Doubts about the truth behind Harbin Electric's ( HRBN) leveraged buyout persisted, despite the company's announcement on June 20 of a definitive agreement for a deal, long promised by the management of the Chinese reverse-merger company. Harbin shares did indeed soar once the regular session began. By the close of trading on June 20, Harbin shares stood at $13.35, up almost 60% on the day. But that's a far cry from the announced buyout price of $24 a share. One trader who specializes in merger arbitrage, Thomas Kirchner, of the Quaker Funds, told TheStreet that his fund had sold out of its position in Harbin at the end of May. "There are quite a few red flags in this deal, and we continue to be pessimistic about it," he said. In a press release, Harbin said its board of directors signed a definitive agreement to sell the company to its founder and CEO, Tianfu Yang, along with a Hong Kong-based fund called Abax, which has been involved as an investor and counterparty in several deals with U.S.-listed Chinese companies. According to Harbin, much of the funding for its LBO, a term loan for about $400 million, will come from China Development Bank, a massive state-controlled institution that last year made a $50 million personal loan to Yang, who pledged his own Harbin shares, 7 million of them, as collateral. Harbin's U.S.-based spokesman didn't respond to a request for comment. The events of the last few weeks have quickly made Harbin the subject of one of the noisiest long-short battles in the Chinese small-cap space, which has been rife with controversies for almost a year. A manufacturer of micro motors based in the city of Harbin, in northern China, Harbin came public in a reverse merger in 2005. It is one of dozens of small Chinese companies that have come under extreme scrutiny after an outbreak of fraud allegations and revelations, which have eroded investor confidence in the group at large and triggered an investigation by the SEC. Harbin itself has not escaped allegations that it has engaged in fraud. Short-sellers have been swarming around the stock since last year. One of those short- sellers is Andrew Left, who runs the Citron Research blog, where he publishes reports on companies he has taken a short position in. In recent weeks, Left has led the charge against Harbin, calling the company's buyout plans "a sham" and urging the SEC to "halt this security." Left posted his latest missive on Thursday and appeared to help push Harbin's stock down 51% that day. In its press release on Monday, Harbin CEO and founder Tianfu Yang came out fighting. His words appeared to refer to Left. "A significant amount of information that is false and misleading as well as defamatory has been introduced into the market, and has clearly affected market trading of the Company's stock," Yang said in the press release. "The Company is prepared to take all necessary legal action against those who have made such statements." Yang's threat of legal action follows a recent trend of Chinese companies promising to sue their critics for libel and stock manipulation. Contacted by TheStreet, Left said he stands by his position that Harbin's LBO is a fake. But, he added, "My thoughts are irrelevant compared with what Wall Street says; the Street votes with its dollars. Unless the stock gaps to 19 or 20, then what are we arguing about here? I would venture to say, if they are able to pull this off, in the history of M&A there's never been a stock that's traded so far below the takeover value when a deal has gone through."