Jed Rothstein's documentary about a Chinese stock scam proves that Wall Street chicanery didn't end after the recession.
Should Hollywood be in the market for a sequel to “The Big Short,” the continued misbehavior of a corrupt and poorly regulated financial system have provided one. In the wake of the 2008 recession, some investors looking to recoup their losses from the subprime mortgage crisis traded one fraud for another, turning the inflated value of China’s economic boom into another bubble destined to be popped. Jed Rothstein’s wildly entertaining documentary “The China Hustle” blows the lid off another multibillion-dollar heist built on complex financial instruments and a whole lot of smoke and mirrors. Though it resembles the docu-journalism of Alex Gibney films like “Enron: The Smartest Guys in the Room” — Gibney serves as executive producer here, in fact — Rothstein’s irreverent, can-you-believe-this sense of humor makes the anti-capitalist message go down even easier.
With Gibney, Frank Marshall, and the 2929 Entertainment team of Mark Cuban and Todd Wagner on board, “The China Hustle” is assured a theatrical push and a long life on streaming, but its up-to-the-minute reporting could land a few headlines, too. Far from a postmortem, the film uncovers a scandal that’s still ongoing, with parties on one side bullish about promoting Chinese stocks and parties on the other looking for empty stocks to short. And as with the widespread malpractice that torpedoed the housing market in 2008, there are no rules or incentives for investment banks and brokers to stop perpetuating shady deals, so long as the commissions keep rolling in.
“There are no good guys in this story, including me,” says Dan David, the charismatic whistle-blower who serves as the film’s prevailing voice and de facto tour guide. Working at a tiny investment firm in small-town Pennsylvania, David and his brother took a massive hit in the 2008 collapse, but resolved to stay in business and figure out creative ways to earn back their clients’ investment dollars. What they discovered was something called a “reverse merger”: Because Chinese companies couldn’t be traded directly in U.S. stock exchanges, hundreds of them were “merging” with American shell companies that still had a presence on the New York Stock Exchange or other trading floors. In theory, American investors could then seize on the opportunity to profit from the gains of an ascendant economy.
In practice, however, many of these companies were reporting assets and revenues that were way out of line with their actual value — and without any auditing firms on the level, there’s no one to call them on it. Through creative acts of surveillance, like offering free tea samples to employees at a Chinese factory to determine how many workers it actually had, David and others were able to sniff out the fraud and make money by shorting the stocks once an investigation suggested a much different story than the goosed-up numbers were telling. But the opacity of the bookkeeping is hard to penetrate, then and now, and “The China Hustle” effectively sounds the alarm.
Rothstein delves into the Wild West corporate culture of China-friendly firms like Roth Capital Partners, which woos investors through booze-soaked three-day extravaganzas with appearances by musicians like Snoop Dogg and Billy Idol, or Rodman & Renshaw, which employed Wesley Clark, a retired general and former Democratic presidential candidate, as its chairman. (Amazingly, Clark agreed to appear in this documentary, which flatters him not a bit.) Rothstein also explains, in plain language and graphics, how reverse mergers work, because it’s never easy for ordinary citizens to understand financial machinations deliberately designed to confuse them.
“The China Hustle” occasionally slides into the issue-doc template of talking heads and power-points, but it excels at drawing bar-stool anecdotes from financial rogues like David, ex-Bond employee Matthew Wiechert, and Carson Block, who runs a short-selling operation called Muddy Waters Research. There may not be anyone in Washington or on Wall Street willing to listen, but they relish telling their stories all the same.