China Agritech has fired its auditor after the auditor threatened to resign. NASDAQ has suspended the stock and there is no indication of when it will trade again.
The Carlyle representative on the board (Anne Wang) has resigned and never answered any email I sent her or any questions on this blog.
The auditor firing 8K is a gem. Ernst & Young has recommended the "initiation of an independent investigation, in order to verify certain transactions and balances recorded on the Company’s financial statements and records for the year ended December 31, 2010."
E&Y also "orally advised the Audit Committee that it may not be able to rely on management’s representations based on the issues identified."
In other words they thought management may be lying and they thought an "independent investigation" (meaning independent of the board) was warranted.
None of this should be a surprise to any reader of this blog.
I also annoyed China Agritech's management especially because of my repeated (and unsuccessful) attempts to talk to Carlyle.
This is a letter I got from their PR flack on 24 February. How should I respond? Note that the flack (Kevin Theiss) says we (meaning Grayling - not China Agritech) have collected evidence that my allegations were groundless.
Dear Mr. Hempton,
We are aware that you have published a series of blog articles to negatively comment on China Agritech's business operations and attack the Company's credibility. It is becoming more alarming that you have repeatedly reached out to our largest outside shareholder. Your intention and ongoing efforts to derail our well-established, long-term relationship with our largest shareholder has come to our full attention. If you have any questions, concerns or comments, we welcome you to contact China Agritech’s management directly. We will provide you with our timely answers. Lastly, we have collected evidence that your allegations are groundless. If you continue to harass our shareholder, we will take further legal action against you.
-----------------------------Kevin TheissAccount DirectorGrayling USA825 Third Avenue, 18th FloorNew York, New York 10022
Tel +1 (646) 284-9400Direct +1 (646) 284-9409Fax +1 (646) 284-9494
E-mail firstname.lastname@example.orgE-mail email@example.comFollow Grayling NY:On Facebook at Grayling NYOn Twitter at www.twitter.com/GraylingNYGrayling is a global Investor Relations, Public Relations, Public Affairs and Events consultancy. We have offices in 70 locations, in 40 countries across Europe, the US, the Middle East and Asia Pacific. We are the second largest independent PR firm in the world. Grayling is part of Huntsworth plc.
PS. Huntsworth PLC - the company that ultimately threatened to sue me on behalf of China Agritech - is publicly listed. Their CEO states on their website that Huntsworth "have developed a culture of rigorous focus on margin improvement throughout the Group". Is there any business not worth doing for a high margin? Does this letter represent the quality of their work?
I suggest you refer them to Arkell v. Pressdram.
In the Private Eye lilt - maybe I should just say he was "tired and emotional" when he wrote that.
No matter what you reply, make sure you copy in: firstname.lastname@example.org
What was their initial legal action? (If they were threatening "further" legal action that implies some action beforehand...)
John, obviously the best thing is to take him up on his offer and write 10 yes/no questions to management ("Do you actually manufacture the volume of product you claim to in your SEC filings, or is that figure a pure fabrication?")
Thanks for your articles about this stinker, your writing was a fantastic jumping-off point for me to do my own follow-up research into CAGC and start my own short position.
What possible relationship the China Agritech would Grayling have? Are these all mob-owned entities?
I intend to remain long on CAGC. I think this short term ups and down will make this company to bring more transparency. Ag demans are not goinf down with these fingure pointing. CAGC is signing on to more business and may be ready for next leap to high teens...
Congrats on a great call. It takes a lot more courage than I have to call out a company (for the short side).
The mistake that a lot of people seem to make is that they don't do any of their own due diligence. Following a wealthy investor is not due diligence. You can ask all of Madoff's victims about that.
This is a stupid question from someone who doesn't know a lot about trading.
If you are short on the stock, and it is suspended, what happens then?
What if the stock never trades again? How do you profit out of your short position in that case?
If someone have to hold this stock for 5 years then now seems to be right time to jump in when short gurus are going to pull its price down. This stock is not going to remain depressed for long after it starts trading again. These questionable stocks have impact on CAAS where small non-financial mistakes is causing stock price to pull down. High risk High profit is still true. $41 million revenue in Q4 2010 seems like good numbers if turns out to be true and verifiable.
Great work on the stock,
Looks like theres more to come from where tha came from.
Great blog. Thank you John.
I think it'd be fair to say the following to Kevin Theiss:
"I haven't received notice of any legal action against me, although you implied it's already started. Could you kindly inform me what action has taken place, and on what grounds? For the record, asking reasonable questions of the largest shareholder via email is not harassment. I have no desire to disturb or upset anyone; I merely want to make money for my investors. If Carlyle does not wish to speak with me, I'll fully respect that decision. But if you and/or Carlyle have evidence that all my allegations are wrong, then I'd love to see it. You can contact me directly at email@example.com. Thank you very much.
love your blog
i worked for a major Pr company, in fact what is usually considered to be the best--5 continents on 95 continents, and there was a rule that if a typo went out, that person, regardless of their title, would be fired. theiss here, splits an infinitive in the first couple of sentences. there is one sense he outsmarted you. the goal of the email he sent to you was to get you to post in on your blog, and in that sense you fell for it and he won. but sense its such an unprofessional rant, his victory was miminal for sure.
For more on what is going on in China check out this blog:
Echoing buyersstrike, Sydney Morning Herald reporter John Garnaut made some very specific allegations about China Agritech recently.
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