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Sometimes truth really is stranger than fiction. Welcome to the bizarre world of FUQI International (OTCPK:FUQI). FUQI shares soared 20% despite a complete absence of news last Friday. While the share price jump was unusual, the lack of news is more of the same. It's now been more than 11 months since FUQI last released any financial results, and investors are still awaiting the filing of the 2009 10-K.

In March of 2010, FUQI shares traded over $20/share until the company announced that prior earnings had been overstated:

SHENZHEN, China, Mar. 16, 2010 (PRNewswire-Asia) -- FUQI International, Inc. (Nasdaq GS: FUQI) today announced the preliminary release of fourth quarter 2009 unaudited financial results and that it will delay the release of its finalized fourth quarter and year ended 2009 financial results. The Company will also file an extension for the filing of its Form 10-K for 2009 [...]

As a result of the findings of the 2009 Sarbanes-Oxley Section 404 audit, thus far, the Company identified certain accounting errors that are expected to have a material impact on the previously issued quarterly financial statements for the first three quarters of 2009. Management and the accounting personnel require additional time to evaluate such effects on the previously filed quarterly financial statements of 2009.

The stock was cut in half, but investors retained hope that the company would file. On April 7th, a press release stated:

Mr. Yu Kwai Chong, Chairman and CEO, stated, "We truly appreciate your patience and are working diligently on a plan to further strengthen our internal financial reporting controls and remediate any issues surrounding our financial restatements.

May 2010 brought this cheery release:

The Company is working toward completing its Annual Report on Form 10-K for the year ended December 31, 2009 as well as amendments to its Quarterly Reports on Form 10-Q/A for each of the periods ended March 31, June 30 and September 30, 2009. It currently anticipates filing its 2009 annual report and restated quarterly reports in June 2010. The Company expects to file its first quarter 2010 results as soon as practical after it completes and files its Form 10-K for the year ended December 31, 2009 and the 2009 restated quarterly reports.

In June, the company received an extension up to September to file its financials. September came and went and there were no financials to be seen, but an interesting announcement came, thanks to the SEC:

SHENZHEN, China, Sept. 10 /PRNewswire-Asia/ -- FUQI International, Inc. (Nasdaq: FUQI) announced that it was notified recently by the SEC of a formal, nonpublic investigation, and has received a subpoena from the SEC for certain documents, relating to its failure to timely file required periodic reports. The SEC has informed the Company that the investigation should not be construed as an indication that any violations of law have occurred. The Company intends to fully cooperate with the SEC regarding this matter.

By the end of October, the company apparently decided to kick off an investigation of what was going on. I can't imagine why.

SHENZHEN, China, Oct. 29 /PRNewswire-Asia/ -- FUQI International, Inc. (Nasdaq: FUQI, "Fuqi" or the "Company") today announced the appointment of Kim K.T. Pan as an independent member to the Board of Directors of the Company and the formation of a Special Internal Investigation Committee of the Board of Directors.

No word yet on how the investigation is going, however, as the only press releases of the company lately have been periodic press releases to announce that they had appealed the NASDAQ's threat to delist the company. Time's up for FUQI however. On March 28th, the company will be delisted by the NASDAQ unless the company manages to successfully file its now 11-month overdue financials.

One would think, given the above information, that the stock would be trading just a hair above $0.00. That'd be wrong, however, as FUQI shares are trading at $5 each. On Friday, shares surged 20% out of the blue with no explanation. The market has now assigned a $138 million market cap to a company that offers no compelling evidence that it is still an operating entity. The last listed event at the company's website occurred in January of 2010. The copyright page on FUQI's website still reads "Copyright 2007-2010 by FUQI International."

It's impossible to tell whether FUQI International still functions. What is known, however, is that management is completely and utterly incompetent and has a profound disdain for its beleaguered shareholders. It's incomprehensible to simply drop off the face of the earth for a year. While I can't imagine why it would take 11 months to refile, if it truly took that long, the company could at least offer some explanation for the bizarre series of delays. On top of that, since 2009's financials are also awaiting the company's refiling, there is no accurate financial information for FUQI available from later than 2008. Investors have no idea what they are buying. While FUQI's retail site still functions, it is not at all clear that FUQI International is still operating.

What does the future hold? In all likelihood, the company will be delisted this month, shares will trade on the pink sheets for a little while, and then the company will simply disappear and shareholders will be wiped out. There is a fairly low but non-zero chance that the company will file something between now and March 28. If so, it's anyone guess what will happen. FUQI was supposed to make somewhere in the neighborhood of $2 a share in 2010, and if they managed that figure, the stock will fly. The company was, however, operating at a high cash burn rate when it last filed, so it is possible the company is now incurring large losses. Although, according to the old and untrustworthy financials, the company had $6 a share of cash, so it, in theory, has a fairly liquid balance sheet. If the company still exists, your guess is as good as mine as to what it is worth.

Since there is a chance of the stock soaring should the company report financials before March 28, the safer play than directly shorting it is to buy June 2011 puts. Due to the insane rally Friday, the $5 at-the-money strike put now is going for a bargain at $1.10, offering a potential quadruple should the stock end up under a buck by June.

Given the oddness of the whole situation, I'd be refrain from directly shorting the stock. Friday's pop could have been caused by insider buying ahead of a potential filing. No one knows. In the long-run, however, FUQI will remain a poor investment even if it survives the March 28 deadline as its management is a complete laughingstock. There's no reason to buy FUQI when other Chinese jewelry retailers such as LJ International (JADE) are profitable and regularly report financials in a timely fashion. Even if FUQI manages to remain a NASDAQ-listed company past this March, its credibility is permanently shot.

Source: Despite 20% Rally, FUQI International Still Heading for Delisting