Dan David, research director at GeoInvesting, a financial-information website focused on small-cap stocks, recently took an interview with Barron’s talking about the pervasive fraud among small-cap U.S. listed companies, and how he found his way to China stocks research.

Once a jewelry executive, Dan David cannot speak and write Mandarin. Yet he helped unmask several frauds among the dozens of U.S.-listed China stocks that have burned investors in the last couple of years and has raised allegations against others, according to the Barron’s. When the Securities and Exchange Commission filed civil-fraud charges in February against the chairman of China's Puda Coal, its complaint cited a report published on GeoInvesting by David.

Here is the highlights of the interview:

How did you first find your way to the U.S.-listed China stocks?
Some of the most egregious reporting differences were in the U.S.-listed China stocks. We dabbled in those stocks in '06, '07 and '08. But 2008 was a horrible year, obviously, for a long investor, and our world was shaken along with everybody else's. So we just put our noses to the grindstone and all these China stocks kept popping up to the top of the list. We went long the Chinese market in a big way.

You started research to rebut the shorts?
We did just that. And what we came back with just rocked us to our core. Fraud was pervasive and out in the open. We would ask our investigators to go visit a facility and they found it wasn't operating. I was shocked. We then approached our China attorney and asked for these filings that companies make to the SAIC, the State Administration for Industry and Commerce. In July 2010 we got filings on China MediaExpress. He charged us $5,000 for two filings that must've cost him a couple of hundred dollars. Then we realized we didn't read Mandarin.

When did anyone start paying attention?
People started taking our research seriously when we released a story on Subaye (SBAY), a cloud-computing company that claimed to have 1,539 employees at a certain location. We sent our investigator there.

What did he do?
He stood outside for two days and watched the employees come in and out. Then he called and said, "There's a problem. They have many fewer employees there than they claim." And I said, "Okay, they say they have about 1,500. What are we looking at, half that?" And he said, "No, 40 to 50." The investigator also talked to the community at large. The local people would tell you, "You are not here on the wrong days. This is really how many people come in and out of there." So we published that report and Subaye got delisted. The CFO resigned.

Any other troubling trends for investors in China?
Just the longstanding moral hazard posed by the VIE structure that so many of these companies use.

Read the full interview here.