Not too long ago, China loomed as a massive financial opportunity. The Chinese economy was booming and more companies listed themselves on U.S. exchanges. Many investors jumped on the bandwagon, but now the bubble is beginning to deflate.

Many of those ballyhooed China stocks are now swooning. And the SEC is looking at the practices of firms that audited the many companies that went public via reverse mergers, many of which touted their compliance with Sarbanes-Oxley. Enforcement actions are expected. In one high profile event, Deloitte made a rather noisy exit--along with the company's CFO--as it resigned as the auditor of Hong Kong financial software firm due to the "falsity of the company's financial records in relation to cash at bank and loan balances" among other issues.

Some of the China bears may be sensing the beginning of the end. Indeed, a Bloomberg index of Chinese reverse merger stocks is down some 50 percent over the last year and a half. Recall that Jim Chanos, the esteemed short seller and a big critic of the China bulls, has raised $20 million for a new hedge fund to short China, especially Chinese real estate. He has been vocal about his opinion that an epic crash of residential MBS proportions may be looming. Another short selling hedge fund has gone public with its view that Sino-Forest,which the fund is shorting, is a massive fraud. That stock has tanked in Toronto. You have to wonder if this is a sign of things to come.

For more:
- here's a Financial Times overview

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What's behind the IPO boom?