytelling, Rothstein builds a persuasive case, laying out with clarity and disgust a hugely lucrative and destructive new investment scam that boomed in the years immediately following the 2008 financial crash.
The upshot: In the 2000s, a wave of Chinese companies began appearing on the U.S. financial exchanges through a process of “reverse mergers,” which found the Chinese companies merging with defunct American ones that already were officially listed. This shell-company maneuver allowed these new companies to sell stock without being subjected to the usual scrutiny that comes with a public offering. The shadiness of these mergers often was obscured by the endorsement of one or more of the big four accounting firms, or at least local subsidiaries thereof; as one interviewee notes in the film, Price Waterhouse China is not the same thing as the Price Waterhouse in the United States.
Chinese law does not punish its citizens for lying to foreign investors, so executives at a company worth $10 million could file with our Securities and Exchange Commission as one worth $100 million — and, once enough investors bought in, driving up the stock price, the liars could sell their shares and profit. One investigator suggests that these business owners were told to claim as their companies’ value what they hoped they would be worth after the selloff. In the 10 years after 2006, some 400 Chinese companies have joined the U.S. markets, 80 percent of them through reverse mergers.
Rothstein’s star, here, is Dan David, the co-founder of GEOInvesting. David made bank in exposing the fraudulent financial statements of these companies, in gathering evidence that these firms are wildly overvalued and then exposing the truth — crashing the stock price. We see him attempting to get the attention of lawmakers on the Senate Finance Committee, and he insists that American banks and auditors not only don’t want to know about which companies are frauds — some have threatened legal action against him. Rothstein mines drama from the investigations and lays bare several comically bald examples of fraud.
The film’s final moments, though, return to the overheated tone of its opening: The China Hustle suggests not just that all IPOs must be subjected to rigorous investigation but that all Chinese companies on U.S. exchanges are most likely fraudulent. China’s e-commerce giant Alibaba might well be exposed someday, but The China Hustle doesn’t manage to reveal whether the rumors of fraud that have long dogged the company are true — even as the film suggests that they must be. The sequence plays as if some key allegation has been edited out.