China Clean Energy Sticks to Its Unclean Auditor

I have changed my mind about China Clean Energy (CCGY.OB). I have been very impressed with its management team so far but Wednesday's conference call has, to me, severely tarnished their image. Responding to a question on its auditor Michael T. Studer, someone who has quite a checkered history, the company insists on sticking to him (or at least his firm), at least, until it gets listed on a major stock exchange.

I don't quite get it. The company knows that there is a cloud surrounding this, and by association, its financial figures. On top of that, since CCGY is going for a "more reputable" (CFO Gary Zhao's own words) auditing firm anyway when it gets listed, why not do it now? The explanation that Michael T. Studer (the firm) has a Vancouver office and the auditing for CCGY is done out of that office just doesn't cut it.

So is CCGY hiding something? Does it need Studer for some reason it is not disclosing? China Kangtai Cactus (CKGT.OB), also using Michael T. Studer, has (i) filed FOUR notifications for inability to timely file its results since late 2006; (ii) filed FOUR AMENDED 10Qs and/or 10Ks in the last seven months; and most worrying, received a letter from the SEC in May 2007.

The bottom line is - CCGY's inaction seems suspect to me. A more enlightened management team would have replaced its auditor by now, however solid its mechanism for financial oversight.

My Position: None.

Comments

[hug_thirteen:]

I too was on the conference call and just stunned at their defense of Mr. Studer and his performance with their company. They truly don't get it. I'm further concerned, as the second question on the topic pointed out, that the 1.5 million shares in escrow will be returned to management based on achieving an earnings target. Do they need Mr. Studer to insure their shares back? Regardless of how bright the prospects may be for the company, how can anyone recommend it?

2008 Mar 14 08:06 AM