LDK Solar Co.: Encircled By Wolves

LDK (LDK), a maker of Solar Panels is attracting the attention of the litigation types. LDK in the past week has seen its stock drop dramatically after a senior financial type suddenly resigns saying the inventories are mispriced. Asensio issued an email that was not immediately encouraging for existing investors. Barron's is warning investors that all is not well. Just yesterday, the Law Offices of Eric J. O'Bell, L.L.C. announced initiation of an investigation into LDK Solar Co.

Piper Jaffray issued a note last week saying that LDK's inventory problems are overstated. Piper Jaffray was accused of Blodget like behavior. No one listened as the stock dropped like a stone. Blueshirt, an investor relations company, in their recent September newsletter listed LDK as a shiny new client. (Hey, who brought that account in?)

What a mess! This Chinese company is solely listed on the NYSE, which should count for something. The resignation/termination was not the smoothest move by either party. Crunch date was supposedly September 25. Charley Situ, the former well placed employee, sent emails to everyone causing the public perception of a problem. He was only hired in March, 2007.

One must question management's handling of the situation. From LDK's press release of Oct 4 they claim to have immediately done a physical count of the inventory and not found any material inconsistencies. LDK goes on to state that an independent audit firm has been hired to investigate and that they will report its findings once the board's audit committee reviews the report. They did not mention who it was. (Widely believed to be KPMG.)

There seem to be credible reports that the recent scrap rates at the plant are unacceptable. The finger was pointed at purchases of poor quality raw materials. Hence Charley Situ's comments.

The real question is not the inventories. One day, hopefully soon, they will be sorted out. If Charley Situ's superiors leaned on him so hard that he was forced to resort to desperate whistle blower tactics, can you trust LDK's management.