Did Longwei Petroleum Just Dig Its Own Grave? Updated: Major Problems

Jan.17.13 | About: Longwei Petroleum (LPIH)

I've been watching this brawl between Longwei Petroleum and GeoInvesting Group unfold from the sidelines, holding no position in Longwei Petroleum (LPH), but I've been inevitably pulled in by the tractor beam of a guarantee that this debacle is eventually going to come to some form of critical mass one way or another - and relatively soon.

It has now been roughly a week since GeoInvesting seemingly systematically dissected absolutely anything and everything having to do with Longwei Petroleum, a China-based company in the business of storing and distributing finished petroleum products. Roughly a week ago, GeoInvesting offered up this article; a compilation of negative claims about Longwei ranging from legal issues, to corrupt political affiliations, to good old fashioned fraudulent sales. Accompanying the article were time lapse videos, taken from two areas near Longwei's facility, with the purpose of logging tanker traffic in and around the facility.

The week that followed has resulted in a war between current Longwei supporters, believers, shareholders and the company versus GeoInvesting -- either seen to be a shorting group with an agenda or a group hell-bent on furious due diligence in support of the common investor.

In response to an initial article written by GeoInvesting, Longwei quickly fired off a press release letting investors know that they adamantly deny the claims against them and that they plan to rebut them in the future. They offered little to nothing in the means of evidence. Longwei stock was subsequently halted from trading, leaving investors awry as to the future of the company.

After that, what happened? Well, nothing. Longwei sat for the week, halted, offering nothing to their investors and no evidence to the contrary. Message boards fluttered with debate, longs hoping for a full rebuttal and an ensuing short squeeze to gap upwards. Shorts argued back, citing what could, if proven true, be demonstrable evidence of company wrongdoing provided in the GeoInvesting article.

Emerging from their seven day silence, with their King Solomon-like first-response to the real first response, Longwei released yesterday what they claim to be their security videos of the same area that GeoInvesting claims to have had cameras on, and -- guess what -- it shows a completely different number of tankers in and around the area at the time in question. Both of these videos, provided by Longwei, show workers in and around tankers pulling up to a docking station. They show workers pointing to things in the docking station, milling around the tankers while they're stopped, and sticking the tankers to take measurements.

The quagmire in my mind is that if you're going to produce a couple of ten minute videos and nothing else, why not:

  1. Release all video from the time in question by GeoInvesting?
  2. Produce invoices & work orders from the times in question that correspond with Longwei's rebuttal?
  3. Address any of the other myriad of issues addressed in the original GeoInvesting article? Stemming from an article that clearly points out over ten fundamental issues concerning the company, why not produce anything else aside from two ten minute videos?

Regardless of the obligatory response to shareholders, GeoInvesting was quick to fire back, claiming they're uploading their own video from the Longwei rebuttal time period. They noted it took them mere hours to upload video of this time period that Longwei took "8 days to fabricate." At the end of their rebuttal, the most recent correspondence thus far in this saga, GeoInvesting notes, "LPH today took another failed attempt to perpetuate, rather than to admit to its fraud." And such, we are up-to-date with what has transpired thus far.

One thing is for sure; one of the two of these parties is not only dead wrong, but disingenuous on a scale that makes grand theft larceny look like stealing a Post-It note from the office. Longwei supporters claim the short position by GeoInvesting led to a mountain of false due diligence and a hit piece. People reading the GeoInvesting article for the first time are convinced Longwei falls under the umbrella of other China-based companies poised to try and make money for their insiders on the US Markets.

Why not have a full and thorough 3rd party audit performed on Longwei's business and provide that to investors? Surely, a statement from the company that they are going to be undergoing something of the sort would ease shareholders minds while the audit takes place.

At the end of the day, we have two videos from two different parties claiming to be from the same date and time, showing two different sets of events unfolding. How does one go about explaining that? Moving forward, the answers will come. Logic dictates that there's something out of the ordinary going on here, but only time will untwist the pretzel that has become the truth behind Longwei Petroleum.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.