On 10/9/12, Deer Consumer Products (DEER - Halted since 8/13/12) filed an 8-K (here) disclosing that on 10/2/12 NASDAQ made a strongly worded determination to delist DEER for the following reasons:
- DEER made "false and misleading disclosures regarding the operational status of its manufacturing facilities in Yangjiang, China";
- DEER failed "to provide complete responses to NASDAQ Staff's questions regarding the Company's customers, suppliers and shipping providers"; and
- DEER's "involvement in a scheme to illicitly transfer corporate funds to a group of stockbrokers through a bogus consulting contract."
Regarding the first reason, NASDAQ's assertion that DEER lied about the operational status of its Yangjiang manufacturing facilities affirms my findings in a Seeking Alpha Editor's Pick article I published (here) on 8/14/12 which concluded that DEER's old factory was completely idle and its new factory was operating at less than 5% of capacity.
Regarding the second reason, I believe NASDAQ's questions concerning DEER's customers relate to previous allegations that DEER exaggerated its sales. I recently engaged a team of market researchers to conduct random channel checks of the retail sales of DEER's largest reported customer, Gome Electrical Appliances Holdings Limited. Based on the results of these visits to Gome flagship and other major market stores I concluded that DEER's sales to Gome are substantially lower than reported in its SEC filings. The following is a summary of the findings:
- All 24 Gome stores interviewed reported declining sales, averaging well under 10 units per week.
- 6 Gome stores reported a lack of product supply from DEER, which is consistent with my findings that DEER's factories are idled.
- 14 stores attributed the weak sales to a lack of brand recognition.
- 8 stores felt DEER does not care about its business with Gome and provides no retail support.
- 5 stores complained that DEER refused to pay sales commissions as promised.
Regarding NASDAQ's third reason for the delisting, financial investigative journalist Roddy Boyd first broke the story in December of 2011 (here) of DEER's illicit transfer of corporate funds to pump its stock in 2010 and Bill Singer of Forbes in February of 2012 reported on FINRA's settlement of the matter (here). DEER's stock price history shows that buyers tried very hard to keep the stock above $11 for four months prior and one week after my original report in March of 2011.
Another clue is that NASDAQ's delisting decision came one day after DEER's Audit Committee Chairman submitted his resignation (see 8-K here). Despite DEER's claim that the resignation was not due to any dispute with the company, the timing certainly raises suspicions.
I conclude that NASDAQ was not a moment too soon to delist DEER, putting an end to DEER's long history of false and misleading disclosures to its investors that I first exposed over one and a half years ago. I am preparing to file a whistleblower report to the SEC showing how DEER's management, directors, promoters, auditor, and lawyers should all be held accountable for investor losses.
Many investors rightfully question why it took regulators so long to take action against DEER. I believe there are several reasons. First of all, DEER categorically denied my allegations and commenced a costly and aggressive legal campaign to silence my opinion. DEER then engaged its Wall Street analysts to visit and defend the company. None of this worked as DEER's stock price sunk lower and lower, after DEER failed to refute each new allegation.
DEER received a major boost from Silvercorp Metals (SVM) CEO Rui Feng's fight against a "conspiracy" of short sellers. On 9/19/11 SVM announced (here) that, "We look forward to co-operating with Deer and all other victims of Alfred Little." The next day The Globe and Mail reported (here) that SVM was "teaming" with DEER to fight short sellers and quoted Rui Feng stating: "Our lawyers are now working with Deer's lawyers to launch a lawsuit together to subpoena these people behind the scenes." [Emphasis added]
Who are the so-called "victims" of "conspiring" short sellers that DEER and SVM teamed against and swore to avenge? In light of NASDAQ's decision to delist DEER for lying about the operational status of its factories, failing to provide complete responses about its customers, and illicitly transferring corporate funds to a group of stockbrokers, the only true victims are the investors victimized by companies such as DEER. The only real conspiracy was conducted by DEER and SVM to silence their critics; critics who once again have proven to be correct.
Disclosure: I am short SVM.