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Investors in Chinese companies listed in Canada have suffered billions of dollars in losses over the past two months, and it's not just big names like Sino-Forest Corp. that are falling.

Consider the case of Xianburg Data Systems Canada Corp. , which bills itself as an information technology player "recognized as a leader" in China for providing off-site, backup data storage services.

Xianburg's president and CEO, Jingping Dong, rang the opening bell at the Toronto Stock Exchange on Jan. 14 to celebrate the company's listing on the TSX Venture Exchange through the reverse takeover of a shell company. Yet trading in the shares was halted in April, and hasn't resumed. The British Columbia Securities Commission in May yanked the company's trading privileges after Xianburg failed to file timely annual financial statements, as is required by securities laws.

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It was one of the quickest trips from listing to suspension in Canadian market history and came as Xianburg was enmeshed in disputes with auditors over its books. (The auditor, Thomson Penner & Lo LLP, has resigned, the company said Friday.) The company is also grappling with internal turmoil. Three of five directors have resigned, including its co-chairman and head of its audit committee, along with the chief financial officer.

The travails of Xianburg and Sino-Forest, whose stock has collapsed by 84 per cent following allegations it inflated revenue and assets, are far from unique. A review by The Globe and Mail of the approximately 60 Chinese companies listed on both the Toronto Stock Exchange and the more speculative Venture Exchange has found the sector abounds in extreme levels of risk for investors – with frequent, lengthy trading halts, numerous auditor changes, illiquid stocks, and even the odd zombie company.

The most recent audited financial statements for the Venture-listed United China International Enterprises Group Ltd. , for instance, express "substantial doubt" about the company's ability to continue as a going concern. United China suspended construction on a cement plant it was building back in 1999 because of lack of funds and has no business operations.

The recent lengthy trading halts include:

– Areheda Mining Ltd., which is under cease-trading orders issued in April by securities regulators in both Ontario and British Columbia for failure to file audited financial statements and has been delisted by the TSX.

The company was turfed from the Toronto exchange after it ceased to have operations following the sale of its Chinese lead-zinc mine. Director Graham Warren says the company hopes to have trading resume by the end of June, once it has filed up-to-date financial statements. He says the firm no longer qualifies for the TSX because the proceeds from the mine sale are in an escrow account, making it a corporate shell. Renewed trading, when it is allowed, will be on the NEX, a market for firms that don't meet the Venture exchange's listing requirements.

– Timber company Cathay Forest Products Corp. has been halted since Feb. 1. The company didn't provide notice or seek exchange approval for four non-arm's length deals and failed to adequately disclose these transactions, according to a statement issued by the company about the halt. Cathay has also been unable to file its 2010 financial statements, is unable to estimate when the filings will be issued, and is facing a shareholder class-action lawsuit. The company couldn't be reached for comment.

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– Kaiyue International shares have been halted at the company's request since early December. The company is proposing to buy another company that, through two subsidiaries, owns a Chinese firm that processes prepaid mobile phone accounts. CFO Joseph Chan said the trading is halted pending an exchange review of the acquisition. Meanwhile, shareholders are in limbo.

The collapse in Sino-Forest's share price is part of a massive flight of investors away from North American-listed companies with most or all of their operations in China. The value of the 18 Chinese companies on the TSX, the country's exchange for quality companies, has fallen by 56 per cent since late April, far outstripping the drop in the S&P/TSX composite index of 6 per cent, according to figures compiled by Kevin Mak, manager of the financial research and trading lab at the University of Toronto's Rotman School of Management.

Even excluding Sino-Forest, Chinese stocks on the Toronto exchange are down about 28 per cent from their end-of-April readings, Mr. Mak said. The paper losses for investors now exceed $5-billion.

Conflict of Interest?

TMX Group Inc., operator of both the Toronto exchange and the Venture market, which has an additional 39 Chinese companies, defends its listing policies, saying that investor losses are a fact of life and have to be balanced against the possible upside if businesses are successful.

"What we're focusing on is letting the investor take the investor risk," says Kevan Cowan, head of the TMX Group's equity business.

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Some shareholder advocacy groups, such as the Canadian Foundation for Advancement of Investors Rights, have been critical of TMX for the apparent conflict between its role in protecting investors and the additional revenue it receives in fees from listing new companies.

But Mr. Cowan says the exchange applies rigorous standards to new companies, including police background checks on officers and directors. Investors have an additional layer of protection from the due diligence provided by auditors and the brokers who underwrite new issues, he said.

Mr. Cowan would not comment on Xianburg, the data storage company, but said quick trading suspensions after listings are "a bit of a rare extreme."

Xianburg's director of investor relations, Farhan Rhemtulla, said the company's financial statements are delayed because auditors said they hadn't been able to get all the documents they needed to complete their review. The auditors declined to comment.

Investors bought into the company through a $1-million private placement for 3.3 million shares by Canaccord Genuity Corp. in November. Canaccord didn't respond to a request for comment.

The value of those shares is now uncertain. Mr. Rhemtulla said that given the lack of audited results, the trading suspension is a good thing because it prevents panic selling and a share price collapse.

"If you're going to sell [now] you're going to sell out right down to 2 cents and then the stock is going to sit there. Everyone is going to be bickering and crying about it," he said.

He hopes the eventual filing of financial statements will allow the company, which he contends has good business prospects, to get back on track. In the meantime, he says going public was a mistake. "Personally, if I was running the company, I would never take taken it public."

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