China Fraud Accusations: Wesley Clark's Ex-Firm Faces Questions

Jan. 23, 2013 — -- Retired U.S. Army General and former presidential contender Wesley K. Clark was the chairman and public face of a Wall Street investment firm that rode a wave of interest in Chinese stock, and then plunged on reports that much of the profit was hype and many of the companies were outright frauds.

Now the China deals Clark helped promote at lavish parties are among those facing scrutiny from the Securities and Exchange Commission as they try and account for the billions of dollars lost in dozens of suspicious stock offerings, which some officials believe represent collectively one of the largest financial scams since Bernie Madoff. Authorities told ABC News that firms serving as middle men who helped promote the Chinese companies are now in the crosshairs.

"The auditors, the lawyers, the promoters, the brokers, those are all gatekeepers that we're very focused on," former SEC Chairman Mary Schapiro said in an interview in December, shortly before she stepped down. "We're investigating their conduct, absolutely."

Clark has declined repeated requests to be interviewed. But in a statement emailed to ABC News this week Clark said he is not aware of any investigation into the firm he headed until last summer, Rodman & Renshaw, or into his own actions while leading the firm.

"I am not aware of any investigation into the firm and always insisted my colleagues uphold the highest ethical standards," Clark said.

An ABC News investigation reported this month that more than 70 China-based companies have withdrawn or been tossed off of the New York Stock Exchange and NASDAQ since 2010. Officials say a spree of alleged frauds touched large numbers of American investors, both though losses by public pension funds and 401K's, by Wall Street titans and hedge funds, and by small investors who traded from their lap tops. It's money that authorities say is unlikely to be recovered.

WATCH the ABC News report on alleged Chinese fraud.

"What's left is the postmortem," said Dan David, vice president of the firm GeoInvesting, and an expert on the China boom and bust. "The billions are gone."

The SEC has brought more than 40 civil cases against Chinese firms, and the former head of the financial watchdog agency told ABC News that investigators were also looking into the conduct of key players in the U.S. who promoted the Chinese firms to potential investors.

One of the firms that pushed most aggressively for investment in Chinese companies was Rodman & Renshaw, a boutique operation based in New York and chaired by Clark, the retired four-star general and war hero who mounted a bid for the Democratic presidential nomination in 2004. Clark became chairman of the investment firm in 2009, just as it was emerging as a central player in the China investment wave.

Clark said in his statement to ABC News that his firm was distressed by the revelations about many of the Chinese companies it had promoted.

"Our firm was a leader in bringing small and medium-size Chinese companies to the U.S. capital markets," he said. "No one is more disappointed than the bankers at the firm that some of these companies -- despite receiving consistently clean bills of health from well-respected lawyers and auditors -- apparently concealed improper business practices."

The general did not run day-to-day activities at the firm, instead chairing board meetings and lending his star power during extravagant annual conferences, where investors were invited to hear presentations from dozens of Chinese companies trying to attract financing as they joined American stock exchanges. The conferences were luxurious affairs held at the Waldorf in New York and Le Royal Meridien Hotel in Shanghai. Henry Kissinger spoke at one, former Sen. Chris Dodd, D.-Conn., at another. Diana Ross performed, as did En Vogue.

In 2010 the firm rented out the Forbidden City in Beijing, and invited former Secretary of State Colin Powell to speak. Crooner Lionel Ritchie provided the entertainment as thousands of potential investors dined in tents on the historic grounds.

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