房屋保险哪家强？# Living
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Puda has become the latest China-based company to be accused of fraud. A
newsletter writer (who is short Puda, according to his disclaimer) suggests
Chairman Ming Zhao illegally stole the company for himself. Then, Zhao took
out a huge loan with a state-owned investment firm and used the company's
shares as collateral.
He says these events took place in September 2009 and February 2010. In
other words, these events supposedly happened more than a year ago... but
the editor chose to write about them today... when dozens of small-cap,
China-based companies in the past month have tanked after being accused of
fraud.
Here are the facts on Puda...
For more than 15 years, Puda has operated as a coal-washing company. Coal
companies hire Puda to wash/clean coal – which helps reduce air pollution.
Based on the massive infrastructure boom that has taken place in China over
the past two decades, business has been great for Puda.
In March 2010, the Chinese government chose Puda to become a coal-mining "
consolidator." That means Puda was one of the few companies allowed to buy
small coalmines at steep discounts. The government put this law into action
to reduce safety concerns that have claimed the lives of thousands of coal
miners.
In December, Puda raised more than $100 million in a secondary offering. It
used this cash to purchase mining assets and develop existing coalmines.
Puda announced yesterday it signed agreements to acquire three more mines in
the Shanxi Province.
In the December press release, management said (emphasis added)...
Phase II of the Pinglu Project is co-developed by Shanxi Coal, Mr. Ming Zhao
, chairman and a principal stockholder of Puda Coal, and Mr. Jianping Gao
under a previously announced Investment Cooperation Agreement dated August 1
, 2010.
Under the Investment Cooperation Agreement, Shanxi Coal, Mr. Zhao and Mr.
Gao will each contribute 40%, 30% and 30%, respectively, of the total
investment needed for the consolidation and construction of the coal mines
under Pinglu Project Phase II. The parties will share the profits based upon
the above investment contribution percentages and bear the risks and losses
in connection with the project which will be limited by the amount of
investment contributed by each party.
This means Zhao has a lot riding on the success of Puda. If these mines in
the Pinglu Project don't get developed, he'll lose a considerable amount of
cash. It puzzles us why any chairman would put so much cash into a company
if he knows it's a fraud.
Three weeks ago, Bloomberg featured footage of Puda's coal-mining operations
at its Pinglu Phase I and II mines. It was at an investor's event for media
, analysts, and institutions interested in Puda Coal. Its books were open
for everyone to see.
As for the negative write-up... we've seen this game played dozens of times
in the past month... The short sellers take massive positions in a small
China-based stock. Then, the editor writes a negative report about the
company – and sends it to every financial blog he can think of. Some
writers don't disclose their company for fear of a lawsuit. Others go as far
as to hire small law firms to file suits against these companies within a
week of publishing their report.
Once the report is published on blogs, the stock begins to tank. The fear is
enough to push these small stocks (which have little institutional
ownership) down in excess of 25% in a day.
On Tuesday, we addressed the current weakness in Puda. We also tried to
limit our loss by pushing our stop to 7% of the closing price. This would
have locked in a small gain for us from our initiation price. However,
shares have fallen well below this level.
Based on our research, Puda is a solid and legit company with huge growth
potential. But we will follow our strict rules of letting our winners ride
and limiting our losses on losing positions. If you haven't already done so,
sell Puda Coal.
newsletter writer (who is short Puda, according to his disclaimer) suggests
Chairman Ming Zhao illegally stole the company for himself. Then, Zhao took
out a huge loan with a state-owned investment firm and used the company's
shares as collateral.
He says these events took place in September 2009 and February 2010. In
other words, these events supposedly happened more than a year ago... but
the editor chose to write about them today... when dozens of small-cap,
China-based companies in the past month have tanked after being accused of
fraud.
Here are the facts on Puda...
For more than 15 years, Puda has operated as a coal-washing company. Coal
companies hire Puda to wash/clean coal – which helps reduce air pollution.
Based on the massive infrastructure boom that has taken place in China over
the past two decades, business has been great for Puda.
In March 2010, the Chinese government chose Puda to become a coal-mining "
consolidator." That means Puda was one of the few companies allowed to buy
small coalmines at steep discounts. The government put this law into action
to reduce safety concerns that have claimed the lives of thousands of coal
miners.
In December, Puda raised more than $100 million in a secondary offering. It
used this cash to purchase mining assets and develop existing coalmines.
Puda announced yesterday it signed agreements to acquire three more mines in
the Shanxi Province.
In the December press release, management said (emphasis added)...
Phase II of the Pinglu Project is co-developed by Shanxi Coal, Mr. Ming Zhao
, chairman and a principal stockholder of Puda Coal, and Mr. Jianping Gao
under a previously announced Investment Cooperation Agreement dated August 1
, 2010.
Under the Investment Cooperation Agreement, Shanxi Coal, Mr. Zhao and Mr.
Gao will each contribute 40%, 30% and 30%, respectively, of the total
investment needed for the consolidation and construction of the coal mines
under Pinglu Project Phase II. The parties will share the profits based upon
the above investment contribution percentages and bear the risks and losses
in connection with the project which will be limited by the amount of
investment contributed by each party.
This means Zhao has a lot riding on the success of Puda. If these mines in
the Pinglu Project don't get developed, he'll lose a considerable amount of
cash. It puzzles us why any chairman would put so much cash into a company
if he knows it's a fraud.
Three weeks ago, Bloomberg featured footage of Puda's coal-mining operations
at its Pinglu Phase I and II mines. It was at an investor's event for media
, analysts, and institutions interested in Puda Coal. Its books were open
for everyone to see.
As for the negative write-up... we've seen this game played dozens of times
in the past month... The short sellers take massive positions in a small
China-based stock. Then, the editor writes a negative report about the
company – and sends it to every financial blog he can think of. Some
writers don't disclose their company for fear of a lawsuit. Others go as far
as to hire small law firms to file suits against these companies within a
week of publishing their report.
Once the report is published on blogs, the stock begins to tank. The fear is
enough to push these small stocks (which have little institutional
ownership) down in excess of 25% in a day.
On Tuesday, we addressed the current weakness in Puda. We also tried to
limit our loss by pushing our stop to 7% of the closing price. This would
have locked in a small gain for us from our initiation price. However,
shares have fallen well below this level.
Based on our research, Puda is a solid and legit company with huge growth
potential. But we will follow our strict rules of letting our winners ride
and limiting our losses on losing positions. If you haven't already done so,
sell Puda Coal.
