For international investors, Rino was an alluring equation: “China” plus “environment” equals profit. Like many other Chinese companies, Rino faced obstacles in borrowing money from the state-owned banks that dominate the country’s economic life. It also confronted hurdles in going public on stock markets in Shanghai or Shenzhen, where share prices have gyrated wildly.
And so the entrepreneurs behind Rino — Zou Dejun and his wife, Qiu Jianping — turned to Wall Street.
The matchmaker in this transcontinental deal was an American, Chris Bickel, who earned handsome finder’s fees for bringing Chinese companies to the attention of investment bankers and lawyers back in New York. Working from China with a small New York financial advisory firm, Douglas Financial, Mr. Bickel helped package Rino International for its Wall Street debut.
“We determined at the time that this was a significant market and they had the technology,” Mr. Bickel recalls, adding that any possible improprieties arose later.
As part of the plan, Rino got new handlers in New York: a law firm, an investor relations firm, a new auditor. To complete the package, the company named as its chief financial officer Bruce Richardson, an American businessman who had spent more than a decade in Shanghai. Mr. Richardson declined to comment.
To gain entry to an American stock market without an I.P.O., Rino needed to find an American shell. Enter Glenn A. Little, a Texas entrepreneur who specialized in buying up defunct companies and selling them in reverse mergers.
In 2002, Mr. Little paid about $100,000 to buy Jade Mountain, a failed medical devices company that had once been publicly traded. Jade Mountain, based in Nevada, had no business operations, no debt, no liabilities. What it had was a current stock registration.
Mr. Little himself was so enamored with Rino that rather than take payment in cash, he asked for shares in Rino. The bankers’ pitch seemed irresistible, he recalls, all the more because several big institutions, including Bank of America, were investing in Rino, too.
“They gave me a book and it had the two most exciting words you could hear: ‘China’ and ‘pollution,’ ” Mr. Little says. “They had audited financials, big-name lawyers and Bank of America.”
In October 2007, soon after Rino acquired Jade Mountain, Bank of America and about a dozen other investors, including Alder Capital, a hedge fund, bought Rino shares in what is known as a private placement. That sale raised $25 million. Before long, Rino stock was trading on the over-the-counter market for about $4.50 a share.
Over the next several years, Rino reported ever-higher quarterly profits. It expanded its business and its product line. Word spread on Wall Street: Rino was a company to watch.
David N. Feldman, a New York lawyer and the author of “Reverse Mergers and Other Alternatives to Traditional I.P.O.’s,” says that such reverse mergers reflected a confluence of two powerful forces. One the one hand, Chinese companies were desperate to raise capital. On the other, American investors were desperate to tap into China’s fast-growing economy. “A lot of this is about access to capital,” Mr. Feldman says.
Alan Greenspan and Diana Ross were headliners at a September 2009 investment conference held by an investment bank that is little known outside financial circles: Rodman & Renshaw.
Founded in 2002, Rodman has carved a niche for itself as the Goldman Sachs of private placements — sales of new stocks or bonds that circumvent the public markets. The hurdles for these private sales are lower than for public offerings, the theory being that the buyers — large, supposedly sophisticated investors — can do their own homework.
Like many investors, Rodman smelled opportunity in China, and in 2009, when Rino wanted to raise more money in the United States, the bank gave the Chinese company a prominent place at its gala. The presentation served as Rino’s splashy debut before thousands of investors.