SEC Charges Puda Coal Chairman Ming Zhao with Defrauding Investors, PLUS Progress in A*L’s Campaign to Protect its Contributors

On 12/19/11 I announced that the new mission of (“A*L”) is to expose a small group of Chinese companies that have threatened our contributors’ lives, free speech and privacy.  As such, A*L will only publish reports on Chinese companies that continue to attempt, through threats, kidnappings, physical violence or legal process, to silence their critics.  All other reports were archived and removed from the site.  Today I would like to share our contributors’ recent progress against Deer Consumer Products, Inc. (NASDAQ: DEER) and Silvercorp Metals (NYSE: SVM) and highlight recent news on Puda Coal (Pink Sheets: PUDA).

In a 9/20/11 Globe & Mail article (here) SVM Chairman Rui Feng announced “Our lawyers are now working with DEER’s lawyers to launch a lawsuit together to subpoena these people behind the scenes.”  After SVM selectively responded to the allegations of the short sellers, it began filing lawsuits against anyone publicly critical of the company with at least a dozen real and imaginary defendants named to date in a half dozen complaints in three countries.

In an article focused on SVM published on 11/11/11 in the Economic Observer (here), Benjamin Wey was quoted vouching for SVM’s “innocence” in the end.  In a Chinese Southern Weekend article published on 12/15/11 (here), both Rui Feng and Benjamin Wey were quoted as the spokespersons for SVM and DEER, respectively.

Then on 12/20/11 (here) a contributor to A*L announced that the SEC refused a Freedom of Information Act request to hand over records on DEER indicating pending or prospective law enforcement proceedings by the SEC against DEER.  But it appeared short sellers suffered a serious setback later that same day, when SVM announced (here) it “has been advised that Chinese law enforcement agents have opened a criminal case to investigate and find the creators of false and fraudulent reports by anonymous parties such as IFRA, Alfred Little and others, attacking Silvercorp and its Chinese subsidiaries.”

The next day, DEER issued its own press release (here) that completely ignored the question of whether DEER was under investigation by the SEC and instead simply pointed out the continued efforts against short sellers disclosed by SVM the day before, providing a link to SVM’s press release announcing the Chinese criminal case.   Why did DEER not deny the SEC investigation, unless the investigation was real and DEER was simply dodging the question?

Shortly thereafter local police in the hometown of SVM’s Chinese subsidiary made the first arrests.   Rui Feng’s fight against the “short and distort” had achieved what seemed like a major victory.  With short sellers’ researchers in jail, how could anyone document and collect any more evidence challenging SVM?  The local police performed exactly as expected, yielding immediate and tangible results for SVM’s campaign to silence its critics.

News of the arrests spread, naturally firing up the bullish animal spirits and prompting Global Hunter Securities analyst Joe Giamichael to publish a research note on January 23rd citing the arrests of short sellers’ researchers in China (here) as first among several reasons to be bullish again on depressed Chinese reverse merger stocks.  Mr. Giamichael then specifically highlighting DEER as among five of “those best positioned to create value over the balance of 2012” and explaining that the timing and conditions were right for a short squeeze.

Unfortunately for DEER investors, Joe Giamichael’s bullish timing once again could not have been worse.  Just three days later on January 26th FBI agents raided Benjamin Wey’s NYGG Wall Street headquarters.  An FBI spokesman interviewed by the New York Times (here) confirmed that the agency “conducted a search in conjunction with an ongoing F.B.I. investigation.”

On January 31st, Joe Giamichael abruptly dropped coverage of DEER (here) to better “allocate resources elsewhere.”  Clients familiar with Mr. Giamichael’s research should question how DEER suddenly became a waste of resources.  Mr. Giamichael had a “buy” rating on DEER since 6/15/10 and only the week before considered DEER one of the “best positioned to create value over the balance of 2012.”

That same day, short sellers received further good news from New York Supreme Court Justice Carol Edmead when she announced her preliminary decision (here) to dismiss DEER’s defamation complaint against Alfred Little for lack of personal jurisdiction in New York.  The next day, DEER replaced its counsel (here) in the defamation suit, Robert Knuts, with John Bostany, a trademark lawyer who recently added fighting “short and distort” campaigns to the list of specialties on his website (

In another clear victory for anonymous publishers and researchers, on 2/23/12 NY Supreme Court Justice Carol Edmead in the matter of DEER vs. Alfred Little ordered (here) that defendant “Alfred Little” may proceed anonymously, in accordance with the terms of a confidentiality agreement, while the parties further explore the proper jurisdiction.  Justice Edmead issued her order after reviewing in camera confidential affidavits and supporting documents from Mr. Little and his associates documenting threats, intimidation and corruption by Chinese companies listed in the U.S. and Canada that she found to be “extensive, detailed and compelling.”

Then on 2/22/12 A*L’s contributors achieved their greatest victory to date when the SEC announced it charged Puda Coal (“PUDA” Pink Sheets) chairman Ming Zhao and former CEO Liping Zhu with conducting a scheme of stealing and selling Puda Coal’s key Chinese subsidiary.  The SEC complaint included all of the allegations in the report first published on A*L on April 8th (here) and noted that Zhao and Zhu commenced their scheme just weeks after PUDA announced to its shareholders that the Shanxi provincial government had awarded PUDA the lucrative monopoly rights to consolidate smaller coal companies in its region.

Robert Khuzami, Director of the SEC’s Enforcement Division stated in the press release (here) accompanying the civil complaint that “Zhao and Zhu duped investors with promises that their money would be invested in a Chinese coal company when in fact the company was an empty shell that had been looted by the defendants.”  I encourage everyone to read the SEC’s complaint filed (here) and compare it to the April 8th report (here) published on A*L and referenced on page 11, paragraph 27 of the SEC’s complaint.  I am very proud that the SEC’s complaint confirms our contributors’ report was 100% accurate about PUDA, a feat that no other short seller has matched to date.

Unlike PUDA, not every fraud can be as easily exposed by short sellers, delisted by the Exchange and charged by the SEC.  Smaller or better-concealed frauds take longer to expose.  But since fraud is a binary, black or white matter, public companies found guilty of any amount of fraud should be forced to make amends to their victims.  Whether or not the short sellers deserve medals for their efforts is something we can disagree on.  However, their effectiveness in the past two years at exposing fraud is in sharp contrast to the total portfolio destruction caused by the legions of “professional” research analysts and bankers who earned tens of millions in fees raising billions of dollars from investors but would not spend $500 to obtain the official ownership records that proved PUDA was an empty shell.

Based on the continued successful track record of A*L contributors I expect further progress in the days and weeks ahead as DEER’s defamation suit gets dismissed and the truth comes out about SVM.

Until then,

Simon Moore

Managing Editor

One response

  1. I hope the guys at IFRA and your other contributors are well. The companies you mention are the tip of the larcenous Chinese fascist iceberg, which is willing to crush and sink any revealing dissent from the official paltering propaganda. Chinese embezzlers feel that they can get away with larceny because they have the full protection of the thuggish apparatchiks. Until more truthful researchers join your initial cause and help unmask the other Chinese embezzlers who have prowled or are prowling the US (and other countries) in search of more investors to deceive, they will continue using their means of embezzlement: exchange-traded companies incorporated in the Cayman Islands, Bermuda, BVI, Delaware, Nevada, Singapore, Jersey. Sooner or later, however, the truth will conquer.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Glenn Chan's Random Notes on Investing

DISCLAIMER: Some of the information on this site is wrong. Always do your own research.

%d bloggers like this: