What's in Store for Fuqi International on March 28?

Includes: FUQI, JADE
by: Rougemont
Fuqi International, Inc. (OTCPK:FUQI) is a jewelry retailer based in China that once seemed to have everything going for it. The shares of FUQI used to trade for over $30, but about one year ago, the company issued a press release declaring that it would need to restate earnings. At first, it looked like this would be a mere speed bump. Many expected that the company would file restated earnings as soon as possible, however, those restatements have not been filed. For the past several months, the stock has been racking up devastating losses for many shareholders.
The jewelry business appears to be very healthy in China. Other companies like LJ International, Inc. (NASDAQ:JADE) have been reporting solid sales and profits. The fact that FUQI seems to be in a booming industry makes it even harder to understand why the company is unable, or perhaps unwilling, to report financials.
The company has been requesting and receiving extensions from the NASDAQ stock exchange which has allowed it to keep its stock trading in spite of the fact that no financials have been reported for a very long time. However, soon that will come to an apparent end as the deadline granted by the NASDAQ exchange of March 28, 2011 is almost here. Click here to view the SEC filing which warns that the shares will be delisted on March 28.
This lack of financial reporting by FUQI has not gone unnoticed by the SEC. On September 8, 2010, the company announced the SEC had launched a formal investigation, causing the stock to plunge further-- hitting a low of about $4.51. It appears that the SEC investigation remains ongoing. After this announcement, the stock recovered somewhat as some investors seemed to think the problems would be resolved eventually. See the announcement for the SEC investigation here.
This week, FUQI shares went to new 52 week lows, as concerns grow over FUQI's ability (or perhaps desire) to file financials before the March 28 deadline. With only about four weeks left to file, time is clearly running out, and it makes me wonder if FUQI management has a real desire to stay publicly traded. I do not see what could possibly take so long to restate financials, if the will to do so is there. It will be very interesting to see what happens around March 28. If it fails to file, the shares will likely be delisted and traded on the pink sheets. Either shorts or longs will come out ahead, but both sides appear to be taking great risks in these shares.

FUQI appears to have a business that should be prospering, given the growing middle class in China and the rising demand for jewelry. But, because of the accounting issues, lack of information on the status of the pending SEC investigation and the lack of financial information, I have avoided investing in these shares. I think it makes sense to wait until some clarity emerges. If the shares are delisted, lower prices are likely, and that would be a better time to speculate, (if at all).

The information and data is believed to be accurate, but no guarantees or representations are made.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.