Monday, February 26, 2024
Homethe tech betFraudsters may be waiting in the wings for Alibaba's IPO

Fraudsters may be waiting in the wings for Alibaba’s IPO

Many American consumers may not know what Alibaba is yet but they will by the end of this year. The Chinese Internet company announced it will be making its market debut in the United States.

After Alibaba goes public, some expect a bumper crop of companies to follow. "It will create a new wave of Chinese companies listing here because they'll see a rush of investors making money," said Brian Fox, founder of Capital Confirmation.

While a tidal wave of new listings may be profitable for U.S. investors, fraudsters waiting to capitalize on new money may be waiting in the wings.

Alibaba headquarters in Hangzhou, China.ChinaFotoPress | Getty Images

Fox warns that we can see a second round of frauds, such as we saw in 2009, 2010 and 2011. "In the U.S., the companies listed in China don't go under same level of regulatory scrutiny, they are not safe investments," he said.

(Read more: With Alibaba IPO, pressure mounts on Yahoo)

Fox said Chinese companies that list here have some different rules than every other country regardless of origin. He said that's because the Securities and Exchange Commission does not have access to the work files of the audited companies of China.

"This is going to be a huge IPO, we're really excited to see this one take place, but again, we need to be a little cautious on those follow-on IPOs that are certainly going to follow right on the heels of this one. They're going to try and take advantage of that U.S. investor confidence and interest level but there will be some bad actors that want to take advantage of that investor interest in the U.S. as well," said Fox.

—By CNBC's Christina Medici Scolaro.

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