China Business Knowledge

SPECIAL REPORT: Offices of New York Global Group Raided by the FBI. Now What?

jstites — Mon, 30 Jan 2012 15:36:34 +0000

(Originally published on January 27, 2012, to CBK email newsletter list.)

Unless you are suffering a hangover from Chinese New Year’s celebrations or otherwise living under a rock, you have probably already read that on Wednesday, January 25, the FBI raided the New York office The New York Global Group, run by the somewhat infamous Benjamin Wey.

There was no official announcement by the FBI about the raid, but Supervisory Special Agent, Tim Flannelly, confirmed for CBK that it did happen. When asked for the legal name of Benjamin Wey (i.e. what is on his passport), he said he could not provide that because it could “compromise the ongoing investigation.” He did confirm the spelling of “Wey”, which has sometimes been reported as “Wei” in the press. News reports have mentioned Wey’s residence was also raided, but Flannelly did not confirm that. In addition, Flannelly would not comment on Wey’s work status or if he is a citizen of the PRC or U.S.

Most who read this newsletter will make the connection that The New York Global Group is the firm which brought CleanTech Innovations Inc. (OTC QB: CTEK) to the market. As reported by CBK last week CleanTech filed a lawsuit against Nasdaq alleging that the exchange used racial profiling when making the decision to delist it last year. [CBK had been making calls to follow-up on that story prior to the news of the NYGG raid. Stay tuned.]

Most CBK readers will also not be surprised that Benjamin Wey would find himself in hot water as he and his firm has been mired down in bad press for several years and often cited as an example of a firm bringing bad apples to the market when critics question the legitimacy of RTO China stocks. CBK has stayed away from that debate as we have no first-hand experience with Wey or NYGG, nor the resources to do a respectable job investigating the allegations.

In this era, it is not enough to just mention a firm has had a few companies delisted. That is very common now and if all the i-banks, accounting firms, law firms and IR firms were given a “Scarlett Letter” for each of their clients to be delisted, it would be a very long and comprehensive list with more firms active in the sector on it than not.

As CBK has written in the past, we are looking forward to a day when the “lemons” of the sector are flushed out so those companies in good standing can get back to work trying to build their companies and provide investor value. It’s a sad day that it might be at the cost of U.S. the tax-payers’ dollar paying for the FBI’s time, instead of the sector setting its own high standards and the companies policing themselves through a legitimate sector association. But then again, the FBI’s intervention (no matter what happens in with NYGG) might be just the muscle needed to send a message to the bucket full of Chinese companies still considering trying to cheat the U.S. markets to pack up and go home.

Ultimately, to think of the U.S. capital markets without Chinese companies at this juncture of the global economy seems not only ludicrous, but a really, really bad idea. Similarly, to think that somehow there is more malfeasance with Chinese companies than with other foreign entities, such as companies based in Russia or Brazil seems equally naive.

CBK will continue to follow the story.

—Janet Stites, Publisher & Editor

Press Breeds Press–Not Always a Good Thing

jstites — Mon, 30 Jan 2012 15:34:39 +0000

How The FBI Raid of NYGG Made the News

(Originally published on January 27, 2012, to CBK email newsletter list.)

The story about the press’s reporting of the FBI raid of NYGG’s offices is as fascinating and alarming as the story itself.

It seems the news of the raid was first reported on a blog called The Financial Investigator, penned by Roddy Boyd. So kudos to him. That said, his only source was an unnamed employee of NYGG, who he identifies vaguely as a company “official”. Again, bravo for having that inside source. However, Boyd did not even make an effort to confirm the raid with the FBI itself. This is inexplicable for a seasoned journalist. It is easy to find the names of the press team at the New York FBI offices through a quick search. Their names and phone numbers are listed prominently on the “Press Room” page of their web site.

Boyd went on to write that the NYGG “official” indicated that,
1) Wey’s apartment had also been raided;
2) that no charges have been filed;
3) “it was not clear what NYGG transactions were of interest to the FBI.”

Boyd’s next line is even more confounding, given he had just “sourced” a NYGG “official” to support all the information he had on the situation: “Attempts to contact NYGG and Wey were unsuccessful;…”

Keep in mind that the FBI had not released any information to the public about executing a search warrant for the offices of NYGG. Unless Boyd was at NYGG’s Wall Street offices Wednesday and saw the FBI enter, he was only relying on a NYGG “official” who clearly is “giving up” his own company, so what does that say about the source’s motives? Boyd could have called the FBI and asked if they had executed a warrant there. According to Flannelly, they would have absolutely confirmed that, but not given more information than that it had, indeed, happened.

So, what if the obviously disgruntled NYGG “official” was using Boyd as a tool? In this day and age no amount of press ***CORRECTIONS*** could mitigate the damage Boyd and the press citing his blog could achieve in a few hours on the Internet. Bad news on the Internet mimics the Cambrian Explosion. Then who would be getting investigated?

Here’s how the news unfolded (best as we can ascertain):

The Epoch Times picked up the story, citing Boyd. It’s hard to imagine reporters read Boyd’s blog daily (he does not even post daily) so it’s likely there is personal connection there and he “gave” them the story. Good for them; good press for Boyd.

They did not just repeat his post. They took the proper steps to confirm the raid had indeed taken place, naming the FBI spokesperson they contacted. Bloomberg jumped on the news a bit later and also mentioned the FBI had confirmed the story, but did not source the FBI spokesperson’s name. It leaves one thinking that they did not take the time to confirm themselves, as that would be standard practice, even if they read it somewhere else. A “spokesperson” for the FBI is not going to demand anonymity, nor would it be warranted here.

John Carney, who writes a blog called “NetNet” under the colorful peacock umbrella of CNBC.com did a hatchet job covering the story, regurgitating Boyd’s post and then lifting five paragraphs (300 words!) of a story a Bloomberg reporter wrote on Wey in Jan. 2011. In the world of video reporting that would be tantamount to ABC running footage of a CBS news story, as part of its own story. And this during a week where the issue of “copyright” was top of the news, with discussions of “SOPA” and endless stories about the Megaupload arrests.

Later in the evening of January 26, Reuters distributed a short piece with the news, citing the same FBI spokesperson as The Epoch Times and crediting The Epoch Times as the news source which broke the news, only mentioning The Financial Investigator as the blog EP “cited.” OUCH! I guess Reuters does not consider Boyd’s blog a news source.

About Boyd

Boyd is a financial journalist and author with solid credentials, a fact he under reports on his blog, which is curious as one would think he would want to rest on the laurels and differentiate himself from hobbyist bloggers and, in the case of the China-sector, the short seller/research firms. At first read, given his snarky tone, righteousness, and seemingly hostile attitude to “all companies Chinese” one might assume he is part of that pack. But he claims he does not trade stock in any of the companies he covers and does not dole out “tips” about what he plans to write about to investors.

He started his blog in July 2010 and seems to write sporadically on a wide swath of topics to do with malfeasance on Wall Street. It is interesting, though, how many of his random entries are about Chinese companies trading on the U.S. markets. It seems disproportionate given the limited number of his posts and respect to the probable universe–dollar-wise–of malfeasance on Wall Street. He has written about Benjamin Wey several times and covered the companies the short -sellers have already put through the meat grinder, CCME, HRBN, SPU, RINO and a few others.

He wrote a book about AIG’s collapse, but if you put “AIG” in the search box on his blog it brings up nine posts, only two of which have “AIG” in the title. One search results brings up a story about Kingtone Wireless and another one about Harbin Electric, which makes no sense at all. He does have ONE post on Lehman’s Dick Fuld, questioning the status of his Finra license (great idea). But if you search MF Global or John Corzine “no results are found”. If you search “Madoff” two posts come up, one is the Harbin Electric post cited already and another seems to be a long post about a company called SpongTech.

All to ask, why with all this talent, experience and connections, is Boyd so focused on the China markets and seemingly adding to a dialogue which already exists, instead of focusing on the BIG DOGS, who hold billions of dollars of pension fund monies for U.S. workers and whose ticker symbols make-up the portfolios of the majority of U.S. independent investors, most of whom hold no China stocks at all?

—Janet Stites, Publisher & Editor, CBK

Publisher’s Notes

jstites — Thu, 26 Jan 2012 22:42:39 +0000

(Originally published Jan. 19, 2012, in CBK’s weekly email “Week in Review.”)

Dear Friends:

It’s time again to put the year behind us, this one based on the Chinese calendar. And if it’s not going to be a bull market, a dragon market sounds good to me. This week marked another round of press releases devoted to management changes. I have not compiled any statistics on this topic, but it seems that the beginning of 2012 has brought a lot.

In this issue, CBK welcomes the accounting firm of Holtz Rubenstein Reminick LLP to its Professional Services Firms network. Read the profile of HRR below on its commitment to China.

Happy New Year’s to all our Chinese friends, where ever you may find yourself! Safe travels and have a wonderful week.

Janet Stites, Publisher & Editor
jstites @ chinabusinessknowledge.com

Professional Services Firm Profile: Holtz Rubenstein Reminick LLP

jstites — Thu, 26 Jan 2012 22:41:38 +0000

Address:
1430 Broadway, New York, NY 10018
Tel: U.S. (212) 792 -4800

Website:
English: www.hrrllp.com
Mandarin: http://www.hrcpa.com/china/index.php

Contact: aschneider @ hrrllp.com

Embracing China
While other accounting firms are re-thinking or fleeing the sector of China-based, U.S. listed companies, New York-based Holtz Rubenstein Reminick LLP (HRR) is “long” on China, renewing its commitment to the region and ramping up its business development effort. If what has happened in the technology sector since the dot.com crash of the late 1990′s, it’s a smart move, because much like the Internet, China is not going away.

HRR’s China practice is spearheaded by Andrew Schneider and Lian Brandt. Schneider is well positioned for the job. He has an expertise in conducting audits of public companies, as well as SEC accounting and disclosure rules related to IPOs, mergers & acquisitions. Brandt, who is fluent in Mandarin, has focused on manufacturing, distribution, retail, real estate, construction, healthcare, staffing and education. When she joined HRR in 2006, her language skills were not of great import to the firm. But as happenstance and global economics would have it, it was a fortuitous hire. Paul Becht and Lily Hui are also on the China team and the firm has several other Mandarin-speaking accountants in its New York office who lend support.

International Presence
In regard to its auditing practice, HRR has a relationship with DFK International, which allows it to have a global reach. DFK is a 50-year-old non-profit making consortium of independent firms and does not itself practice in the field of accountancy, nor does it provide business advisory service. Each DFK member is an independent legal entity in its own country. DFK has affiliate firms in Beijing, Guangzhou, Shanghai, multiple firms in Hong Kong, and multiple firms in Singapore. HRR often works with the assistance of firms on the mainland, but works with Hong Kong-based Andrew Ma DFK (www.amdfk.com), because it has the most experience with U.S. listed companies.

Schneider clarifies the relationship between the firms it works with emphasizing that Holtz is responsible for the planning, supervision and execution of the audit work done in China. “We are not relying on our DFK firms on any other firms we may engage to assist us in the process,” he says. “We send our own senior manager and partner level people to the clients’ offices in the PRC to conduct field work and use the lower level staff from the Chinese firms for assistance.” He adds, though, that speaking with partner-level people at their DFK, or other PRC based audit firms, allows the Holtz team to better understand the business culture and business environment in the PRC.

The SAIC/SEC GAAP Fix
When asked about the problems stemming from the differences in Chinese SAIC and SEC GAAP accounting, Schneider is not optimistic. “I am not sure there is a fix to get the SAIC and SEC GAAP in line,” he says. “Clearly a move to IFRS standards throughout the world would be a large help. It seems to me that historically the SAIC filings had not been viewed as much more than an informational filing requirement in China while the actual tax filings by the PRC companies, which are not public record, were viewed in a much more serious nature.”

He does believe accounting practices in China are improving. “As more companies list on domestic exchanges and the U.S. markets reopen to Chinese entities, investors will demand accountability, strong internal controls and quality work from the professionals working with these companies,” he says.

More Than an Audit Firm
In addition to offering accounting, auditing services, HRR is working with some larger Hong Kong and mainland China companies to help them establish subsidiaries or look for acquisitions in the U.S. The firm’s Wealth Management practice is also forging relationships with China-centric banks to attract Chinese national who are investing in the U.S.

(HRR is a member of CBK’s Professional Services Firm network. To find out how your firm can join, email: mwiebe@chinabusinessknowledge.com.)

Newsbriefs, Jan. 19, 2012

jstites — Thu, 26 Jan 2012 22:41:06 +0000

(Originally published Jan. 3, 2012, in CBK’s weekly email newsletter, “Week in Review.”)

OF NOTE…

Youku.com & Ku6 Media Ink Pivotal Distribution Deals,
with 20th Century Fox and YouTube, Respectively

Everyday in the news commentators are debating what is going to work in China and what is not going to work in China. But one issue surely all would agree on is that Internet-based streaming video will be a growth industry. In such, those companies offering such services are of great import right now and pivotal to watch, no matter their stock prices. The partnerships forged now, in terms of distribution of copyrighted material, may prove historically pivotal to this nascent industry.

Earlier this month Youku.com (NYSE: YOKU) secured a deal with Twentieth Century Fox Home Entertainment to license 250 of its titles of new release and library films. The titles will appear on Youku Premium. The on-demand platform, which comes at an extra cost for subscribers, processed more than one million orders since launching in beta a year ago, according to a company press release. The titles include blockbusters like Planet of the Apes, Ice Age, X-Men and Alien and are already being offered in time for the Chinese New Year holiday.

This week Ku6 Media Co. Ltd. (Nasdaq: KUTV) announced it had entered into an agreement with YouTube which will allow Ku6′s international users to view original videos from China through a new channel operated by YouTube.

In Oct. 2011, Tudou.com (Nasdaq: TUDO) sealed a deal with the Walt Disney Company for the online distribution rights for mainland China to the Pixar’s animated movie “Cars 2″.

Of course, “first to market” companies sometimes fall prey to factors outside their control and are left behind. For instance, in Youku.com’s case bandwidth could be a major issue down the road, as it is in the U.S. Yahoo! got out-yahooed by Google. Kodak, an American institution, filed for bankruptcy today, but indeed, had a long run.

Still, were we making a timeline of pivotal deals made by emerging Chinese companies, this would be a good one to note.

________________________________________________

SEC UPDATE

Judgment in China Voice Fax Blast Campaign
On Dec. 21, 2011, the SEC obtained a judgment against Robert Wilson and two of his companies, Strategic Capital and Green Horseshoe Holdings, Inc., in regard to the fax blast campaign the companies conducted regarding false and misleading statements. Wilson did not disclose the amount and source of the compensation he or the companies received. According to the SEC News Digest, Wilson and Strategic Capital consented to entry of a judgment enjoining them from violations of Section 17(b) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, without admitting or denying any of the allegations. The judgment also provided that upon motion of the Commission, the Court may order disgorgement of ill-gotten gains and prejudgment interest thereon against Wilson, Strategic Capital, and Green Horseshoe Holdings, Inc., civil penalties in amounts the Court deems appropriate against Wilson and Strategic Capital, and a penny stock bar against Wilson.

Fisher Promoted to Deputy Director of International Affairs
On Jan. 12, 2012, the SEC announced the appointment of Dr. Robert M. Fisher as Deputy Director in the SEC’s Office of International Affairs. Fisher joined the SEC staff in 2002 as a financial economist in the Office of Economic Analysis. He later became an Assistant Director in the Office of International Affairs, where he has been responsible for the SEC’s international technical assistance program for emerging and recently-emerged markets. He will now oversee policy issues for the office. Fisher earned his Ph. D. in economics from Duke University.

________________________________________________

MARKET MOVES

Shanda Interactive Shareholders to Vote on Going Private
Shanghai-based Shanda Interactive Entertainment Ltd. (Nasdaq: SNDA) has called an extraordinary general meeting of shareholders to be held on Feb. 14, 2012. Shareholders will vote on the proposal to adopt the previously announced agreement and plan of a merger dated Nov. 22, 2011, which would take the company private and off the Nasdaq. The meeting will be held at 10:00 a.m. (Hong Kong time), 8th Floor, Room 802-3, The Hong Kong Club Building, 3A Chater Road, Hong Kong.

WSP to Change Ratio of ADS Shares
Wuxi-based company WSP Holdings Ltd. (NYSE: WH) announced that the company is working with its ADS depositary, JP Morgan Chase Bank, N.A., to change the ratio of its American Depositary Shares (“ADSs”) to ordinary shares from 1:2 to 1:10. The plan was approved by the board of directors of the company. The company anticipates the Ratio Change to bring its average ADS price above $1.00 per share in compliance with the New York Stock Exchange continued listing standard relating to minimum average share price. The company will update the investors immediately when the effective date of the Ratio Change is determined in due course. Founded in 1999, WSP Holdings develops and manufactures seamless casing, tubing and drill pipes used for on-shore and off-shore oil and gas exploration, drilling and extraction, and other pipes and connectors.

Puda Coal Director Resigns; SEC Likely to Institute Administrative Proceedings
Taiyuan-based Puda Coal Inc. (OTN: PUDA) announced the resignation of Jianfei Ni from its board. Additionally, on Dec. 28, 2011, Puda Coal received a notice from the SEC that it intends to recommend administrative proceedings against the company’s securities due to the company’s failure to comply with certain rules under the SEC Act of 1934, including the failure to file certain quarterly reports and non-compliance of the company’s previously filed annual reports due to the auditors’ resignation and non-reliance advice.

VLOV’s Ticker Reverts to VLOV.OB
The ticker symbol of Xiamen-based VLOV Inc. (OTC BB: VLOV) reverted back to “VLOV.OB” on Jan. 11, 2012. For 20 days prior it had a “D” temporarily appended to it in connection with the reverse stock split on Dec. 9, 2011. VLOV designs casual, “fashion forward,” apparel for men.

JinkoSolar Incorporates French Subsidiary
Shanghai-based JinkoSolar Holding Co., Ltd. (NYSE: JKS) announced the incorporation of its French subsidiary JinkoSolar S.A.S. and the opening of its French office in Montpellier, in the province of Languedoc-Roussillon. The new location will support JinkoSolar’s local partners and complement the growth of the region’s solar industry. JinkoSolar Holding Co., Ltd is a solar power product manufacturer.

Hollysys Signs $16.9 Million Deal
Beijing-based Hollysys Automation Technologies, Ltd. (Nasdaq: HOLI) announced that its wholly owned subsidiary Concord Corp. Pte. Ltd signed a contract with Sendan International Co., Ltd. to provide electrical, instrumentation and control installation works for Rabigh Power Plant II in Rabigh, Saudi Arabia, valued at approximately U.S. $16.9 million. Hollysys Automation Technologies is a provider of automation and control technologies and applications in China. Concord engages in providing end-to-end complete electrification related services in rail, power, semiconductor, pharmaceutical, petrochemical, and other industrial sectors.

CGA Subsidiary Makes ForbesChina.com List of Top 100 Companies
Xi’an-based China Green Agriculture, Inc. (NYSE: CGA) announced that Shaanxi TechTeam Jinong Humic Acid Product Co., Ltd. (“Jinong”), a wholly owned subsidiary of the company, was ranked 17th by Forbes China in its 2012 Top 100 Chinese Public Companies with the Greatest Potential, published on January 4, 2012 and available at forbeschina.com. These rankings were based on several indices, including growth, return on equity, profitability and revenue. According to the company, Forbes also conducted necessary field visits during its survey. This is the second consecutive year the company is recognized by Forbes. In 2011, Jinong was ranked 17th in Forbes’ ranking of the Best Small and Medium Enterprises in China. China Green Agriculture, Inc. mainly produces and distributes humic acid-based compound fertilizers, other varieties of compound fertilizers and agricultural products.

PEOPLE

ReneSola Makes New Management Appointments
Jiashan-based company ReneSola Ltd. (NYSE: SOL) announced that it has appointed Mr. Jijun Shi as president of the European region and Mr. Stephen Huang, the company’s vice president of wafer sales, as president of the Asia-Pacific region. In addition, Mr. Zhidong Zheng, the company’s vice president of wafer technology, has been promoted to senior vice president. Dr. Paul Li, the company’s president of JC Solar and senior vice president, has retired but will remain with the company in a consulting role until June 30, 2012.

Management Changes at Hollysys
Beijing-based Hollysys Automation Technologies, Ltd. (Nasdaq: HOLI) announced the departure of Peter Li, CFO, who is leaving the company due to personal reasons at the expiration of his three-year contract, effective Feb. 1, 2012. Ms. Herriet Qu, the company’s Financial Controller, will replace Li as CFO. Ms. Qu has been with company for more than four years. She has an M.B.A. degree from Oklahoma City University. Mr. Jianfeng He, CEO of Beijing Hollysys Group Corp, is promoted to Chief Operating Officer of Hollysys in charge of the company’s daily operations and supply chain management. Mr. He has been with the company for more than 14 years. He has a Ph.d in Automation from South China University of Technology. Mr. Baiqing Shao, Vice President of Beijing Hollysys Group Corp., is promoted to Senior Vice President Business Development in charge of merger and acquisition and new business exploration. Mr. Shao has been with the company for more than eighteen years as one of the founding group of engineers, with a master’s degree in computer science from the 6th Research Institute of China Electronics Corp. He has an M.B.A. from Beijing University. Ms. Jennifer Zhang, IR Manager, has been promoted to IR Director in charge of investor relations management and corporate communications. Ms. Zhang has been with the company for more than three years. She has a B.A. in English Literature from Nanjing Agricultural University. Hollysys Automation Technologies is a provider of automation and control technologies and applications.

ChinaEdu Announces Management Changes
Beijing-based ChinaEdu Corp. (Nasdaq: CEDU) announced changes to the management structure of the company. Mr. Shawn Ding, president and chief operating officer will resign from that role to become chief executive officer, effective immediately. Former chief executive officer and chairman of the board of directors, Ms. Julia Huang, will maintain her role as the chairman of the board of directors and will continue to work full time for the company as executive chairman. ChinaEdu Corp. is an educational services provider in China. Established in 1999, the company’s primary business is to provide services to the online degree programs of Chinese universities.

Xueda President/Director Resigns
Beijing-based Xueda Education Group (NYSE: XUE) has announced the resignation of its president and director, Mr. Jun Wang. Mr. Xin Jin, co-founder and chief executive officer of Xueda Educational Group, will assume Mr. Wang’s managerial duties effective Feb. 1, 2012. The company also announced the resignation of Mr. Hai Yang as Xueda’s chief information officer, effective April 1, 2012. With the recent completion of the rollout of its enterprise resource planning system, the company does not see the need to replace the position of chief information officer at this time. The company provides tutoring services for primary and secondary school students in China.

Jingqwei CFO Resigns
Shenzhen-based Jingwei International Ltd. (Nasdaq: JNGW) announced the resignation of Mr. Yong Xu as Chief Financial Officer. The company’s controller, Ms. Li Suwen, CPA, will serve as CFO until a replacement can be found. Ms. Cao Wei, Director of Investor Relations and Corporate Secretary, will continue to manage the company’s investor relations activities. Mr. Yong Xu has agreed to serve as an advisor to the company during this transition period. Jingwei provides data-mining and interactive marketing and software services.

China Sunergy Appoints CFO
Nanjing-based China Sunergy Co., Ltd. (Nasdaq: CSUN) has appointed Mr. Yongfei Chen as its Chief Financial Officer, effective immediately, with a contract for an initial three-year term. Chen has been serving as the company’s acting CFO since Nov. 2010. Prior to that Chen worked in China Electric Equipment Group Co., Ltd., or CEEG, China Sunergy’s affiliated company, where his last role was as general manager of the finance department. Prior to that, Chen was an accountant at Yangzhong Sub-branch of China Construction Bank from 1997 to 2002. Mr. Chen graduated from Yanshan University in Hebei, China with a bachelor’s degree in industrial management engineering in 1997. He is currently a PRC Certified Public Accountant. China Sunergy manufactures solar cells and modules.

CleanTech Innovations (CTEK) Files Racial Discrimination Suit Against Nasdaq

jstites — Thu, 26 Jan 2012 22:13:20 +0000

(Of note, CleanTech Innovations Inc. is not to be confused with CleanTech Solutions International Inc. (Nasdaq: CLNT), formerly known as China Wind Systems. For more on CleanTech Innovations, visit: http://www.ctiproduct.com.)

Yesterday news of Liaoning Province-based CleanTech Innovations Inc. (OTC QB: CTEK) filing a lawsuit against Nasdaq for racism and discrimination caught our attention and we thought it worth its own news briefing. The complaint claims that racial profiling played a role in the company’s delisting from Nasdaq [See company press release below for details].

Such a suit would surely be pivotal. It’s a novel idea, and indeed there seems to be some U.S. nationalism involved in discussions of China-based/U.S. listed companies, particularly since the alarms have been sounded (very LOUDLY) when research firms/short sellers have reported fiscal malfeasance among China-based/U.S. listed companies, whether their reports proved correct or not. But it does not make sense that Nasdaq would want to delist a company which was otherwise compliant, given listings are the root of the exchange’s revenue source.

Astonishingly, Arlen Specter, Esq., the former United States Senator and former Chairman of the United States Senate Committee on the Judiciary, is speaking out on behalf of CleanTech. CBK is curious as to the origin of that relationship. “As noted in my letters of January 12, 2012 to Secretary of Commerce Bryson and Trade Representative Kirk, I have undertaken representation of CleanTech because of evidence of racist discrimination against the Company because it is Chinese. NASDAQ’s delisting of CleanTech has resulted in losses of more than $200 million in CleanTech’s shareholders’ value and loss of opportunities to bid on more than $100 million in contracts for wind energy towers on New Jersey’s coast, which would have resulted in U.S. jobs. This matter involves more than a private dispute against two litigants and impacts on U.S. diplomatic relations with China.”

CBK has not had time to do further reporting on this unique bit of news. But rest assured we will be following this lawsuit and revisit the topic soon.
__________________________________________

COMPANY PRESS RELEASE

CleanTech Innovations, Inc. Sues the NASDAQ Stock Market for Racism and Discrimination

NEW YORK, Jan. 18, 2012 /PRNewswire/ — CleanTech Innovations, Inc. (OTCQB: CTEK, “CleanTech”), a U.S. company and manufacturer of wind towers and other industrial products serving the renewable energy industry, announced that it has filed an amended complaint in the United States District Court for the Southern District of New York against the NASDAQ Stock Market, LLC and the NASDAQ OMX Group, Inc. alleging NASDAQ’s racial profiling and discrimination against CleanTech Innovations, Inc. and China based companies. CleanTech seeks further discovery against NASDAQ.

A copy of the complaint against NASDAQ for its discriminatory acts was filed today with the Securities and Exchange Commission, or the SEC, as an exhibit to a Form 8-K, which is available at: http://www.sec.gov/Archives/edgar/data/1382219/000118518512000079/ex99-13.htm. CleanTech also filed several other exhibits today to the Form 8-K as further evidence of NASDAQ’s racist discrimination against CleanTech.

At all times, CleanTech complied with NASDAQ’s listing standards and disclosure rules, has never been late in its regulatory filings and has been in compliance with securities laws and disclosure requirements. CleanTech has filed 3 separate S-1 registration statements with SEC, relating to various financing and has cleared SEC staff comments on all of them.

CHINESE GOVERNMENT AGENCY LAUNCHES INQUIRY AGAINST THE NASDAQ

On January 8, 2012, The China LiaoNing Provincial Government Small and Medium Enterprises Bureau, a major provincial government regulatory agency in China, sent official letters to The United States Department of Commerce and The Office of the United States Trade Representative, expressing the agency’s grave concerns regarding the racially-motivated discriminatory acts of NASDAQ against CleanTech and the resulting damage to CleanTech and China-U.S. business and trade relations. The English translations of the official letters were filed today with the SEC as an exhibit to a Form 8-K, which is available at: http://www.sec.gov/Archives/edgar/data/1382219/000118518512000079/ex99-14.htm

COMMENTS FROM FORMER SENATOR ARLEN SPECTER, ESQ., COUNSEL TO CLEANTECH:

Arlen Specter, Esq., the former United States Senator and former Chairman of the United States Senate Committee on the Judiciary, who represents CleanTech, commented, “As noted in my letters of January 12, 2012 to Secretary of Commerce Bryson and Trade Representative Kirk, I have undertaken representation of CleanTech because of evidence of racist discrimination against the Company because it is Chinese. NASDAQ’s delisting of CleanTech has resulted in losses of more than $200 million in CleanTech’s shareholders’ value and loss of opportunities to bid on more than $100 million in contracts for wind energy towers on New Jersey’s coast, which would have resulted in U.S. jobs. This matter involves more than a private dispute against two litigants and impacts on U.S. diplomatic relations with China.”

RACIST REMARKS CAPTURED ON THE RECORD MADE BY MICHAEL EMEN, A MEMBER OF NASDAQ’S SENIOR MANAGEMENT :

As captured on the record of testimony made by Michael Emen, NASDAQ’s Senior Vice President and Head of NASDAQ Listing Qualifications, NASDAQ delisted CleanTech under Michael Emen’s self-described “broad discretionary authority,” as he stated on the record, to “delist CleanTech…send a message to the world” against Chinese companies. NASDAQ and Michael Emen developed their prejudice and racial discrimination against the Chinese people, China based companies, acting outside NASDAQ’s regulatory purview, as further evidenced by Michael Emen’s racially biased statement captured on the record: “CleanTech’ s disclosures may have satisfied the letter of our rules, but they certainly didn’t satisfy their “spirit.” NASDAQ and Michael Emen’s “spirit” of racism against CleanTech and China based companies, rather than adhering to the rule of law, was evident when Michael Emen admitted on the record that CleanTech had complied with required NASDAQ disclosure rules. There is no “spirit of NASDAQ ” as a NASDAQ listing standard that could be found anywhere, including the NASDAQ Code of Conduct.

NASDAQ AND MICHAEL EMEN GROSSLY VIOLATED THE FUNDAMENTAL PRINCIPLE OF LAW – “ATTORNEY-CLIENT PRIVILEGE”

According to CleanTech’s complaint, among many other discriminatory acts by NASDAQ, NASDAQ’s Listing Qualifications Department and Michael Emen engaged in extensive discriminatory rulemaking, contrary to SEC mandates, and coerced CleanTech to waive its fundamental legal right to its attorney-client privilege as a pre-condition to listing. As captured on the record of testimony, Michael Emen stated: “you don’t turn over attorney client privileged documents, you don’t get listed…attorney-client privilege doesn’t matter with NASDAQ listing”. CleanTech seeks to discover if Michael Emen’s racist remarks were concurred by NASDAQ OMX Group’s Chairman H. Furlong Baldwin, NASDAQ’s senior management, and whether Michael Emen’s racial profiling against CleanTech is supported by NASDAQ’s Board of Directors, chaired by law professor Merit E. Janow of Columbia University. CleanTech seeks to discover the extent to which NASDAQ has approved Michael Emen’s discriminatory acts or approved Michael Emen’s demand that a public company waives attorney-client privilege as a listing requirement by NASDAQ.

NASDAQ’S LISTING APPEAL PROCESS WAS “FIXED” BY NASDAQ STAFF AGAINST CLEANTECH IN FURTHER EVIDENCE OF RACISM

In May 2011, according to CleanTech’s records, a NASDAQ employee by the name of T. Sean Bennett of the NASDAQ General Counsel’s office issued a contradictory Order purportedly acting on behalf of the entire NASDAQ Listing and Hearing Review Council (“Council”), an independent listing appeals body led by Brian Borders, founder of Borders Law Group. T. Sean Bennett signed an Order “on behalf of” the Council and falsely and bizarrely overturned the ruling of the Council’s own independent decision issued only a few days earlier, which ruled in favor of CleanTech. The independent Council ruled that NASDAQ’s delisting record of CleanTech “lacks sufficient fact and detail” to justify the NASDAQ Listing Qualifications Staff’s delisting decision. Upon information and belief, T. Sean Bennett, who shares the same office address with Michael Emen, acted and “fixed” the Council decision and reversed the Council’s independent and favorable ruling towards CleanTech without input from at least the vast majority of the independent Council members. CleanTech seeks to discover the extent to which such a discriminatory act was supported and acknowledged by the NASDAQ Listing and Hearing Review Council, its co-chairmen Brian Borders of the Borders Law Group and John C. Giesea, CEO of the Security Traders Association. Circumstances surrounding the bizarre reversal of the Council’s own decision and the “fix” by NASDAQ staff was filed today with the SEC as an exhibit to a Form 8-K, which is available here: http://www.sec.gov/Archives/edgar/data/1382219/000118518512000079/ex99-15.htm

AT LEAST ONE NASDAQ BOARD MEMBER STATED THAT HE HAD NEVER HEARD ABOUT A “CLEANTECH DELISTING” FOR REVIEW, A VIOLATION OF DUE PROCESS

Upon information, it is CleanTech’ s belief that no member of NASDAQ’s Board of Directors and only a very few members of the NASDAQ Listing and Hearing Review Council ever participated in CleanTech’s appeal process or were made fully aware of CleanTech’ s delisting appeal. NASDAQ’s violation of such due process and lack of transparency permitted NASDAQ Staff to “fix” the result it desired without properly informing many of its board and council members, in violation of NASDAQ’s own governance rules.

CleanTech will continue to exercise its legal rights to the fullest extent permitted by law. CleanTech believes racial profiling by NASDAQ has caused irreparable harm to CleanTech, a loss of more than $220 million in CleanTech’s market capitalization and significant losses to CleanTech’s institutional and “mom and pop” retail investing public across America.

About CleanTech Innovations, Inc.

CleanTech Innovations, Inc. is a U.S. company and manufacturer of wind towers and other industrial products serving the renewable energy industry. CleanTech designs and manufactures high performance clean technology products that promote renewable energy generation, energy savings and pollution reduction. CleanTech’s longstanding customers include some of China’s largest utilities companies and global Fortune 500 companies in China.

Safe Harbor Statement

All statements in this press release that are not historical are forward-looking statements made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. There can be no assurance that actual results will not differ from the company’s expectations. You are cautioned not to place undue reliance on any forward-looking statements in this press release as they reflect CleanTech’s current expectations with respect to future events and are subject to risks and uncertainties that may cause actual results to differ materially from those contemplated. Potential risks and uncertainties include, but are not limited to, the risks described in CleanTech’s filings with the SEC.

Contact:
Blair C. Fensterstock, Esq.
Co-Counsel to CleanTech Innovations, Inc.
Fensterstock & Partners LLP
Tel: 212-785-4100
bfensterstock@fensterstock.com

Publisher’s Notes

jstites — Tue, 17 Jan 2012 21:13:42 +0000

[Originally published in CBK's "Week in Review" email newsletter, Jan. 12, 2012.]

Dear Friends: Welcome to 2012. The holidays did not seem to curb the news coming out of the sector of Chinese companies trading on the U.S. markets. We’ve tried to compile as much of it as we could below. What I noticed, though, is that it is a “season of change”, as you’ll see when you scroll down. Most of what we found on the news wire were changes in management, directors, auditors and, in the case of Cleantech, exchanges.

On Monday, the National Committee on U.S. China Relations hosted its third economic forum at the New York Stock Exchange, bringing Chinese economist to New York for a frank “bellwether” discussion of their perspectives of where they see the Chinese economy going. I did not have time to write an article on the event, but look for one next week. And thanks to the NCUSCR for organizing such an educational event.

At CBK, I’ve welcomed Mike Wiebe as a business partner to spearhead our business development. Mike introduced me to the China sector in 2008, when through a series of contacts, he was asked to do some consulting for a Chinese financial services firm which had 12 Chinese companies then “simmering” on the OTC BB. He and I worked on the project together and since have weathered two downturns. But we are optimists by nature and fortunately have enough years behind us to have some “hindsight in the present” and a vision of where this sector (and China, in general) can be five or ten years from now.

In addition, Yiqing Zhang, a native of China, is joining CBK for the winter and spring as an editorial intern. Yiqing is finishing her Master’s in Journalism at the prestigious Newhouse School of Communications at Syracuse University (my alma mater also!). Essentially she is on “loan” to CBK and we are very grateful. She helped report on the Newsbriefs below. Special thanks also to my good friend, Senti Toy Threadgill, who often proofreads “Week in Review” as a courtesy, even as she was putting the final touches on her own dissertation for her Ph.D. last year.

If you want to learn about ways you can promote your company through CBK, please reach out to Mike Wiebe, at mwiebe@chinabusinessknowledge.com.

Janet Stites, Publisher & Editor
jstites @ chinabusinessknowledge.com

Newsbriefs, Jan. 11, 2012

jstites — Tue, 17 Jan 2012 21:12:52 +0000

[Originally published in CBK's "Week in Review" email newsletter, Jan. 12, 2012.]

MARKET MOVES

China TMK Battery to Cease Reporting; Weighing Options
Shenzhen-based China TMK Battery Systems (OTC: DFEL) announced it had filed a Certification and Notice of Suspension of Duty to File Report with the SEC in order to reduce substantial legal and accounting expenses. The company was eligible to deregister its common shares because it had fewer than 300 holders of record of its common shares at the beginning of its fiscal year. The board is in the process of evaluating strategic alternatives for the company including a sale, merger, privatization, or other business combination. According to the company’s press release, the board has not set a timetable for completion of this evaluation process and can make no assurances that this review will result in any action. The company also announced it has delivered payment to all eligible investors for the make good provision as stipulated in its registration rights agreement dated February 10, 2010. TMK has wired the penalty funds to Escrow and Agent Service Co., LLC. Funds will be distributed by check to each investor’s address of record.

WSP Holdings Considering Going Private
The board of Wuxi-based WSP Holdings Ltd. (NYSE: WH) announced that its board of directors has formed a special committee of independent directors to consider strategic alternatives which would enhance shareholder value after the company received a proposal from an investment company run by its Chairman and CEO, Longhua Piao, to take the company private. The offering price is U.S. $0.60. For the past 3 months the stock has been trading at an approximate average of $0.45, on the high end around $0.55 and the low end around $0.37. Piao owns $50.9 percent of WSP.

Ossen Receives a Letter of Non-Compliance from Nasdaq
Shanghai-based Ossen Innovation Co., Ltd. (Nasdaq: OSN) has received a letter of non-compliance from Nasdaq in regard to the minimum bid price rule, which requires the company’s stock to close at a minimum of $1.00 for 30 consecutive business days. In order to regain compliance, the company has until June 26, 2012 for the closing bid price of its American Depositary Shares (ADS’s) to meet or exceed $1 for a minimum of ten consecutive business days. If the company has not regained compliance by the expiration of the initial 180 calendar days, NASDAQ will then provide written notification to the company that its ADS’s are subject to delisting.

QKL Stores Receive Letter of Non-compliance from Nasdaq
Daqing-based QKL Stores Inc. (Nasdaq: QKLS) has received a letter of non-compliance from Nasdaq in regard to the minimum bid price rule, which requires a company’s closing day bid to be at least $1.00 for 30 consecutive business days. The letter has no immediate effect on the listing or trading of the stock, which trades on the Nasdaq Capital Market.

Cleantech Moves from Nasdaq GM to Nasdaq CM
The common stock of Wuxi-based Cleantech Solutions International Inc. (Nasdaq: CLNT) began trading on The Nasdaq Capital Market on Dec. 29, 2011, moving there from The Nasdaq Global Market. It continues to trade under the same ticker “CLNT”. The transfer to The Nasdaq Capital Market was made at the request of the company since the company did not meet the minimum market value of publicly traded shares requirement of $5,000,000 on The Nasdaq Global Market. The Company meets the minimum market value of publicly traded shares for The Nasdaq Capital Market.

Jingwei International Receives Going Private Proposal from Chairman/CEO
Jingwei Interational Ltd. (Nasdaq: JNGW) announced on Jan. 6, 2012, it had received a proposal from George (Jianguo) Du, Chairman and CEO, for a “going private” transaction. Du owns 41.1 percent of Jingwei’s common shares. The letter proposes the directors consider a reverse stock split transaction that would include a reverse split at a 1-for-50,000 share ratio followed by a cancellation of all fractional shares below one whole share at a per share price of $1.56. Du also offered to finance the proposed transaction. No decisions have been made.

Qihoo Launches Share Repurchase Program
The board of Beijing-based Qihoo 360 Technology Co. Ltd. (NYSE: QIHU) has approved a share repurchase program of up to U.S. $50 million of the company’s American Depositary Shares. The share repurchases are currently expected to be made through open market purchases or privately negotiated transactions as market conditions warrant, at prices the company deems appropriate, and in accordance with SEC requirements. The share repurchase will be funded with the company’s existing cash reserves and ongoing cash flow. The company had U.S. $319 million cash and cash equivalent on its balance sheet as of Sept. 30, 2011. CEO, Mr. Hongyi Zhou, also serves as Chairman.

Independent Audit of ChinaCast’s Cash Balances Published
Beijing-based ChinaCast Education Corp. (Nasdaq GS: CAST) announced the findings of FTI Consulting’s review of its cash balances as of June 30, 2011. FTI found that as the company had cash, cash equivalents and term deposits totaling U.S. $132.1 million (RMB 845,674,247) held with 29 PRC financial institutions. This total represents 98.5 percent of the total cash, cash equivalents and term deposit balances reported in the company’s form 10-Q for the second quarter ended June 30, 2011. Per the company press release, the remaining 1.5 percent discrepancy is attributable to the termination of the company’s University of Petroleum e-learning joint venture. ChinaCast hired FTI to do the audit to ease the minds of investors after a smattering of bad press and allegations of fiscal malfeasance, some of which was published by short sellers which held CAST stock.

COMPANY NEWS

China Automotive Forms J.V. with Truck Manufacturer
The board of China-based China Automotive Systems Inc. (Nasdaq: CAAS) approved the formation of a joint venture with heavy-truck manufacturer, SAIC-IVECO Hongyan Co., to create a new manufacturing facility with a capacity to produce 200,000 power steering units for commercial vehicles in China. The new joint venture, named Chongqing Henglong Hongyan Power Steering Systems Co. Ltd., has registered capital of RMB 60 million. It will be 70 percent owned by CAAS. SAIC-IVECO will own the remaining 30 percent. The plant will be located in Chongqing City, where SAIC-IVECO is based. China Automotive Systems manufactures power steering components and systems. The chairman of CAAS is Mr. Hanlin Chen.

Ambow Education Divests
Beijing-based Ambow Eduation Holding Ltd. (NYSE: AMBO) announced on Jan. 5, 2012, it would divest a number of assets to be completed for the end of fiscal year 2011 to sharpen the focus on its core service, tutoring and career enhancement. So far, the company has completed the following:

It sold its Beijing Century College and its 100 percent owned Beijing Siwa Century Facility Management Co. back to its original owner;
It returned its 21st Century K-12 school assets to its original owner for a 15-year operating right of the school. It also agrees to jointly fund future capital expenditures through separately negotiable agreements; and
It sold one career enhancement and three tutoring subdivisions as a package.

As a result of the above transactions, the revenue of the sold business units excluding 21st Century K-12 School for which the company has retained a 15-year operating right are estimated to be around U.S. $8.0 million[1] for the fourth quarter of 2011 and U.S. $25.0 million for fiscal year 2011. Ambow Education is a provider of educational and career enhancement services in China, offering high-quality individualized services and products. Ambow has two business divisions: “Better Schools,” which includes tutoring centers and K-12 schools; and “Better Jobs,” which includes career enhancement centers and colleges.

PROFESSIONAL SERVICES FIRM NEWS

Orient Paper Switches Auditors in the BDO Network
Baoding-based Orient Paper Inc. (Amex: ONP) has hired BDO China Shu Lun Pan CPAs LLP, the China-based member of BDO International Ltd., as its independent registered public accounting firm, replacing BDO Limited, the Hong Kong member of BDO International Ltd. The company dismissed BDO HK as its auditor on Dec. 21, 2011.

SkyPeople Appoints New Accounting Firm
China-based SkyPeople Fruit Juice Inc. (Nasqaq: SPU) announced that it has engaged Paritz & Company, P.A. to serve as its independent registered public accounting firm, effective as of Dec. 24, 2011. The firm replaces BDO Ltd., which was dismissed on Dec. 23, 2011. SkyPeople said that the decision to change auditors was not the result of any disagreements between the company and BDO on any matters of accounting principles or practices, financial statement disclosure or auditing scope or procedures. SkyPeople produces fruit juice concentrates.

PEOPLE

Management Moves at Global Sources
Hong Kong-based Global Sources Ltd. (Nasdaq: GSOL) completed the planned transition of its chief operation officer (COO) and chief information officer (CIO). Peter Zapf, who had served as COO, now serves as CIO, replacing Bill Georgiou. Georgiou is scheduled to retire as an employee at the end of February, 2012. Brent Barns, formerly the general manager of content & community development, has replaced Zapf as COO. Global Sources is a business-to-business media company and a facilitator of trade with Greater China.

Haus Resigns from Nutrifruit Board
China-based China Nutrifruit Group Ltd. (NYSE Amex: CNGL) announced that William P. Haus has resigned from the company’s board of directors, effective Dec. 29, 2011. Haus previously served as chairman of the compensation committee of the board. The company is actively searching for a candidate with similar expertise and experience to fill in the vacancy. China Nutrifruit is engaged in developing, processing, marketing and distributing a variety of food products processed primarily from premium specialty fruits grown in Northeast China, including golden berry, crab apple, blueberry, seabuckthorn, blackcurrant and raspberry.

VisionChina Makes Board Changes on Audit Committee
Beijing-based VisionChina Media Inc. (Nasdaq: VISN) announced changes to the company’s board of directors. Mr. Arthur Wong and Mr. Daniel Shih have been appointed as independent director and Ms. Xisong Tan’s independent director of the company’s board of directors. Wong, Shih and Tan will make up the audit committee of the board of directors and Wong has been appointed chairman of audit committee. Mr. William Decker and Ms.Yunli Lou have stepped down from their positions as independent directors because their current tenures expired, but both will act as senior consultants to the company.

Wong has served as CFO of GreenTree Inns Hotel Management Group, Inc. Prior to that, he was Asia New Energy Holding and Nobao Renewable Energy Holdings Ltd. Wong worked for Deloitte Touche Tohmatsu in Hong Kong, San Jose and Beijing as a partner in the Beijing office. He received a bachelor’s degree in applied economics from the University of San Francisco and a higher diploma of accountancy from Hong Kong Polytechnic University.

Shih has served as deputy chairman and group strategy officer at Stella International Holdings Ltd. He worked for PepsiCo (China) serving as chairman of PepsiCo (China) Investment Ltd. and as president of the China region for PepsiCo’s Beverages Business Unit. He was president of Motorola (China) Electronic Ltd., where he was responsible for setting, managing and executing on the growth strategy for Motorola in China. Shih received a master of science in electrical engineering from the University of Cincinnati in 1977 and a bachelor of science in electrical engineering from Tatung Institute of Technology in 1974.

VisionChina Media Inc. operates an out-of-home advertising network on mass transportation systems, including buses and subways.

L&L Appoints Political Heavy Weight, Edmund Moy, to Board
L&L Energy Inc. (Nasdaq: LLEN), which operates in China, but has its corporate offices in Seattle, announced that the company has appointed Edmund Moy to the company’s board of directors. Moy will serve concurrently as V.P. of Corporate Infrastructure and a non-independent board member. He replaces Robert Lee, who is vacating his position for personal reasons. Before L&L Energy Inc, Moy served as the 38th Director of the United States Mint at the U.S. Department of the Treasury from Sept. 2006 through Jan. 2011. From 2001-2006, he served in the White House as a Special Assistant to the President of the United States. He was a private equity consultant with clients including Welsh, Carson, Anderson & Stowe and was a sales and marketing executive with Blue Cross Blue Shield. Moy earned a B.A. from the University of Wisconsin with a triple major in economics, international relations, and political science. He has served as a director of several for-profit companies and charitable, religious, and fraternal organizations and has an endorsement contract with Morgan Gold.

Janet’s List for Dec. 13, 2011

jstites — Wed, 04 Jan 2012 16:17:53 +0000

(CBK’s new “list” of indicators & trends for China-based U.S. listed companies.)

Companies which have launched and/or completed Share Repurchase Programs:
(in alphabetical order)

Charm Communications Inc. (NASDAQ: CHRM)
China Cord Blood Corp. (NYSE: CO)
ChinaCast Education Corp. (NASDAQ: CAST)
China Gerui Advanced Materials Group Ltd. (NASDAQ: CHOP)
China Housing & Land Development Inc. (NASDAQ: CHLN)
China Information Technology Inc. (NASDAQ: CNIT)
China Xiniya Fashion Ltd. (NYSE: XNY)
Focus Media Holding Ltd. (NASDAQ: FMCN)
Giant Interactive Group Inc. (NYSE: GA)
Gulf Resources Inc. (NASDAQ: GURE)
China GrenTech Corp. Ltd. (NASDAQ: GRRF)
Hollysys Automation Technologies Ltd. (NASDAQ: HOLI)
Jingwei International Ltd. (NASDAQ: JNGW)
Lihua International Inc. (NASDAQ: LIWA)
Mindray Medical International Ltd. (NYSE: MR)
NetEase.com, Inc. (NASDAQ: NTES)
Nutrastar International Inc. (OTCBB: NUIN)
Orient Paper (Amex: ONP)
ReneSola Ltd. (NYSE: SOL)
Shanda Interactive Entertainment Ltd. (NASDAQ: SNDA)
Sutor Technology Group Ltd. (NASDAQ: SUTR)
Taomee Holdings Ltd. (NYSE: TAOM)
VisionChina Media Inc. (NASDAQ: VISN)
Zhongpin Inc. (NASDAQ: HOGS)
Xinyuan Real Estate Co., Ltd. (NYSE: XIN)

More? Send to: jstites@chinabusinessknowledge.com

SPECIAL REPORT: China Century Dragon Gets a Reprieve, But to What Avail?

jstites — Wed, 04 Jan 2012 16:14:22 +0000

(Originally published Dec. 13, 2011, in CBK’s email newsletter, “Week Review. Sign up on CBK’s home page.)

The U.S. District Court for the Central District of California dismissed a shareholder class action claiming that Beijing-based China Century Dragon (OTN: CCDM) reported falsely inflated revenues to the SEC. According to a press release issued by the firm’s counsel, Loeb & Loeb, shareholders cited discrepancies between the company’s SEC filings and revenue reported to the Chinese State Administration for Industry and Commerce (SAIC), as well as the resignation of CCDM’s auditors, as evidence of accounting fraud intended to mislead U.S. investors. According to the release, the U.S. District Judge dismissed the action concluding that the plaintiffs neglected to establish the accuracy or falsehood of either set of revenue figures in order to demonstrate that CCDM committed fraud.

At first glance this decision seems somewhat counter-intuitive. After all, the SEC halted, and later delisted, China Century Dragon SEC only six weeks after it started trading because of accounting discrepancies highlighted in the March 22, 2011, resignation letter of China Century Dragon’s independent auditor, MaloneBailey LLP.

MaloneBailey stated in its letter of resignation that accounting records may have been falsified and that it could not verify the company’s bank records. However, Michael MacPhail, a Partner in the White Collar and Securities Litigation Practice Group at Holme Roberts & Owen LLP (HRO), had a different take on the series of events, one which suggests MaloneBailey may have been trying to save face by distancing itself from several of its China-based clients. He discusses this in his July 1, 2011, blog post titled “PCAOB Criticizes Audit Firm That Later Fires Its Chinese Public Company Clients.” http://securitiesdefenseblog.hro.com/2011/07/pcaob-criticizes-audit-firm-that-later-fires-its-chinese-public-company-clients.html.

In his post, MacPhail outlines that MaloneBailey’s resignation as China Century Dragon’s independent auditor came on the heels of the accounting firm receiving a negative inspection report on February 24, 2001, from the PCAOB in regard to its work with its Chinese partner firm. In the same time period MaloneBailey also resigned as the auditor for NIVS Intellimedia Technology Group and China Intelligent Lighting and Electronics, which MacPhail interpreted as a reaction to the PCAOB’s negative report. MacPhail points out in the post that MaloneBailey’s allegations of fraud led to a domino effect, keeping the companies, guilty or not, from being able to file timely financial reports, opening the door for endless investors’ lawsuits, both of which immediately translate into a stack of legal bills.

It is not clear if China Century Dragon is still in business. The company did not release its own announcement about the judgment. Attempts to reach out directly to management, or through Loeb & Loeb, failed.

Timeline:

Stock debuts on NYSE Amex via reverse merger under ticker “CDM”: Feb. 8, 2011
Malone Bailey resigns as auditor: March 22, 2011
Stock Halted: March 23, 2011
Delisted: October 17, 2011
Management: Mr. Fu Hai Ming, CEO; Mr. Duan (George) Dapeng, CFO

Further reading:

SEC’s Notice of Administrative Proceeding: http://www.sec.gov/litigation/admin/2011/33-9224.pdf

SEC notice of delisting: http://www.sec.gov/Archives/edgar/data/1143313/000114331311000119/xslF25X02/primary_doc.xml