A reverse merger is a method for a company to go public without filing registration paperwork with the SEC. This lets the company sell shares to the public without undergiong typical SEC scrutiny.
Basically, in a reverse merger, a private company that wants to go public will be acquired by a shell company that has no operations, but does have registration as a public company. In that way, the private company morphs into the public one. This method is also called backdoor registration and, according to an SEC commissioner, lets a company go public "without any of the vetting from underwriters and investors that companies undergo when they perform a traditional IPO."
From January 2007 to April 2011, there were more than 600 backdoor registrations, according to the SEC, with more than 150 by companies in China or the China region. Several of these companies have come under investigation for fraud.
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