NEW YORK (TheStreet) --- Energroup (ENHD.OB), a Chinese reverse-merger company, may have packed it in.
The producer of pork products based in China's Liaoning province filed a form 15-12G with the
Securities and Exchange Commission
on Monday -- a notice of termination of the registration of its securities. Essentially, the company has pulled its stock from the over-the-counter bulletin board, where regular quarterly filings are required by the SEC.
Energroup shares will now likely trade on the Pink Sheets, but according to people familiar with the stock, rumors have emerged that the company's founder and chairman, Huashan Shi, may want to remove the business from U.S. capital markets completely.
Shares closed Tuesday at 57 cents, down 19%, after falling 40 cents on Monday. The stock closed at $2 on Dec. 31.
The news came as a shock to some investors. Energroup offered no explanation for the move. The company couldn't immediately be reached for comment. In this vacuum of information, Energroup stock plunged by more than 72% over the last two trading sessions.
>>The Shanghai Numbers: A Special Series by TheStreet on Chinese Reverse Takeover Stocks
Energroup, which went public in the U.S. through a reverse merger in early 2008, was likely headed for an uplisting to one of the major exchanges, according to a source familiar with the company. A handful of heavy-hitters in the Chinese small-cap investment world were behind the stock.
provided Shi's pork-production business with a shell company to merge into. (The public entity has retained the name of that shell, Energroup.)
, a hedge fund run by Timothy Hatler's one-time partner Barry Kitt, was the lead investor in a $17 million round of private financing not long after Energroup's reverse merger.
, a Newport Beach, Calif.-based investment bank and underwriter of scores of stock offerings by Chinese small-cap companies, was also an early Energroup shareholder. Roth and Pinnacle have teamed up on many similar Chinese deals.
In May and June 2010, Energroup and the investor group led by Pinnacle had a dispute over some terms of the investment, including the appointment of an English-speaking CFO, an independent board and deadlines for an uplisting to a major exchange, according to several people familiar with the deal. The company and the investor group eventually settled the matter, SEC documents show.
Energroup had other problems to sort out as well. In a series of disclosed letters, the SEC's Division of Corporation Finance asked questions in May and June 2010 regarding certain points of accounting, including the transparency of related-party transactions.
Chairman Shi and his family control a number of vertically integrated businesses involved in the pork and food industry in Liaoning province, according to Energroup filings with the SEC. The entity that trades on U.S. exchanges as Energroup comprises the processing and distribution segments -- including a chain of branded stores -- of the chairman's larger organization, called the Dalian Chuming Group. In essence, Shi took a chunk of that larger business and used it to raise capital in the U.S., spinning it off through the reverse merger.
Related-party transactions would appear to be commonplace for the Shi group. Energroup buys hogs, for example, from a hog-breeding company controlled by Shi, SEC records show. The company, of course, has assured that "all transactions with related parties were performed at arm's length," according to its statements in SEC filings.
But the commission wanted more detail on the matter. "It is difficult for us to understand how you can accurately determine and report amounts associated with related party transactions and their impact on your financial statements without" also providing summary information on those transactions, the SEC wrote in a June letter to the company. The letter asked Energroup to amend its registration statements with those details, among other things.
Energroup has had a number of finance chiefs over the years. In October, the company's CFO, Sharon Tang, resigned after just six months on the job. Up until December 2008, Energroup's CFO was "Philip" Zhang Yizhao, who has served as a director or executive at other Chinese reverse-merger companies, including the battleground stocks
China Education Alliance
China Green Agriculture
, which once received funding from Pinnacle, and
. Zhang also once served as CFO of
, a company heavily criticized by the Australian fund manager John Hempton.
China Green and Shengtai were brought to the U.S. by the controversial Chinese stock promoters
The SEC has initiated a probe into Chinese reverse-merger stocks, a sector beset by fraud allegations and revelations over the last year.
Sources involved in the RTO business have told
that SEC attorneys are seeking information about the international network of promoters, investment bankers, auditors, lawyers and early-stage investors who shape and energize the reverse-merger deal flow, launching one stock after another into the U.S. equities markets. The SEC has declined to comment.
A review by analysts at
showed that investors in the U.S. have suffered losses in excess of $34 billion in RTO and similar China-based stocks.
That total adds up all the market-cap losses for 150 stocks that appear to have been used to bring Chinese companies to U.S. exchanges. The list of 150 included stocks hurt by association with allegations of fraud as well as those directly implicated. Losses were measured from a stock's peak price at any time over the past five years to its present price.
-- Reported by Scott Eden in New York
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