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Message: Got this from a former poster re this site who isunder the weather& bears noting
Fool Me Once...
Last November, Glickenhaus & Co. bought 326,130 shares of China Agritech. Glickenhaus was founded in 1961.
Its predecessor began operations in 1938.
This company knows a thing or two about investing. But it made a big mistake. It forgot to check on how China Agritech obtained its stock listing in the US.
So far, it has cost the company $4 million.
That same week in November, China Agritech replaced its auditor, Ernst & Young.
Three months later, the company came under attack for not being a real company with real operations. Its shares plunged. From $15.87 in November to $6.88 in March.
Recent evidence turned up by various parties show that China Agritech's factories are dormant.
The company has also fired several more auditors since November.
Glickenhaus blames a smear campaign by investors shorting the company (i.e., betting it would fall in price). The American brokerage that underwrote China Agritech's $23 million offering in April of last year is sticking with the due diligence it did.
China Agritech is also 22%-owned by Carlyle Group. Its representative on the company's board resigned recently. Carlyle has declined to comment.
NASDAQ halted buying and selling of China Agritech shares on March 14. It now says that it intends to delist the company.
China Agritech is appealing the decision. And a shareholder lawsuit is pending.
That's where the whole thing stands. Except for one critical piece of information...
China Agritech is a reverse-merger company. It was created by the merger of China Tailong Holdings and Basic Empire Corp. from Nevada.
China Tailong Holdings is a Chinese fertilizer company founded in 1993. Basic Empire is a shell company with no active business operations.
I talked to you about the dangers of investing in reverse-merger companies in early January. I said, "Some 150 Chinese companies are listed on US exchanges. Many of the smaller ones got there... by merging into a US shell [and] avoided the reporting and transparency standards these exchanges require."
I noted that the SEC had launched an investigation into reverse-merger companies and were looking at two Wall Street firms and three Chinese companies.
That investigation put other reverse-merger companies on high alert.
Since March 2011, the SEC's chairperson, Mary Shapiro, told Barron's, more than 24 China-based companies have disclosed auditor resignations, accounting problems, or both. These auditors, she added, were unable to confirm the amounts of cash or receivables on the companies' balance sheets.
The SEC recently suspended trading in three Chinese businesses that "reverse-merged" into US-traded shell companies. And Forbes' Walter Pavlo lists more reverse-merger companies causing problems...
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China Electric Motor - Shareholder lawsuit claiming underwriters violated federal securities laws.
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China Natural Gas - Class action lawsuit against directors and officers.
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Duoyuan Printing - Under SEC investigation, delisted April 4, 2011.
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China MediaExpress Holdings, Inc. - Deloitte quit as auditor and CFO resigned. Stock trading halted March 11.
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China Sky One Medical - Under SEC investigation.
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Orient Paper, Inc. - Reauditing previous financials.
And that doesn't include the messy blowup of a company I mentioned in January - RINO International. Or China Green Agriculture. Both saw massive insider selling prior to their demise.
Back in January, I advised you to stay away from small Chinese companies. But I laced my admonition with some good news...
Stop buying shares in small Chinese-based companies listed in the US. The good news is, China grows its companies big and many of them are listed on the American exchanges.These big companies are different. They listed on US exchanges the right way, through the front door and meeting all the transparency requirements. Plus they're so big (a few are worth more than $100 billion!) that it's much easier to get a lot of information on them.
Stick with these big companies and you avoid most of the pitfalls.
Sure, there are going to be occasional flare-ups, even with the big players. Alibaba, for example, has been criticized for its treatment of Yahoo. (Alibaba took all the shares of a valuable company jointly owned by both.) And other Chinese companies, including CNOOC (China National Offshore Oil Company), have been criticized for benefitting from government favoritism.
But there is safety in these large and deep-pocketed companies from China. Like I said in January, "... stick with the big companies. You'd be avoiding the small fry that snuck into the US exchanges through the back door and are now doing a great deal of damage to investors' bottom lines."
Respectfully,
Andrew Gordon
Editorial Contributor
Early To Rise - Investor's Edition
Editorial Contributor
Early To Rise - Investor's Edition
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