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Sherb & Co, the auditor on record for China Education Alliance (CEUA.OB) and China Sky One Medical (OTCPK:CSKI) was also cited by Barron's as a firm that has come under the scrutiny of PCAOB (Public Company Accounting Oversight Board). In June 2007, PCAOB cited "deficiencies" in an inspection of Sherb & Co.

If that seems "innocent" enough, how about this. Sherb & Co was the auditor for a Florida-based company, Spear & Jackson, whose ex-CEO/Chairman Dennis Crowley was taken to court in 2004 by the SEC for violations of federal securities laws including the registration, anti-fraud and reporting provisions. These allegations arise from the alleged failure of Mr. Crowley to accurately report his ownership of the Company's stock, and his alleged manipulation of the price of the Company's stock through dissemination of false information, allowing him to profit from sales of stock through nominee accounts.

As a result of this, several class action suits were filed against the company and against Sherb & Co. While the initial motion was dismissed, a subsequent appeal resulted in a settlement in which the company deposited a sum of $650,000 for disbursement pending court approval. Sherb & Co also agreed to the terms of the settlement, agreeing to contribute an additional $125,000.

There is a related court case, which alleges breaches of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets, unjust enrichment and lack of reasonable care by all the defendants including Sherb & Co. This case is pending.

Interestingly, the appointments of Sherb & Co by our C.O.P. companies were carried out in December 2007 - CEUA on 12/20 and CSKI on 12/24. These appointments were quietly done, with little fanfare and certainly no PR, during a period when most investors were not looking. More significantly, both companies also share the same IR firm: Crocker Coulson's CCG IR. I think this is a red flag. Something just doesn't seem right and I'm going to get to the bottom of this. So watch this space.

My Position: None.

Source: China Education Alliance, China Sky One Medical Share Problematic Auditor