Thursday, June 30, 2011

China Marine Food Group Provides Business Update

China Marine Food Group Limited (NYSE Amex: CMFO), a China-based manufacturer of Mingxiang® seafood-based snack foods, "Hi-Power" marine algae-based beverages, and distributor of frozen marine catch, today provided an update on its two business segments.

China Marine continues to experience solid growth in its Hi-Power algae-based beverages. Increased marketing activities have resulted in growing brand recognition and repeat orders in Fujian province. To increase geographic penetration, the Company has also expanded into the Zhejiang province through a distributor who services the Wenzhou area. The initial focus has been on stocking restaurants and canteens, with approximately 600 points of sales established to date. The Company has launched various marketing initiatives to build brand awareness and anticipates signing additional distributors in the near term. Management has been encouraged by consumer feedback and sell through has been robust.

Sales of the Company's seafood products have been adversely affected by consumers' perception of safety in relation to the nuclear disaster in Japan. Softness in sales that began in late March has persisted through the second quarter of 2011. While China Marine is confident the seafood it uses to produce Mingxiang® snack foods are safe, it is unclear how long it will take for consumer confidence in seafood products to normalize. Management will provide a detailed update when it reports its second quarter 2011 results.

"The long term fundamentals of our businesses remain strong and we are committed to continually investing behind our brands," stated Chairman and CEO, Mr. Pengfei Liu. "While we believe that these sales disruptions in our seafood products are temporary, we are working diligently to ensure the safety of our products to our customers and distributors. Hi-Power continues to gain traction and the product diversification clearly benefit the shareholders at times such as this."

American Lorain Corporation Announces Share Repurchase Program

American Lorain Corporation announced that its Board of Directors has approved a share repurchase program that authorizes American Lorain to repurchase up to $5 million of its common stock in the open market or through privately negotiated transactions in the next 12 months. The Company expects to implement this share repurchase program in a manner consistent with market conditions and the interest of the shareholders, and in compliance with Rule 10b5-1 or Rule 10b-18 of the Securities Exchange Act of 1934. The program does not obligate American Lorain to acquire any particular amount of its common stock and may be modified or suspended at any time upon review by the Company's board of directors. The Company plans to fund repurchases made under this program from its available cash balance.

Tuesday, June 28, 2011

Company bosses committing more fraud

Article KPMG

Senior Management/Board Increasingly Commit Fraud in Companies
A new KPMG survey reveals that business fraud is on the increase, with a significant proportion committed by those with board-level positions. Company bosses are responsible for an increase in fraud across the globe. The KPMG study found that board members at divisional, subsidiary and corporate level, commit nearly one fifth of fraud — an increase from 11 per cent in 2007 — to 18 percent in 2011. Of the various board roles, CEOs account for an increase in committed fraud from just 11 percent in 2007 to 26 percent across the four-year period.

Often long-serving and more senior employees will be better able to override controls and have accumulated a good deal of personal trust, so will be less suspected, and they are most prone to committing embezzlement and/or procurement fraud (these account in aggregate for just over 50 percent of the 348 cases). Examples include false billings by a supplier to fund kick backs to a senior employee; employees accepting bribes from a contractor in exchange for signing off inflated project costs; and supplier collusion with victim company employees leading to overbilling.
Richard Powell, KPMG’s EMA forensic investigations network lead, concludes from the study: "Given the findings from our survey of red flags not being followed up, coupled with increased recessionary pressures, and the impact of the credit crunch, it seems probable there will be a marked increase in the number of as yet undetected fraud cases which will surface over the next couple of years."

It is astonishing that corporate fraud continues to increase and top management is leading the way.

Hit Piece Muddy Waters on Spreadtrum Communications Inc. (NASDAQ: SPRD)

Open Letter to SPRD

China Hecks Into Accounting Issues For Firms Listed Abroad

CHINA is looking into accounting issues involving Chinese companies listed in North America, an official at the country’s securities regulator said in the watchdog’s first public remarks since a series of accounting scandals.

Corporate misbehavior, unfamiliarity with the US market and some practices involved in overseas listings had all contributed to recent investor distrust of Chinese companies, said Wang Ou, vice head of research at the China Securities Regulatory Commission.

“First, we have to admit that some of our companies may have flaws. Second, our (companies’) understanding of the US market and the measures to tackle risk there may be inadequate,” Wang said at a conference in Beijing over the weekend.

“We have contacts with the US and its relevant regulatory bodies and we’re studying the issue together.”

Investors have sold off foreign-listed Chinese companies in recent weeks following a flurry of accounting scandals and fraud allegations.

Wang’s comments coincide with a visit to Beijing by officials from the US Securities and Exchange Commission and the Public Company Accounting Oversight Board.

The delegation is meeting Chinese regulators to discuss cross-boarder oversight, hoping to sign an agreement on accounting supervision by the end of this year, Xinhua news agency reported on Friday.

However, experts doubt whether the CSRC can do much as most of the Chinese companies listed overseas have an offshore parent company.

“All the CSRC is likely to do is to try to stop Chinese companies from listing abroad without their permission, but it’s a difficult problem for them because they really don’t have jurisdiction over them, so these companies fall into a regulatory black hole,” said Paul Gillis, visiting professor of accounting at Peking University’s Guanghua School of Management.

Much of the questionable accounting has involved reverse mergers, a type of back-door listing in which a foreign company merges with a US shell company.

To overcome regulatory hurdles, many Chinese companies have also set up legal structures under which control of a mainland-based company can be transferred to an overseas entity via certain contracts.

CSRC’s Wang said this practice would expose Chinese companies to potential legal risks, another source of worry for overseas investors.

– Shanghai Daily

China Firms Face Research Armies

In a rundown block in an industrial section of Hong Kong, rows of researchers at a two-year-old firm called Blue Umbrella are trawling through documents such as corporate records, blogs and government watch lists. Their goal: to look for accounting discrepancies or investigate the financial claims of Chinese businesses.

It is a growth industry. Investors around the world eager to profit from China's fast-growing economy want to know the risks. And hedge funds are circling over more and more Chinese stocks they want to bet against.

Blue Umbrella investigates hundreds and sometimes thousands of companies and individuals every month, ...

The full article is on The Online Wall Street Journal only when you have a subscription. I don't

Monday, June 27, 2011

American Lorain Corporation Announces Joint Venture With Hisaya ltd.

American Lorain Corporation (ALN) today announced that the company has signed a Joint Venture Agreement ("JV Agreement") with Hisaya Ltd. ("Hisaya"), a premium roast chestnut retailer from Japan.

Hisaya is the largest premium roast chestnut retail chain in Japan and now operates over 50 retail kiosks. According to the JV Agreement, American Lorain and Hisaya will hold 51% and 49% of the joint venture, respectively, with a total initial share capital of RMB 500,000, or USD 77,000. The joint venture will aim the high-end premium chestnut market in China leveraging American Lorain's domestic branch office networks as well as Hisaya's successful operation model in Japan. The first set of kiosks will be opened in Chengdu, Sichuan Province.

American Lorain's Chairman and CEO, Mr. Si Chen, stated, "Hisaya is the most successful premium roast chestnut chain operator in Japan. American Lorain started test production and sale of high-end premium roast chestnuts in 2010. Through this joint venture, we are able to further capitalize on Hisaya's advanced operation model and quality control standards introduced from Japan. Meanwhile, the premium roast chestnut aims the underdeveloped high-end chestnut consumption space, which I believe will be very helpful in defining and expanding this chestnut sub-market, and thus enhance the value-added and brand recognition for our chestnut products as a whole."

Corporate Income Tax Law and Practice in the People's Republic of China

Corporate Income Tax Law and Practice in the People's Republic of China provides a comprehensive analysis of China's corporate income tax law. A new corporate income tax law came into effect on January 1, 2008. The new law unified the two corporate income tax systems that were applicable to domestic enterprises, foreign enterprises and foreign invested enterprises, respectively. A large portion of this book summarizes the new tax law, the implementation rules of the law, and the interpretation circulars issued by the Chinese tax authorities.

The mapping of sections of tax law, regulations, and circulars into the applicable areas of business transactions and operations is helpful to lawyers, accountants, and other professionals. Detailed citations allow readers to find the authorities at their original sources. Also included is some introductory and historical information for those who seek a general knowledge of China tax law.

One chapter is devoted to addressing major areas of tax treaties and agreements between China and other countries or regions. Tables summarizing the treaties with regards to permanent establishment, dividends, interest, royalties, and capital gains provide readers with a quick reference and an efficient means for comparative analysis. The issues of administration and enforcement of specific tax rules are discussed in various chapters. Separate chapters cover tax compliance and tax audit and appeals.

In addition, the book comments on various tax rules and offers a view of possible tax treatments in areas that have not been addressed or clearly addressed by the law, regulations and other authorities.

About the Author

Fuli Cao of Jones Day, Beijing, China is involved with the tax and business aspects of international transactions between China and other countries including inbound and outbound China investments, mergers and acquisitions, reorganizations and restructuring, private equity, structured financings, and tax dispute resolution.

Mr. Cao is a China chapter contributor to Tax Law Client Strategies in Asia and New Zealand and BNA Tax Management Portfolio Corporate Bankruptcy and a contributor to several other legal and tax publications. He is a speaker on China tax at various forums.

Understanding Chinese Fraud

I run into an article written by Paul Gillis. Paul is a visiting professor of accounting at Peking University's Guanghua School of Management.

One of the best articles I read since a long time!
Article China Accounting Blog

Some highlights
Cash confirmation tests issues play an important role in recent frauds ( China-Biotics is alleged by BDO to have set up a fake bank website)

Most accounting firms have instituted enhanced cash confirmation procedures which will make it much more difficult for these types of frauds to remain undisclosed in the future.

The cash is not missing because management stole it; it is missing because it was never there.

While there may be a few complete frauds out there, many of these companies might have real, profitable businesses that have real value.

Whether shareholders ever see any of that value is uncertain, since the process or working through these fraud allegations may well destroy what is left.

Many Chinese companies have listed in the U.S. because the CEO wants the prestige of a U.S. listing. It has become quite prestigious in China to be a NASDAQ or NYSE listed company. Some communities in China will give awards to companies that succeed in doing so.

While there are evil people who simply set out to commit frauds, few frauds of the nature we are seeing in China start out that way. Instead, they are caused by an alignment of three factors that create conditions where good people are willing to do bad things. These three factors, known as the fraud triangle, are pressure, opportunity and rationalization.

Pressure is why most frauds occur. Many frauds happen because someone is under great financial pressure – often because of financial needs due to problems with gambling, addiction, or an out of control lifestyle.

In China, I think an even more powerful pressure is in play – the pressure to maintain face. Face is important in all cultures, but in China it often rises to an existential level. A Chinese CEO, faced with disappointing financial results, might feel unbearable pressure to improve them in order to maintain his public image as a successful executive.

It is not possible to commit a fraud unless one has the opportunity to so. A CEO who decides to commit a financial fraud has significant power to alter the financial records to make it happen. Of course, the CEO fraudster needs to worry about the CFO blowing the whistle on him, and that might explain why the CFO in several of the recent cases in China was a foreigner who could not read Chinese. The CFO’s limited language and cultural skills may have also given the CEO the opportunity to execute the fraud. Opportunity also includes the opportunity to cover up the fraud. In the recent China cases this meant being able to get bank branch officials to cooperate in supplying false documents. Building guanxi with the local bank officials might have enabled that opportunity. Guanxi is a system of exchanging favors that builds mutual obligations that are difficult to refuse. Through regular gifts and business assistance the CEO might build strong guanxi with a local bank manager that would give him the opportunity to ask for fake statements and confirmations.

Many people have pressure and many also have the opportunity to commit fraud, yet most do not. The missing factor is rationalization; the act of reconciling ones behavior with commonly accepted notions of decency and trust. I am sure that in all of the recent frauds in China the CEO was able to justify to himself that his actions were acceptable. “No one will be hurt by this – the shareholders, employees and customers will all be better off.” “It is just a temporary thing, we can fix it next quarter when the results get better.” The rationalization does not have to be valid, it just has to seem valid at the time to the fraudster. As frauds continue, fraudsters usually need less and less justification to keep the fraud going.

In China’s vanity listings, I think the fraud triangle helps to explain why the frauds happen and might help to predict the next one.

TechFaith Wireless Technology Limited (CNTF) Added to Russell Global Index

PR Newswire

Friday, June 24, 2011

Short basket Chinese Reverse Mergers ZEROHEDGE

Complete Chinese RTO List

No need to fuss over the short sell of 'China concept stocks'

Just as discussions on the launch of an international board in China are picking up, traders in the U.S. are busy short selling China concept stocks, Chinese companies listed on foreign exchanges. At the closing bell on June 10, the Nasdaq China Index had fallen to 196.83 points, a one week drop of 8.8 percent. dropped 23.6 percent. dropped more than 24 percent. And Sina Corp., a Chinese Web portal operator and owner of the Twitter-like Weibo microblogging service, plunged almost 30 percent.

These three companies have no record of fraud or other accounting impropriety. The plunges seem to be a part of a wider turn of sentiment against China concept stocks. Affected by the spread of panic in the stock market, many innocent stocks have also seen their values plummet. For China concept stocks, it's a challenge. But it also means these stocks may enjoy a faster growth rate, currying favor with investors.

The value of misjudged stocks will rise sooner or later. For example, shares of China-based Taomee Holdings Ltd. fell 8 percent after their stock market debut. But its stock bucked the trend on June 10, rising 24.06 percent to close at US$10.21, 13.4 percent higher than its US$9 issue price. This new company, which operates a website for children, has led the rebound in China concept stocks. Whether its gains stand the test of time will depend on the company's fundamentals.

As we all know, since China concept stocks listed in the U.S. in the 1990s, U.S. capital markets, especially the Growth Enterprise Market ("GEM") led by Nasdaq, have made great contributions to the internationalization and securitization of Chinese enterprises. This process brought win-win results for both China and America. The U.S. capital markets have benefited from large-scale China concept stocks listing on U.S. markets, with stock exchanges and investment banks winning business and investors finding opportunities to share the fruits of China's rapid economic growth. Meanwhile, Chinese enterprises have tapped into a larger pool of capital, fueling their brisk expansion.

The reason for the short selling of China concept stocks in the U.S. stock market is simple: Many Chinese enterprises have cooked their books or failed to publish the financial information required under U.S. law. At current, nearly 20 companies have been suspended or delisted since March. Some of the managers at these firms may not know how to run a company properly. But they know how to cash out, taking the money raked by their IPO and running. These tricks are not only employed by Chinese managers, but also common in American companies.

In essence, telling a speculator not to arbitrage an imbalance in capital markets is like howling at the moon.

When speculators trained their crosshairs on China concept stocks, a number of Chinese firms were certainly unfairly attacked. But we have to admit that the capital market has always been a fictitious game. Without traders' bouts of irrational exuberance and gloom, the phrase "China concept" probably wouldn't catch so much attention in stock exchanges on the other side of the world in the first place. Who would be interested in analyzing a Somali concept stock, even if the pirates have better profit model?

(This article was first written in Chinese and translated by Li Huiru.)

BDO's Letter To China-Biotics

BDO's Resignation Letter

What's Wrong with Chinese IPOs?

Research Paper Renaissance Capital

China Must Solve its IPO Problems

When China first began tapping the IPO market twenty years ago, the People’s Republic of China was in the driver’s seat, offering investors only what the PRC wanted to sell. Today, it is the potential purchasers who are delineating the standards for the types of businesses, valuation and disclosure under which they are willing to invest. While the US SEC can tighten its regulatory purview, the ultimate responsibility for complete and accurate disclosure lies with company management and others involved in preparation for an IPO. In the end, if prospective Chinese IPOs learn the tough lessons of today’s flawed IPOs and the PRC steps up its regulatory and audit oversight, China will produce many well-run, innovative companies deserving of public investment.

China-Biotics Auditor Quits, Alleges 'Illegal Acts'

Article The Street

Reverse-merger fallout to slow pace of Chinese listings

BEIJING - The pace of Chinese listings in the US markets is likely to slow this year amid tougher regulations aimed at curbing backdoor listings of companies, following a series of alleged accounting scandals, analysts said on Thursday.

The US Securities and Exchange Commission (SEC) said on Wednesday that it is considering several options to address its concerns about the reverse-merger companies, which merge with a public shell company in order to gain access to the US capital market. But it did not provide details of what measures it might adopt.

"The pace of new listings from China is highly likely to decelerate after the listing frenzy in the past two year," said Gui Haoming, chief strategist at Shenyin & Wanguo Securities.

"The US regulator is set to raise the bar for reverse mergers, which means that it's going to be more difficult for companies to use the typical shortcut to list on the US market," he said.

There has been a strong momentum in Chinese listings in the US over the past several years, and many of these companies went public through reverse mergers, which enable them to avoid scrutiny and regulations associated with the traditional listing method of initial public offerings (IPO).

However, investors and regulators in the US are increasingly concerned about listed companies from China after some of them were charged with fraud and accounting mismanagement.

Since March, five Chinese companies have been forced to delist and 15 have suspended trading amid widespread allegations of fraud. According to the SEC, there have been 600 backdoor registrations, with more than 150 from Chinese companies since January 2007.

Yang Ge, the chief representative at NYSE Euronext's office in Beijing, said that stricter regulations by the SEC will also raise the IPO cost for Chinese companies, because they will have to hire more professional and credible agencies as auditors and underwriters.

"The US regulatory authority will require higher transparency and stricter standards for new listing applications," he said.

Analysts warned that the US-listed Chinese companies will be faced with the risks of a further plunge in their share prices if they do not take action to contain the ballooning credibility crisis.

Share prices of reverse-merger companies from China have slumped by 44 percent, according to data from Bloomberg.

"Although the US regulator is targeting the so-called reverse-merger companies, the exposure of the recent accounting scandals will hurt the US-listed Chinese companies collectively, because they are faced with an unprecedented credibility crisis," Gui said.

Duncan Niederauer, chief executive officer of NYSE Euronext, said in May that the fraudulent activities of some Chinese companies may have a negative impact on the overall level of issuance in the US market.

But analysts said that the US will remain an attractive capital market for Chinese companies despite the tougher regulatory environment.

"Given its strong capital base, the US is still an attractive market globally. And its listing procedures are still relatively convenient compared with other markets," Gui said.

Wang Ying in Shanghai contributed to this story.

China Daily

Thursday, June 23, 2011

Save Research in Motion (RIMM) and Buy A BlackBerry

All eyes are on Research In Motion (RIMM) after some worse than expected results.

In the meantime, Apple is eating into RIM's bread-and-butter corporate smartphone market with an iPhone available on almost every major carrier.

Fortune posted this list of four things RIM can do to stay alive:

1. Letter to management: Clarify your strategy

2. Transition smoothly (and quickly) to the QNX operating system

3. Upgrade the BlackBerry hardware, already!

4. Keep pushing security -- enterprise users demand it

It's been a nightmare on advising what to do with RIM stock in 2011. Although I can still see some positive points such as good international sales on a year on year basis and finally a not that bad start for the Playbook tablet, the year 2011 continues to be a transition year with the confirmed delay of products and the slash of FY EPS. The good news now is that EPS targets seems more realistic and should not disappoint drastically for the year while some expectations for a better 2012, along with attractive valuation, should finally find a support for the shares. But with such a bad momentum, even the USD 30 support level has been broken.

So what we all have to do is BUY SOME NEW BlackBerries......................

Sino Forest & Muddy Waters Saga Report

Article Susan Mallin

Chinese Media Interprets Overseas Stock Fraud with Conspiracy Theory

Article The Epoch Times

NIVS IntelliMedia Technology Group, Inc. Announces Receipt of NYSE Amex Panel Decision

NIVS IntelliMedia Technology Group, Inc. (NYSE Amex: NIV), a comprehensive consumer electronics company that designs, manufactures, and sells intelligent audio and visual products and mobile phones, today announced that the NYSE Amex LLC (the "Exchange") will suspend the Company's listing with the Exchange, effective as of the open of business on Thursday, June 23, 2011.

On June 20, 2011, the Company was notified by the Exchange that a Listing Qualifications Panel of the Exchange's Committee on Securities had denied the Company's request for continued listing with the Exchange, following a hearing on June 15, 2011.

Upon the suspension of trading on the Exchange, it is expected that the Company's common stock will be eligible to trade in the "grey market" where securities that are not listed, traded or quoted on any U.S. stock exchange, the OTC Bulletin Board or OTC Link are found. Grey market trades are reported by broker-dealers to their Self Regulatory Organization ("SRO") and the SRO distributes the trade data to market data vendors and financial websites, such as Yahoo!® Finance, so investors can track price and volume. The Company's stock is not immediately eligible for trading on the over-the-counter (OTC) market due to the fact that trading in the Company's stock was previously halted on the Exchange.

The Company looks forward to the conclusion of the investigation of the Special Committee and the planned subsequent audit of the Company's 2009 and 2010 fiscal years. The Company hopes to provide accurate and complete financial information to its shareholders and the investing public as soon as possible.

Tuesday, June 21, 2011

Interview with Glaucus Research

Interview The Street

US-listed China Stocks Ready To Go Private

Distressed US-listed China Stocks Prey For Venture Capital and MBO's.

According to some institutional investors more and more US-listed China stocks are ripe for merger and other forms of unlocking the value. The recent sell-off in the China space has made a lot of companies vulnerable to takeover bids.

An exodus from US capital markets could occur the coming years. Short sellers are making it more and more difficult for Chinese companies to attract long-term US investors.

If you look around you can find quite a lot of companies that could go private.

All the stocks with a high short interest are potential candidates.

Highest Short Interest
HRBNHarbin Electric10.1 days52.29%
CHBTChina-Biotics7.9 days47.91%
SHZChina Shen Zhou Mining4.1 days37.37%
DGWDuoyuan Global Watern/a31.23%
CASTChinaCast Education19.8 days27.25%
FSINFushi Copperweld29.6 days26.80%
BORNChina New Borun12.4 days26.21%
LIWALihua International20.3 days25.65%
CVVTChina Valves Technology10.8 days24.31%
TSTCTelestone Technologies6.3 days24.28%

SEC Charges Muddy Waters, Carson Block In Stock Manipulation Ring

Update: As expected, this is a hoax. Someone is very pissed with the Muddy Waters boys.

Instead of taking another long hard look at its own practices, following the blow up of the biggest ponzi scheme since Madoff, the SEC has decided to instead target.... Carson Block and Muddy Waters. "The Securities and Exchange Commission has charged Carson Block and Muddy Waters LLC in a stock manipulation ring that allegedly published false information, causing a drop in the market prices of at least three stocks and generated more than $240.2 million in illicit profits when they sold shares short then repurchased the shares after a significant decline on the market." Bottom line - in Communist Amerika, if you publish research that is proven true, and profit on it, you are a criminal. That said, there is a chance this could be a hoax as it is only hosted by Briefing Wire, so take it with a pinch of salt: it very well could be the work product of a former buy or sell-side Chinese forest "analyst" with a lot of free time on their hands.
From Briefing Wire:
Additional Materials

Litigation Release No. 21053

SEC Complaint

The SEC alleges that Carson Block, who resides in Hong Kong carried out the market manipulation schemes with others he met through a stock web site, which is operated by Matthew Brown of Aliso Viejo, Calif. Block, Brown, and other participants in the schemes often timed the manipulative trading to coincide with false or misleading press releases issued by Muddy Waters LLC. The three companies were Sino Forest Corporation, Duoyuan Global Water Inc., and Orient Paper Inc.

“As we allege in our complaint, Carson Block and his accomplices around the country met through the Internet and planned to short sell the stock in the companies prior to release of the Muddy Waters Report that made allegations of impropriety, fraud, and theft. Carson Block and his associates approaches several large hedge funds and investment firms first to market their “research” and promised great returns upon the release of their “research”. The results for each of the companies that were targeted were catastrophic and have resulted in a serious loss of market value and public trust in the management of these companies. ,” said Scott Friestad, Deputy Director of the SEC’s Division of Enforcement. “Carson Block went so far as to himself write some of the misleading press releases that denigrated these stocks so they could line their own pockets with hundreds of millions of dollars.”

The SEC’s complaint, filed in federal district court in Delaware, charges six others in addition to Carson Block:

According to the SEC’s complaint, these fraudulent schemes generally followed the same pattern. In 2010, Carson Block and his accomplices arranged for large blocks of shares to sell on the open market. The vast majority of the shares sold short were done through the accounts of Muddy Waters LLC for the personal benefit of Carson Block. The defendants then notified the hedge funds and investment firms of their intention to publish their report and were paid approximately $2.7 million dollars for “research” supplied by Muddy Waters LLC. As a result shares were sold short in the days immediately prior to the release. After artificially deflating the market price of the stocks, Carson Block and his accomplices then recovered the shares the sold short on the open markets and collected the illicit proceeds.

The SEC’s complaint alleges violations of the antifraud, registration, and other provisions of the federal securities laws. The complaint seeks to have the court permanently enjoin each defendant from future violations, require disgorgement of ill-gotten gains with prejudgment interest, and impose financial penalties. Additionally, the Commission seeks to have certain defendants barred from participating in stock offerings.

Complete article available at SEC newswire.

American Lorain Markets New Products in Railway Test Sale

American Lorain Corporation (NYSE Amex: ALN) ("American Lorain" or the "Company"), an international processed snack foods, convenience foods, and frozen foods company based in the Shandong Province, China, today announced that the Company has commenced to test sale its nitrogen-aerated fruit boxes and frozen rice products on two railway routes in China including Beijing - Shenyang - Harbin and Beijing - Hangzhou - Ningbo, and has obtained preliminary and positive results.

The test sale was made after negotiation with the Beijing railway authorities. The nitrogen-aerated fruit box is specifically designed for sale aboard the train. Under normal conditions, the newly cut fruit deteriorates in color, taste and quality very quickly. American Lorain applied its nitrogen-aerating technology in producing other packaged snacks to the fruits, and thus extended the preservation time for fruits from 24 hours to 48 hours in cold storage. The frozen rice products were previously introduced to the market with the cooking methodology advised by professional chefs. It quick-freezes the rice products after preparation instead of employing the high-temperature sterilizing process by constant-temperature rice products, and was thus able to maintain the most original taste and nutrition of the food. According to preliminary estimate, the fruit was sold approximately 100 boxes per day on average, while the frozen rice products were sold 288 boxes per day on average.

American Lorain's Chairman and CEO, Mr. Si Chen, stated, "I am very pleased to see our new products conduct test sales on the railways. According to estimate, in 2010, the railway system in China transported over 700 million passengers. The railway system is a special channel which we see as a perfect fit for our convenience food products. We are also negotiating with the Beijing railway authority to supply our chestnut, rice and fruit products aboard the soon-to-commence-operation Beijing - Shanghai high-speed train. These efforts, if successful, will have very positive influence on American Lorain's brand recognition. We will, as always, remain committed on executing our strategy to expand our sales channels and build the company's brand image."




Monday, June 20, 2011

Harbin Electric Enters Into Merger Agreement to Be Acquired for $24.00 per Share in Cash

HARBIN, China, June 20, 2011 /PRNewswire-Asia/ -- Harbin Electric, Inc. ("Harbin Electric" or the "Company"; NASDAQ: HRBN) today announced that it has entered into a definitive agreement and plan of merger (the "Merger Agreement") with Tech Full Electric Company Limited ("Parent"), a Cayman Islands company wholly owned indirectly by Mr. Tianfu Yang, the Company's Chairman and Chief Executive Officer, and Tech Full Electric Acquisition, Inc. ("Merger Sub"), a Nevada corporation wholly owned by Parent.

Under the terms of the Merger Agreement, each of the Company's shares (the "Shares") of common stock issued and outstanding immediately prior to the effective time of the merger will be converted into the right to receive $24.00 in cash without interest, except for Shares owned by Parent and Merger Sub (including shares to be contributed to Parent by Mr. Tianfu Yang, affiliates of Abax Global Capital ("Abax") and certain of the Company's employees and officers (collectively, the "Purchasing Group") prior to the effective time of the merger pursuant to a contribution agreement between Parent, each member of the Purchasing Group and Tianfu Investments Limited ("Tianfu Investments"), a Cayman Islands company directly owning 100% of the equity interest in Parent). Collectively, the Purchasing Group beneficially owns approximately 40.6% of the outstanding Shares.

The Company's Board of Directors, acting upon the unanimous recommendation of a special committee of the Board of Directors comprised of solely independent and disinterested directors (the "Special Committee") approved and adopted the Merger Agreement and recommended that the Company's shareholders vote to approve the Merger Agreement. The Special Committee negotiated the terms of the Merger Agreement with the assistance of its financial and legal advisors, Morgan Stanley & Co. Incorporated and Lazard Freres & Co. LLC, and Gibson Dunn & Crutcher LLC.

The Company's Chairman and Chief Executive Officer, Mr. Tianfu Yang, said "I want to thank the Special Committee for its extremely thorough work in reviewing our offer to take the Company private in order to ensure that the interests of all shareholders of the Company are fully protected. I have full confidence that, with the help of its highly respected financial and legal advisors, the Special Committee has thoroughly reviewed and evaluated potential alternatives and has established the credibility of our offer, including the availability of debt financing from China Development Bank Corporation Hong Kong Branch and Abax."

"While the events that negatively affected the Company's stock price over the past few months have left all shareholders unhappy and frustrated, I believe that the approval of the transaction by the Board of Directors will lead to shareholder approval and the return of value to all our shareholders who did not lose confidence in the Company and its management. A significant amount of information that is false and misleading as well as defamatory has been introduced into the market, and has clearly affected market trading of the Company's stock. The Company is prepared to take all necessary legal action against those who have made such statements," concluded Chairman Yang.

Donald Yang, Managing Partner and Chief Investment Officer of Abax Global Capital, said "We are pleased that the Special Committee has accepted our going private proposal and wish to thank each of the Special Committee's members for their diligent efforts in ensuring that the offer is fair to the Company's shareholders. Abax has been a long-term investor in the Company and the proposed going private transaction represents Abax's continuing positive view of the Company's management as led by Chairman Yang, its fundamental business operations, and long term future prospects."

The merger is currently expected to close in the fourth quarter of this year, and is subject to customary closing conditions as well as approval and adoption of the Merger Agreement by the Company's shareholders (including the affirmative approval of the holders of a majority in combined voting power of the outstanding Shares not owned by the Purchasing Group) and other customary closing conditions. Accordingly, no assurance can be given that the merger will be completed.

The Company will schedule a meeting of shareholders for the purpose of voting on the approval and adoption of the Merger Agreement. The Purchasing Group agreed to vote all Shares it owns and controls in favor of the Merger Agreement. Parent and Tianfu Investments have secured debt financing from China Development Bank Corporation Hong Kong Branch and affiliates of Abax to finance the transaction. In addition, Abax has issued an equity commitment letter committing certain funds and/or entities it manages or advises to provide additional equity financing.

If completed, the merger will result in the Company becoming a privately-held company, and the Shares will no longer be listed on any public market. Morgan Stanley & Co. Incorporated and Lazard Freres & Co. LLC are serving as financial advisors to the Special Committee. Goldman Sachs (Asia) LLC is serving as financial advisor to Mr. Tianfu Yang. Gibson, Dunn & Crutcher LLP is serving as legal advisor to the Special Committee. Loeb & Loeb LLP is serving as legal advisor to the Company. Skadden, Arps, Slate, Meagher & Flom LLP is serving as legal advisor to Mr. Tianfu Yang. Davis Polk & Wardwell LLP is serving as legal advisor to Abax.


Bullet Proof the Value of Longwei Petroleum Investment Holding Limited (LPH)

Some due diligence on Longwei Petroleum Investment Holding Ltd. (LPH) is done by Keven Chen, CFA, analyst at Star Analyst Online.

Article Star Analyst Online

Saturday, June 18, 2011

China Believers Stand Firm Despite Fraud Cases

Article Forbes

Some venture capital firms in the US, with Chinese partners, are taking over Chinese firms whose stock has been distressed because of class action lawsuits against them. The idea is to delist them, take over, put in new management, clean the financial books and then re-list in Hong Kong, where accounting standards are less rigorous.

Reverse Mergers Are Not The Problem

David N. Feldman is a Partner in Richardson & Patel LLP. His practice focuses on corporate and securities matters and general representation of public and private companies, investment banks, private equity firms and high net worth individuals.

David is considered one of the country's leading experts on reverse mergers, in which a private company becomes publicly traded through a merger with a publicly held "shell" company. His book on the subject, Reverse Mergers and Other Alternatives to Traditional IPOs, Second Edition (Bloomberg Press, 2009) was originally published in 2006.

The Giant Panda in the Room
by David Feldman

Yes I used that phrase when speaking at this past week’s Reverse Merger Conference in LA.

I also likened the Chinese reverse merger situation to US Rep. Anthony Weiner (yes some bad stuff happened but there is a real risk of overreaction). I wanted to pass on a few thoughts about the conference, which has now been widely covered by Reuters and the like.

1. It was easy to get a seat. The much lower than usual attendance shows that our sector is in a challenging time. Granted, the hardy souls who remain active in this space, in many cases, are the “real” players who have worked hard to maintain the quality of their work and integrity of the transactions with which they are involved. Some of those present during the standing room only days of RM conferences were looky-loos, hangers-on, wanna-bees and I’m sure a few other hyphenated monikers we can posit. But we’ve lost some good players too, no question.

2. I remain optimistic, as I said on my panel, that the shakeout that will come with Chinese reverse mergers will ultimately be good for the RM world. We do not hear the SEC or PCAOB complaining about US reverse mergers being fraudulent. The focus has been on China, and when that has played itself out things should improve for all.

3. RM remains one of the few legitimate alternatives for a company that can benefit from a public trading stock but for whatever reason is not able to (or does not wish to) pursue a traditional IPO. The issue is not the technique which took companies public but rather the players involved. We are busier than ever with reverse mergers. The vast majority of the deals I’m working on (7 currently) are US based. The industry as a whole remains active and strong despite the negative attention from both press and regulators which, when one digs down, is all about China, and not really reverse mergers.

4. China short sellers? Well, much like the US class action plaintiff securities bar, they are uncovering some real fraudulent situations, but some really do appear to be simply slapping mud everywhere to see what sticks, even if there is no initial real evidence of a problem. I loved how the Reuters piece pointed out that one of the short sellers who spoke on the panel was smoking a cigarette afterward.

5. The more transparent our deals the better. Most of the deals facing problems now had completed fully underwritten, SEC reviewed and approved public offerings after their reverse mergers. Thus, the public investors had the same protections as those in a traditional IPO. The fact that several post-IPO companies, including one taken public by Goldman Sachs and Deloitte & Touche, are also ensnared in this mess, proves that an IPO doesn’t necessarily provide any additional protection.

For this and more articles read his blog:

Friday, June 17, 2011

RedChip Research Issues Research Update on Longwei Petroleum

Target Price: $6.20

Current Price: $1.60

RedChip ResearchTM, a division of RedChip Companies, Inc., today announced it has issued a research update on Longwei Petroleum Investment Holding, Limited. (NYSE Amex: LPH), a diesel, gasoline, fuel oil, and solvent oil distributor operating in China's Shanxi Province.

To receive a complimentary copy of the RedChip Research Report for LPH, please visit:

Longwei Petroleum Investment Holding Limited is an energy company engaged in the storage and distribution of finished petroleum products in the People's Republic of China. The Company's oil and gas operations consist of transporting, storage and selling finished petroleum products, entirely in the PRC. The Company's headquarters are located in Taiyuan City, Shanxi Province. The Company has a storage capacity for its products of 120,000 metric tons located at storage facilities in Taiyuan and Gujiao, Shanxi. The Company's Taiyuan and Gujiao facilities can store 50,000 metric tons and 70,000 metric tons, respectively. The Company has the necessary licenses to operate and sell petroleum products not only in Shanxi but throughout the entire PRC. The Company's storage tanks have the largest storage capacity of any non-government operated entity in Shanxi.

Locavesting: The Revolution in Local Investing and How to Profit From It

For investors that are tired of the stock exchanges, I would recommend the book Locavesting.

How individuals and communities can profit from local investing
In the wake of the financial crisis, investors are faced with a stark choice: entrust their hard-earned dollars to the Wall Street casino, or settle for anemic interest rates on savings, bonds, and CDs. Meanwhile, small businesses are being starved for the credit and capital they need to grow. There's got to be a better way.

In Locavesting: The Revolution in Local Investing and How to Profit from It, Amy Cortese takes us inside the local investing movement, where solutions to some of the nation's most pressing problems are taking shape. The idea is that, by investing in local businesses, rather than faceless conglomerates, investors can earn profits while building healthy, self-reliant communities.

Wednesday, June 15, 2011

SEC's Investor Bulletin Reverse Mergers

Reverse Mergers

China Botanic Pharmaceutical Reports Second-Quarter Fiscal Year 2011 Results

Press release

Second-Quarter 2011 Highlights and Recent Events

Net sales increased 56.1% year-over-year to $18.9 million

Gross profit increased 79.3% to $11.1 million from $6.2 million in the second quarter of fiscal year 2010

Gross margin increased to 59.0% from 51.4% a year ago

Net income rose 107.1% to $7.1 million or $0.19 per diluted share

The Company's wholly owned subsidiary, Harbin Renhuang Pharmaceutical Co., Ltd received official approval to produce water-based mixtures.

The Company successfully completed research of the chromatographic fingerprints for its Siberian Ginseng series products, utilizing a state-of-the-art analysis method which identifies the chemical characteristics of the designated medicine.

The Company successfully completed a feasibility study to analyze the benefits of using straw pellets, a renewable bio-fuel, for its production operations and plans to put the new fuel into use by October, 2011.

"During the second fiscal quarter of 2011, we continued to benefit from our strong market position, customer loyalty and well-accepted increases in selling prices, resulting in nearly 56% year-over-year growth in revenue and more than 100% year-over-year growth in net income. We are pleased to report strong financial performance during the quarter and remain optimistic about the future," said Mr. Shaoming Li, Chairman and Chief Executive Officer of China Botanic. "In addition, our four new products, namely Qing Re Jie Du Oral Liquid, Compound Schizandra Tablets, Ginseng and Venison Extract, and Badger Oil have been well accepted in the market and contributed 19% of the quarter's total sales revenue up from 15% in the first fiscal quarter of 2011."

Business Outlook

"We anticipate continued growth in revenue and net income in the coming years driven by our established market presence, strong customer loyalty, ability to introduce new market-oriented products and aggressive sales and marketing efforts. We are confident that we will achieve our goals for fiscal 2011 and meet our financial guidance for revenue in the range of $70.6 million to $71.7 million and our raised after-tax net income guidance of approximately $25.5 million," said Mr. Li. "The recent government levied price controls in the TCM industry do not result in a margin squeeze for China Botanic as our product prices are significantly lower than the government price ceilings and the prices of our competitors. We enjoy a strong pricing advantage even after our recent price increases and our customers are satisfied with the high-quality of our products. In addition, our research team continues to work on several other promising products and we hope to announce new product introductions in the coming quarters, which will strengthen our market position and enhance our longer term growth."

Tuesday, June 14, 2011

Rodobo International, Inc. Adjusts Third Quarter 2011 Guidance

Rodobo International (RDBO), a fast growing producer and distributor of high-quality formula milk powder for infants, children, the middle aged and the elderly, today announced that it has adjusted its third quarter 2011 guidance previously announced on May 16, 2011 by reducing the sales revenue from the range of $23 - $26 million to the range of $12 - $14 million, and net income from the range of $3.5 - $3.8 to net loss in the range of $2 - $4 million, due to a delay of the online publicity of the new production license which the Company received in March, 2011.

As previously announced, on March 15, 2011, the Company received a new production license for its operating subsidiary in China, Harbin Rodobo Dairy Co., Ltd ("Harbin Rodobo"), issued by the General Administration of Quality Supervision, Inspection and Quarantine of the PRC ("AQSIQ"). Generally, as soon as the formal production license is issued, the Heilongjiang Bureau of Quality and Technical Supervision ("HBQTS"), the provincial subsidiary of AQSIQ, also issues an online publicity ("Publicity) announcing the new production license on AQSIQ's official website. However, in our instance HBQTS informed us that it delayed the Publicity due to technical problem.

Coincidently, during the period between the receipt of new production license and the Publicity, we were notified of an incident where a third party distributor apparently sold our products in violation of our express instructions and food safety standards. While most of our products have an average shelf life of 18 to 24 months, we find that consumers are reluctant to buy products that have only 2 to 3 months of their remaining shelf life. As a result, we often pull these products from the shelves, mark them as "obsolete", and in accordance with standard industry practice, sell these products marked as "obsolete" to manufacturers of feedstuff for animals. In accordance with this practice, in May of 2010 we entered into a sales agreement with Harbin Longxin Feedstuff Co., Ltd ("Longxin") to sell 38 tons of our infant formula milk powder that had been marked as "obsolete". In the sales agreement, Longxin expressly guaranteed that our obsolete milk powder would only be used as feedstuff for animals. All products sold to Longxin were marked "obsolete" by Rodobo, in accordance with our standard procedures. We have been advised that despite our express instructions and the requirements of the sales agreement, Longxin resold our obsolete products to a third party manufacturer, Inner Mongolia Jiahaili Co., Ltd. ("Jiahaili"), who illegally used the obsolete milk powder to produce food products for human consumption. A food safety authority reviewed this matter and reported it to the local police for further investigation. After investigating, the local police determined that there is no direct link between our company and Jiahaili's illegal activities. While we were unaware at the time that our obsolete products were resold in this manner, we have actively assisted the local police and will continue to do so while the police continue to investigate Jiahaili's activities until the matter is resolved. We intend to continue to vigorously investigate this situation and take any and all actions we deem appropriate to defend and protect Rodobo and its subsidiaries with respect to the circumstances and illegal usage of our products.

AQSIQ has been made aware of this matter and has conservatively decided to delay our Publicity until the police investigation is closed. This delay in Publicity does not prevent us from utilizing our production license. While we have explained to our customers and distributors that we have received and can utilize our production license, this delay in Publicity has significantly impacted our sales. As a result of this, our production was impacted due to reduction of sales orders.

"The quality of our products and the safety of our consumers is our top priority. Currently, in order to enhance consumers and distributor's confidence in our products, we are actively communicating with AQSIQ and other relevant government departments to complete the Publicity as soon as possible. We anticipate that we will receive this Publicity within a month," stated Mr. Yanbin Wang, Chairman and Chief Executive Officer, "It is management's obligation to notify our investors of this anticipated adverse impact. According to our preliminary estimates, we have decided to adjust our third quarter 2011 guidance previously announced on May 16, 2011 by reducing the sales revenue from the range of $23 - $26 million to the range of $12 - $14 million, and net income from the range of $3.5 - $3.8 to net loss in the range of $2 - $4 million. We will continue to monitor this situation and when necessary or advisable provide updated information relating to this event and its impact on our financial performance to our shareholders and consumers in a timely manner. We believe that this adverse impact will be temporary and we remain confident in our high-quality, nutritious and fresh milk powder products. "


American Lorain Corporation Announces Sales Agreement With Shandong INZONE Malls, Ltd

American Lorain Corporation (NYSE Amex: ALN), an international processed snack foods, convenience foods, and frozen foods company based in Shandong Province, China, today announced that the Company has signed a sales agreement with Shandong INZONE Malls, Ltd. ("INZONE") to sell Lorain products to 19 supermarkets managed by INZONE.

According to the agreement, American Lorain will be directly supplying the INZONE supermarkets with 16 kinds of products, including lunch boxes, beans, frozen vegetables and french fries. The 19 supermarkets cover approximately 10 cities / counties within Shandong Province, including Jinan, the capital city of Shandong, as well as Taian, Laiwu, Binzhou, Dezhou, and Liaocheng.

American Lorain's Chairman and CEO, Mr. Si Chen, stated, "We are very pleased to have entered into the sales agreement with the INZONE supermarkets. This cooperation reflects our dedicated commitment to continuously expand our distribution channels and enhance the Company's brand equity. We will continue to execute on this strategy to strengthen the Company's leading position as an integrated processed foods manufacturer."

Saturday, June 11, 2011

US brokerage moves on Chinese 'accounting scandals'

Interactive Brokers Group Inc earlier this week banned clients from borrowing money to buy any of 160 Chinese securities because of accounting scandals in China, the company's CEO said, adding that the move could prompt the nation to toughen accounting standards.

"This select group has had an increase in volatility," Interactive Brokers' founder and Chief Executive Thomas Peterffy told Reuters on the sidelines of a Sandler O'Neill & Partners conference on Thursday.

"The Chinese would have to bring their accounting standards up to date," he said when asked about the fallout from his company's decision, particularly if the trend spreads as some expect.

The small Connecticut-based broker-dealer caused a big stir this week when it announced it would no longer let customers borrow money to take leveraged positions in some Chinese securities. Interactive Brokers began enforcing the ban on Monday and phased it in over the course of the week.

China's rapidly growing economy has sparked intense investor interest in Chinese companies, which in turn has led to a surge in public offerings by these companies in foreign markets such as the United States.

Peterffy, an outspoken pioneer of computer-based options trading in the United States, acknowledged that some investors did not like the ban but said his company was trying to protect clients by protecting itself from possible credit losses.

"There are some complaints, but not too many," he said. "By protecting the firm we protect the clients because, if the firm were to have large credit losses, then obviously the clients would be in jeopardy."

Chinese stocks listed in the US took a beating on Wednesday as brokers raised red flags about trading risks following a series of accounting scandals in the sector.

TD Ameritrade Holding Corp, which runs the largest US retail-trading platform, said it closely monitors US-listed shares of Chinese companies.

"We never allowed them to be margined in the first place," TD Ameritrade CEO Fred Tomczyk said in an interview on the sidelines of the conference.

"If you have advisers that are recommending Chinese stocks, I think you'd better be careful," he said.

Many of the biggest losers on US exchanges on Wednesday were Chinese companies included on Interactive's list.

The heightened concern among investors comes in part after allegations leveled against Sino-Forest Corp. A report last week from researcher Muddy Waters, which had a short position in the stock, last week accused the Chinese forest-plantation company of fraud.


Friday, June 10, 2011

Forensic Accounting for Research Analysts and Auditors

With all the questionable accounting practices I would recommend Research Analysts, Auditors but also others who are interested to read.

Forensic Analytics: Methods and Techniques for Forensic Accounting Investigations

Hit Piece Research: How does it work?

I am studying and learning more about hit piece research.
I found some information at a website called: Hit Piece Research and Seeking Alpha 
"committing fraud just because someone else commits fraud is not a valid excuse to break the law".
Short Sellers Profiting From Privileged Inside Information in the U.S. Listed Chinese Market Place
The actions of "hit piece research" providers is astonishing. They are no worse than the actual companies that are committing fraud, if their claims are correct in the first place. Regardless, they do not care if they are correct as they have found a niche environment that has yet to be monitored by the SEC. They know they are breaking the law, but direct quotes from two such sources is that "we are finally providing the information to the retail investor that the large investor has had for years" and "I believe the authorities will look the other way on what I do as I am a cop of the wild wild west".
One would believe that such manipulation and use of non-public information would cause fear in the eyes of these hit piece authors, yet jail time does not appear to be a deterrent that is strong enough to keep them away from the hopes of riches. We hear about firms utilizing their “expert witnesses” (e.g. IFRA, etc) to basically stalk, steal and acquire any piece of information they can get their hands on with the sole intention of creating the next major short position for their portfolio. Without a doubt, it appears to be working very well for these short sellers in a few cases, but we would have to assume (at least hopefully) the integrity of such traders and “hit piece” authors will eventually be questioned within the investment community.
Let me be very clear, we are not defending these fraudulent companies or believe that they shouldn’t be exposed, as it appears some at least are not honoring the requirements and regulations of the U.S. public markets, similar to that of Enron and many other U.S. companies in the past. However, the major question we are asking is this: Is it not illegal to trade on information that is privileged (or “inside”) prior to divulging such information to the authorities (irrespective of whether or not the information is positive or negative)? The simple definition of insider trading is below:
“the illegal buying and selling of securities by persons acting on privileged information.”
It would appear that at least some of the pejorative information regarding a few of these companies seems to have been privileged and clearly not “publicly available” prior to some of these short sellers executing their trades. Also if the information is not privileged then wouldn’t that mean it is not factual and it has been conjured purely to drive market movements.

We have laid it out below, but effectively by distributing "market moving" information pieces with the intent to move the market hedge funds and sophisticated traders are able to profit at the expense of the retail and smaller investors.


  1. Hit piece authors and their cronies put together a “hit piece” “research” piece based on due diligence they claim they have done referencing public, non public, unconfirmed and unproven damning information about a company.
  2. Hit piece authors and cronies distribute such information to their friends, subscribers, partners, etc.
  3. They all trade in the security based on the direction the report is intended to move the stock price of such securities. To build a position to benefit from the market moving report they intend to release they:

a. Short sell securities to other investors that are then positioned to be harmed from the information they plant o release.

b. They sell call options to collect premiums to investors that are then positioned to be harmed from the information they plant o release.

c. They acquire put options from investors that are then positioned to be harmed from the information they plant o release.

  1. They wait a few days to fully load up on such positions they are seeking to profit from.
  2. They release the “market moving” information to the market – including public, non public, unsubstantiated and unproven malicious and damning information for the sole purpose of manipulating the share price in violation of SEC Rule 10b-5, which causes the security plummet in value.
  3. They then either:

a. Cover their short position shortly after report is out locking in hefty profits.

b. They let the call options expire that they sold collecting healthy premiums.

c. They exercise the puts and lock in healthy gains or sell the puts at a hefty premium to what they paid profiting healthily.

  1. Then they go long the security as when the company responds with the facts the security is almost likely to recover around 70% of its value in the market – profiting again from the average shareholder.
  2. After stealing money from shareholders as a result of their “market moving” information they disperse the market they move on to the next security.

This is a great model, only if it was legal.

We believe that the practices of these “hit piece research” firms have significantly damaged the integrity of the public markets, the effectiveness of the SEC and FINRA, and have ignored the laws and regulations that a public company must follow and the standards and ethics that an individual acting as a “research” analyst must adhere to. We have followed the actions of such individuals and companies and have seen a continual and significant degradation of the effectiveness of the regulations that are meant to govern and orderly and fair public marketplace. To that end, we will take the time to briefly compare the actions that are taking place and why we believe it’s illegal, of low integrity and very damning to the integrity of the US public markets.

Bona fide research analysts are held to certain standards and requirements that are monitored by FINRA, SEC and various other regulatory authorities for a reason. Ultimately, they are an individual that performs significant research on companies, their environment, their filings, etc. They have to speak to management teams, determine the integrity of their statements, potentially dig deeper to discover the truth, and then translate all their due diligence data points and information into a report that is disseminated through public means.

On the other hand, recently another type of “research” has surfaced that has been coined (even by the authors themselves) as a “Hit Piece”. This type of “research” report has garnered this name because the author has intent of “hitting” (or substantially decreasing) the share price of the company with their report. What is the difference, one may ask, of a “hit piece” author and a research analyst?

Discussion Topic Research Analyst Hit Piece Author
Interaction with company management to understand the business model. Speaks to management to understand the full details of the business. Interacts with all levels of the company and its service providers, customers, and stakeholders of the company to understand their business model and follows-up with management or the appropriate person to get their questions answered, if needed. They can believe or question such statements, but they certainly run their questions through the company prior to forming their opinion on the company via their report. Does not make an attempt to speak to management, either initially, or as follow-up. Many of these authors have actually stated publicly they prefer not to speak to management prior to releasing their reports. While initially this may seem unusual, this is very consistent with the purpose of a “hit piece”, as it would typically lessen their ability to publish negative statements and potentially lessen the damage to a company’s share price if management clarified their questions in a conversation exchange prior to the “hit piece” release.
Ability to trade on inside information. Research analysts are restricted from trading in such securities prior to releasing the report and still post releasing the report. Not only are they restricted, but the entire research department and employees of their firm are restricted as well. Hit piece authors aggressively short sell securities or buy substantial quantities of puts immediately prior to putting out their reports. Furthermore they typically sell such reports to their colleagues and enable them to front run such reports prior as well. Only after they have their short positions or puts does the author post their reports with the sole intent of manipulating the share price. In addition to this manipulative report, they further create the illusion of share price collapse through trading programs that aggressively overstate downward volume. All of this is to create fear and selling in the share price, enabling them and their colleagues to immediately cover their shorts or sell or cover their puts.
Access to non-public information and means of obtaining such information. Research analysts are restricted to public information and are not able to utilize unscrupulous methods (such as bribes) to obtain information that deemed privileged and not public to the investing public. Hit piece authors will commonly use corrupt methods and lie to companies or bribe and lie to other providers of information (such as clerks at local tax offices, government officials, etc.) to obtain any information they can to either prove their point or further enable them to manipulate the stock price of the security that they referencing.
Integrity If a research analyst uncovered what they believe to be fraudulent activities within a company, they are required to immediately report such activities to the company for clarification, their compliance department, and/or the authorities to ensure that investors do not get harmed more than they should, and so that the authorities can take the necessary actions to ensure that the losses and damages incurred by the investing public is minimized. If a “hit piece” author uncovers what they believe to be fraud, or even something that is minimally unclear to them (without requesting clarification from the company), they immediately utilize such information to trade on the security, draft a report, internally share their findings for a fee to their colleagues, then disseminate such report in the most extremes of damning manners that one can imagine, use trading techniques to increase volume and drive down the stock price to a maximum point and cover their trades to lock in their profits, while causing immeasurable harm to the investing public in the process.

We believe based on the points above that these authors are not “research analysts”, but individuals that are that are getting away with crimes that are egregious, disturbing and increasingly damaging to the investing public. The most disturbing thing of all is that they are doing it in broad daylight, right in front of the authorities as almost a sign of defiance, and claim that they are invincible to, or above, the law.

Some may argue that they should be viewed as “journalists” versus a research analyst and should not be regulated; despite the fact they claim they are a research analyst themselves. If this is the case then this still does not preclude these authors from abiding by the laws and regulations established by the SEC and FINRA. If they want to use “yellow journalism” to profit at the expense of the investing public than we believe that is still just damaging to the average public and should be monitored, regulated and controlled.

We PLEAD that the actions of these individuals and companies are monitored, investigated and tracked and that all means are used to ensure that they are acting in accordance with the laws and regulations that were established to protect ALL investors, large and small. If these actions are not stopped we believe that millions of dollars will be taken from the pockets of hard working Americans, and global investors, that have put the faith and trust in US securities regulations to monitor and stop such unscrupulous actions.

The only problem I have with hit piece research is that the company in question cannot defend themselves beforehand, only when the damage already is done and the stock price is carnaged. Leaving a lot of investors with big losses.

In that sense I think hit pieces are brutal for long investors.

I would plea for:

1) The need for transparency.  Hit piece authors want transparency so do the average citizens investing in the markets. Each hit piece "research" author should have to sign a disclaimer with proof of identity saying they are not trading within 30 days pre and post such issuance of an article. 

2) The need for verification.  Authors claim they are helping investors then it should be that they can not put a research report with 15 items in the report without at least questioning management prior to such release as often 14 of the items appear to be pure interpretation or easily explainable issues. If there is an issue with the company and the company will not address themselves than the authors should feel free to discuss publicly, but if material they should know its illegal to trade on it.

3) The use of front running and definition of market moving research.  Everyone needs an education on such information.  A lot of firms continually violate the law. 

Cucumber Time On Stock Exchanges Doesn't Help Us At All

Thursday, June 9, 2011

Big Fund See Red In China

Article WSJ

Good news show China TechFaith (CNTF) doesn't help share price

Despite China TechFaith reiterated its outlook for Q2 the stock price has been declining for days. TechFaith expects Q2 revenue $82M-$84M, with gross margin levels similar to Q1. TechFaith also announced it will launch a 3D massive motion PC console game, "Legend of the 7 Swordsmen", through its 17Vee Motion Game platform.

Yesterday's news didn't help either.  The company announced it will launch six Android-based smartphones in the third quarter 2011 under its TecFace brand. The new models will be unveiled on a live webcast on June 23 at at 14:30 PM Beijing time.

What's happening? Short sellers are on a SEARCH and DESTROY mission?


Sunday, June 5, 2011

Saturday, June 4, 2011

Friday, June 3, 2011

Auditors Not Licensed to do Fieldwork in China?

Article Trading China Auditors Not Licensed To Do Fieldwork

VIE-Structured Chinese Companies Could Become Time Bombs

Article Seeking Alpha

Investors pit blame on 'bad apples'

Article China Daily US version

The shares of many Chinese companies listed on stock exchanges in the United States have plunged recently after a number of accounting mismanagement and fraud scandals.

But investment firms in the US claim the majority of these companies have been unduly punished from negative media reports and a few bad-apple Chinese companies, such as Longtop.

Kevin Pollack, managing director at New York-based Paragon Capital LP (which invests in US-listed Chinese stocks), said these scandals have affected unrelated Chinese companies whose valuations have come down dramatically.

It is unfortunate that many Chinese companies have taken a hit from "unsubstantiated short seller attacks", Pollack said. He said he will continue to invest in Chinese companies.

"I expect Chinese companies to take more proactive action to prevent short seller attacks and to build greater trust among investors," Pollack said. He cited Deer Consumer Products Inc's lawsuit against bloggers who slandered the company as an example of a Chinese company that needs to defend itself.

"These lawsuits can reduce the credibility of the allegations made and deter future attacks," he said.

As the accusations against Longtop reach a fever pitch, the securities lending business has become more and more skeptical of other Chinese companies. Many Chinese companies' stocks have slowed to a crawl. US shares of China Agritech Inc have stood still for the past two months.

Investors also claim there have been inaccurate media stories recently about Chinese companies.

Van Carter, special counsel at Kelley Drye & Warren LLP's New York office, said he believes reporters have misinterpreted two reports issued by the staff of Public Company Accounting Oversight Board (PCAOB) - the Staff Audit Practice Alert No. 6 on July 12, 2010, and the Activity Summary and Audit Implications for Reverse Mergers Involving Companies from the China Region on March 14.

"These are very technical materials and some reporters don't understand the details behind the regulations and rules. There's nothing in the report that says Chinese companies were not being honest or did anything wrong," Carter said.

He said the reports were aimed at a small number of US-based accounting firms which were taking shortcuts in their audit work for Chinese reverse mergers.

When contacted by China Daily, Joseph St. Denis, director of the office of research and analysis at PCAOB, said the Staff Audit Practice Alert No. 6 report was based on their observations that "some companies may not be conducting those audits in accordance with PCAOB standards".

It is not legally wrong for an audit firm to outsource its work to a third party, but the primary auditors of companies that have become public through reverse mergers have the sole responsibility to make sure the work meets PCAOB requirements. But when some US-based audit firms rely on the work of an audit firm in China, the PCAOB will not be able to review the work firsthand because it is blocked from conducting inspections in China, St. Denis said.

According to an e-mailed statement from PCAOB Chairman James Doty, the board is holding talks with China this year to allow inspections of PCAOB-registered audit firms in China.

Denis said the agreement would certainly be helpful for US-based auditors who are the primary auditors of Chinese reverse merger companies.

"On the other hand, if all the audit work is done by a US-based auditing firm, and if they are able to get all the paperwork out of China to review and validate it it would be generally less of an issue for us," St. Denis said.

The US Securities and Exchange Commission (SEC) has revoked the registrations of eight China-based companies since December last year, according to an April 27 letter written by SEC Chairman Mary Schapiro.

In response to China Daily's inquiry, Kara Brockmeyer, assistant director of Division Enforcement at the SEC, said: "Generally, the SEC revokes a company's registration statements when the company has become significantly delingquent in filing its quarterly and annual reports, which means that investors have no current information about the company's financial condition."

Bloomberg has reported that the SEC launched an investigation into Chinese companies' use of reverse mergers last year. But Brockmeyer said the issue is not specifically about Chinese companies, but foreign companies that become US issuers via reverse mergers. Right now, a majority of those companies happen to be based in China, she said.

She confirmed that a number of these companies have had their trading halted by a US stock exchange or have had their trading suspended by the SEC due to "significant accounting issues".

Edward Normandin, partner at Pryor Cashman LLP, said any Chinese company which wants an IPO or a reverse merger in the US should engage a qualified, experienced firm that knows China.

Thursday, June 2, 2011

SkyPeople's reaction to hit piece

Sky People Fruit Juice Makes Shareholder Announcement

XI'AN, China, June 2, 2011 /PRNewswire-Asia-FirstCall/ -- SkyPeople Fruit Juice, Inc. (NASDAQ: SPU) (together with is direct and indirect subsidiaries, "SkyPeople" or the "Company"), a processor and manufacturer of kiwifruit, apple, pear and other concentrated specialty fruit juices and manufacturer of Hedetang-branded fruit beverages in the People's Republic of China ("PRC" or "China"), today released the following statements:
SkyPeople has learned that, on June 1, 2011, an entity identified itself as "Absaroka Capital Management" (the "Author") and a short seller of the Company's securities, published an article on an investor website making various allegations and accusations against the Company (the "Article"). The Company believes that the Article contains many materially false and inaccurate claims, including without limitation, claims relating to the Company's operations, retail and sales channels, production, financials, and industry performance.
In particular, it appears that the author based much of its assumptions, analysis and conclusions in the Article on information and reports allegedly to have been filed by the Company with the PRC State Administration of Industry and Commerce ("SAIC"). However, upon review of the reports contained in the Article that the Author alleges to have been filed by the Company with SAIC, it appears that such so-called SAIC reports are entirely fabricated reports which contain materially false information about the Company's financial conditions and results of operations. The "auditor" of the so-called SAIC reports contained in the Article as shown on its company stamp did not appear to be the same auditor that actually audited the financial statements of the Company's PRC subsidiaries.
The Company believes that it is important to alert its shareholders and the general public that material false information contained in the Article which has been widely disseminated has caused material and irreparable harm to Sky People Fruit Juice, Inc. and its investors.
The Company is currently weighing appropriate legal remedies against the Author and the individuals that the Company believes to be behind this malicious attack.

American Lorain Corporation Announces Joint Venture With Hot & Roll Kiosk Chain

American Lorain Corporation (ALN) today announced that it has signed a Joint Venture Agreement ("JV Agreement") with Hot & Roll Holdings Sdn Bhd ("Hot & Roll"), and Munchy Food Industries Sdn. Bhd ("Munchy's") to jointly explore the quick service restaurant market in China. Under the JV Agreement, Hot & Roll, American Lorain and Munchy's will hold 51%, 30% and 19% of the Joint Venture Company, respectively. The total initial investment will be approximately $150,000, or RMB 1 million.

Hot & Roll is a fast growing kiosk chain from Malaysia specialized in paratha wraps and crispy wraps. It was founded in 2008 by Mr. John Madsen, former CEO of Carlsberg Brewery Malaysia Berhad, and Kawan Food Berhad ("Kawan Food"), Malaysia's leading exporter and largest manufacturer of frozen Asian food delicacies. Hot & Roll already has over 60 directly owned and franchised stores in Malaysia. According to the JV Agreement, Hot & Roll will introduce the successful management and training expertise into China; American Lorain will leverage the network of its 36 branch offices to provide support on recruiting, market development, logistics, and make experiments to introduce its rice and pickle products into the Hot & Roll stores in China. Kawan Food will supply some of the raw materials through its factory located in Nantong, Jiangsu Province in China.

The Joint Venture Company will operate both directly owned and franchised stores with the first set of directly owned stores opening in Shanghai, Suzhou, Hangzhou, and Shandong.
American Lorain's Chairman and CEO, Mr. Si Chen, stated, "Hot & Roll is a fast growing kiosk chain specialized in Malaysian style foods. I believe this joint venture will be able to leverage the strength of all the parties on market development, products, and operations to achieve growth. More importantly, we can also explore the possibilities to introduce American Lorain's products into the Hot & Roll kiosks in China to capitalize on these channels. We are looking forward to a positive development of the joint venture."