* Chinese-listed US shares hit on broker red flags
* Renren at worst levels since IPO
* Tighter margin requirements add to selling pressure
(Adds details on Syswin, Ku6 and Orsus)
By Ryan Vlastelica
NEW YORK, June 8 Chinese stocks listed in the
United States took a beating on Wednesday as brokers raised red
flags about trading risks following a series of accounting
scandals that have afflicted the sector.
Interactive Brokers Group Inc (IBKR.O) sounded the loudest
alarm on the companies on Tuesday, as it prohibited clients
from borrowing money to take leveraged positions on 160 Chinese
securities due to numerous allegations of fraud.
Discount brokerage TD Ameritrade (AMTD.O) also said on
Wednesday it is closely monitoring U.S.-listed shares of
Chinese companies. For details, see [ID:nN07182221]
"All these names are dangerous and it is probably the
responsible thing to do to show investors, 'Listen, you can buy
them, no problem, you just can't buy them on margin,'" said
Andrew Left, an investor who runs Citron Research and who has
published reports recommending short sales on certain Chinese
Many of the biggest losers on U.S. exchanges on Wednesday
were Chinese companies included on Interactive's list.
The New York-traded shares of Chinese real estate service
provider Syswin Inc SYSW.N tumbled 23.1 percent to $4 and
online video company Ku6 Media Co Ltd KUTV.O lost 9.7 percent
to $3.18. Orsus Xelent Technologies Inc ORS.A, a designer and
distributor of cellular phones, dropped 13.5 percent to $1.99.
However, well-known bigger companies not on the list, such
as Renren Inc (RENN.N), were also hit. Renren lost 13.6 percent
to close at $10.51.
In a further sign of the accounting doubts surrounding some
of the new Chinese listings, Taomee Holdings Limited TAOM.N
said in a regulatory filing for its IPO that its auditors found
major gaps in its internal controls.
The heightened concern among investors comes in part after
allegations leveled against Sino-Forest Corp. TRE.TO Its
shares plummeted after a report last week from researcher Muddy
Waters accused the forest plantation company of fraud.
"Given the fact that these (Chinese stocks) have a black
eye, to get a bit of negative news like that, it exacerbates
the selling," said Bill Fleckenstein, president of Fleckenstein
Capital Inc in Seattle.
Taomee sees control gaps as IPO pricing nears [ID:nN08224318]
Brokerage bans borrowing to buy Chinese stocks [ID:nN07182221]
Analysis-Auditors in China burned by scandals [ID:nN3181942]
Reuters Insider: Bearish bets on Renren: [ID:nRTV226456]
If a broker has lent money to an investor to buy a stock
and that stock falls dramatically or is delisted, the lender
risks losing money.
TD Ameritrade currently does not have any new rules or
regulations for investors wanting to invest in U.S.-listed
shares of Chinese companies, a spokeswoman said.
"If we see a need to make any changes in the interest of
our clients, we will do so," said spokeswoman Kim Hillyer.
A Wells Fargo (WFC.N) spokesman said "many of these Chinese
companies" were on the firm's "special situations" list of
companies, for which purchases on margin are either restricted
UBS Wealth Management Americas spokeswoman Karina Byrne
said the firm has not changed its policy. The brokerage's
securities-backed lending unit subjects all securities to a
review to determine their applicable lending value.
"Chinese stocks such as the ones you mentioned would fail
for lending value at UBS due to volume or market cap," she
"The question is, 'What can the brokerage firms do to make
sure people don't get burned?' said Left. "Putting up 100
percent is good."
Bank of America's Merrill Lynch unit (BAC.N) and Morgan
Stanley Smith Barney (MS.N), both large retail brokerage firms,
declined to comment.
(Additional reporting by Joe Giannone, Daniel Bases, Chuck
Mikolajczak and Clare Baldwin; Writing by David Gaffen; editing
by Dan Grebler and Andre Grenon)