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China Sky Fights Back With Letter to Holders

The letter concluded with an open invitation to "current shareholders, potential investors, and different opinion holders" to visit the company's operations in China.

Liu even offered to foot the bill for anyone interested in making the trans-Pacific trip to Harbin, an industrial town in the far northeast corner of China, bordering on Siberian Russia.

"We are willing to cover your travel expenses in China," Liu wrote. "'Seeing is the base of believing.'"

China Sky is one of hundreds of Chinese companies that have come public in the U.S. through a back-door process known as a reverse merger -- also called a reverse takeover, or RTO. Over the last year, allegations and revelations of financial fraud have beset these companies to such a degree that the SEC has launched a wide-ranging probe, according to people with knowledge of the investigation. The SEC has declined to comment.

The SEC began its formal investigation into China Sky One in September 2009, partly in response to information uncovered by Bird. Both China Sky One and its audit firm, MSPC, have received subpoenas from the SEC, which is examing the company's accounting, record-keeping and disclosure practices, China Sky One has said in its own regulatory filings.

In the letter, Liu said that the company has "worked closely and diligently with all SEC inquiries and will continue to do so."

Liu's company isn't alone; securities regulators have launched inquiries into Chinese RTO companies such as China Green Agriculture (CGA), Fuqi International (FUQI) and Rino International (RINO). Rino's shares were recently deslited by Nasdaq after revelations of fraud at the company. The stock now trades on the Pink Sheets.

Like many Chinese companies that have gone public in the U.S., whether reverse-merger or not, China Sky One has been criticized for a lack of transparency. The company, for example, didn't disclose the SEC's probe until August 2010, 11 months after it began.

Liu addressed this concern as well. "We highly value smooth and transparent communication with our investors. Management is now busy working on annual auditing and reporting for 2010. As soon as practical, we intend to update investors on our 2010 performance and our financial guidance for 2011."

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-- Written by Scott Eden in New York

>To contact the writer of this article, click here: Scott Eden.

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Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.
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