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Bigtime Investors Lose Big on China

Carlyle co-founder David Rubenstein.

One of the largest private-equity firms in the world, if not the largest, took 20% of a company called China Agritech (CAGC) back in October 2009, when it participated in a private-placement deal with the organic fertilizer producer. About a month earlier, Agritech's shares had been "uplisted" to the Nasdaq from the over-the-counter markets, having reverse-merged into a shell in 2005. As is the case with many such deals, there were "make-good" provisions in the private-placement contract with Carlyle. If Agritech didn't hit certain earnings targets, it would owe Carlyle more shares.

Agritech hit those earnings targets.

The investment was a flyspeck relative to Carlyle's many, many billions worth of portfolio companies, but the fund's presence as anchor investor seemed to suggest that heavy-duty, private-equity-style due diligence had at least taken place. Another institutional investor, Glickenhaus & Co. ended up taking a 1.6% stake in China Agritech based in part on the Carlyle imprimatur.

After gaining the Nasdaq listing, the company's stock ramped to highs of more than $30 before beginning a long collapse as short sellers attacked and auditors decided they didn't like what they saw. Neither did Nasdaq, which expelled the equity to the over-the-counter markets this year after yet another public battle between bears and bulls played out in the media and in the blogosphere. The company has yet to file a 10-K annual report for the year 2010.

Carlyle hasn't sold any of its Agritech stock, according to a person familiar with the matter

A spokesperson at the firm's Washington headquarters declined to comment.
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