(Updated for latest A-Power independent director resignation on July 1 and Duoyuan Global Water annual report delay.)
NEW YORK (TheStreet) -- Keep a sharp eye on Chinese companies facing deadlines to file their annual reports with the Securities and Exchange Commission. Among the disclosures that may come to light could be an auditor resignation, a trading halt, and a stock delisting.
That's the lesson of 2011 so far when it comes to equities hailing from the People's Republic. On June 27, A-Power Energy (APWR), yet another Chinese business that sought capital from U.S. investors by merging with a shell company, said its auditor had resigned, forcing the delay of its annual report. The resignation led to a trading halt called by the Nasdaq exchange after the closing bell Monday.
The A-Power case was especially intriguing, given the company's high-profile efforts to build wind-energy projects in Nevada and Texas alongside luminaries such as Sen. Harry Reid, among others.According to A-Power's press release on June 27, its auditor, the Toronto-based MSCM, had told company management that it needed to hire a forensic accountant to "evaluate certain business transactions that MSCM stated was necessary for MSCM to complete its audit." When A-Power failed to hire a forensic accountant, MSCM resigned, according to the company. Efforts to reach A-Power and MSCM were unsuccessful. Meanwhile, the defections have mounted. Two independent directors jumped ship on Tuesday. One of the directors, Remo Richli, was the chair of the board's audit committee. According to A-Power, Richli quit "based on his understanding of events that occurred over the past few weeks, including the resignation of the Company's independent auditor. He also stated that he did not agree with the course of action that the Company has proposed to take in response to recent events." On Friday afternoon, A-Power announced the resignation of a third independent director, Jianmin Wu. A-Power said in a press release, "Wu stated that, considering the recent changes occurring at the company, he believed he would not be able to continue to work effectively as an independent director and contribute as a member of the board of directors." MSCM is affiliated with the accounting group Moore Stephens, whose associated firms have audited many Chinese small-cap companies in the past, including China Energy Savings, now defunct, one of the few Chinese companies to have faced SEC fraud charges. The Moore Stephens affiliate who audited China Energy was censured by the SEC in December over its involvement with the company, which was wrapped up in a pump-and-dump scam. Like other China-based stocks halted or expelled by major exchanges this year, A-Power has long been suspected by short-sellers of various financial misdeeds. At the same time, the company, which purports to manufacture and install wind turbines and other clean-energy gear, had gained some recognition in the United States after signing deals to develop clean-energy projects in Nevada with that state's U.S. senator, Harry Reid. A-Power had made moves to develop similar projects in Texas. As late as April, the company was issuing press releases saying that its chairman and founder had met with Reid and other U.S. dignitaries who were traveling in China on a state visit. As with China MediaExpress and its anchor investment from Maurice "Hank" Greenberg, the former AIG chief, the involvement of high-level American politicians with A-Power gave the company legitimacy in the minds of investors. Sen. Reid's office didn't immediately respond to a request for comment. Earlier this month, China-Biotics (CHBT) and Yuhe International (YUII) were hit with trading suspensions. In May, Jiangbo Pharmaceuticals (JGBO), Longtop Financial (LFT) and Wonder Auto Technology (WATG) were halted. In April, it was Duoyuan Global Water (DGW), Universal Travel (UTA), Puda Coal (PUDA), HQ Sustainable Marine (HQS) and Keyuan Petrochemicals (KEYP). (Longtop Financial differs from the others; instead of a reverse merger, the company came public in an IPO in 2007 underwritten by Goldman Sachs (GS) and Deutsche Bank (DB).) Also on Friday, Duoyuan Global Water became the latest Chinese company traded in the U.S. to delay the filing of its annual report, saying in a release that it couldn't file its 20-F annual report until an accounting investigation was completed. Meanwhile, exchanges and the SEC have booted other Chinese stocks to the over-the-counter markets: China MediaExpress (CCME), Duoyuan Printing (founded by the same entrepreneur as Duoyuan Global Water), Rino International (RINO), China Integrated Energy (CBEH), Fuqi International (FUQI), China Agritech (CAGC), China Ritar Power (CRTP), China Intelligent Lighting, China Century Dragon Media, China Electric Motor (CELM), NIVS IntelliMedia, ShengdaTech (SDTH), and Subaye (SBAY).
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