NEW YORK (TheStreet) -- The Chinese reverse-merger company Yongye International (YONG) announced Tuesday that it got a boost from some big Wall Street money, receiving a $50 million investment from Morgan Stanley's (MS) Asian private-equity unit.The move comes as a surprise. In recent months, institutional investors have increasingly forsaken Chinese small-cap stocks amid an expanding fraud scandal. At least 18 Chinese stocks are under trading halts or have been de-listed. The Securities and Exchange Commission has been investigating the space since last year. Recent problems at Longtop Financial ( LFT), a Chinese company taken public through a straightforward IPO by Goldman Sachs ( GS), have increased worries among investors that financial accounting in the People's Republic isn't what it seems, and that overstated profits might be widespread. As with other Chinese companies this year, Longtop's Big Four auditor resigned, indicating that the company's management appeared to have forged bank documents and actively thwarted auditors' efforts to investigate. Yongye -- which, like several other U.S.-listed Chinese small caps, produces organic fertilizers -- hasn't escaped negative attention. Several reports circulated on the Internet and written by investors with short positions in Yongye stock have raised questions about the company's financial reporting. Yongye has denied the charges. But its stock, along with Chinese small-caps in general, have nonetheless taken a pounding. It has plunged more than 56% from above $8.50 in early January to $3.75 as of the close of trading Friday. Morgan Stanley's interest in Yongye is, if nothing else, contrarian. "After extensive due diligence, we believe Yongye to be an exceptional company," said Homer Sun, a managing director of Morgan Stanley Private Equity Asia, in a press release announcing the deal. Yongye said the deal contains a sweetener. If the company hits certain "multi-year profit commitments," Morgan Stanley will be able to convert convertible stock at $15 a share. The company didn't name the specific earnings targets or the amount of convertible stock that will be issued to Morgan Stanley. Trading in Yongye stock was halted breifly Monday morning, joining more than a dozen other Chinese stocks under trading suspensions. There was a big difference, however. Yongye had favorable news to report. The other companies are under scrutiny because of fraud allegations. Once trading began, Yongey stock exploded higher. Minutes after the opening bell, the company's shares were trading at $5.59, up more than 50%. -- Written by Scott Eden in New York >To contact the writer of this article, click here: Scott Eden. >To follow the writer on Twitter, go to http://twitter.com/ScottEden.
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