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The Securities and Exchange Commission has begun an investigation into Harbin Electric (NASDAQ:HRBN), The Financial Investigator has learned. The company received the SEC’s notice late last month and is using its longtime law firm, New York-based Loeb & Loeb, to advise it.

The Loeb firm, whose China Practice chair Mitchell Nussbaum is an outspoken proponent of reverse mergers – and has sued a short-seller on behalf of a client – is advising Harbin on the process of complying with the SEC’s document request. Neither Nussbaum nor the SEC replied to requests for comment. Harbin board member David Gatton told,“I am not authorized to comment on anything about Harbin right now.”

The investigation is a blow to Harbin, a company that many battered investors in the Chinese reverse-merger space hold out as the strongest player in the sector because of the cast of financial world luminaries that has advised either the board of directors or its suitor, founder and chairman Tianfu Yang, in his bid to take the company private. Firms like Lazard, Morgan Stanley and Goldman Sachs are broadly perceived to have given an imprimatur of seriousness to Yang’s $24 per share offer.

To that end, Harbin has become the premier Chinese “battleground stock,” with a bitter war of words waged between critics such as short-seller Andrew Left; has written a series of critical articles on the company, its prospects and its management, led by Tianfu Yang.

Yesterday was a case in point: Left’s Citron Research article contained the results of a multi-month investigation into Harbin’s customer base that was overtly dismissive of the company’s claims to be doing the level of business its financials assert. Harbin fought back and dismissed the posting as “Clearly biased and dishonest reporting” in a lengthy press release.

As a reply to Left’s assertions, Harbin’s press release did not, however, directly refute his primary argument – that documents prove Harbin’s main customers do little of the business it has claimed – instead insisting that it was not likely that its customer would have provided Left’s investigators with the documents he posted.

Nonetheless, it was a red letter day for Harbin’s investors as its shares bounced off a low of $14.01 before ripping back to $17.65. Buoyed by the strongly worded rebuttal, the shares climbed another 37 cents yesterday to $18.05, on a day the Dow Jones Industrial Average dropped almost 513 points.

It is uncertain how many more red letter days are in store for Harbin in the near future. While the scope of the investigation is not known, no Chinese reverse merger companies have managed to stand up to prolonged regulatory inquiry.

Disclosure: I do not have any sort of investments in the securities of any company I write about, nor for that matter, in anything at all (save for my house).