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Arthur Porcari
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Arthur Porcari is a retired former regional stock brokerage firm President with 40 years stock market experience. His finance background includes, three years a stockbroker and two an investment banker with Merrill Lynch, ten years a Regional brokerage firm President, and OTC Market Maker and... More
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  • A "Non-Event" Jan. 30th That Could Quickly Spell Bad News For Kandi Technologies Short Sellers.
    1. On Jan. 30, Kandi's $15 warrants expired.
    2. Kandi in the past has had a reputation of extending warrants.
    3. Transactional Hedge funds use warrants to protect ongoing short positions
    4. This is the second set of hedge fund warrants/options Kandi has let expire in three months.
    5. Effectively over the 5 years all of the past warrants have been held by two Fund Groups in three Transactional Hedge Funds.

    First Some Background

    Two and a half years after first trading in the US, China based NASDAQ listed Kandi Technologies Group (NASDAQ:KNDI) naively agreed to enter into its first US Financing by way of an unregistered Two year $10 million toxic convertible notewith Three year attached Warrants. This financing was done with three "transactional" hedge funds, Hudson Bay Fund Ltd, Hudson Bay Overseas Fund, Ltd. and Capital Ventures (affiliated with Heights Capital Management and Susquehanna). Without getting into the sordid details as to why this deal was "toxic" (you can find it yourself by visiting the above links), suffice it to say that the attractive initial $6.25 per share convertible price and $6.56 warrant exercise price with the stock at $5.65 ended up being completed at significant reductions from those levels.

    But as bad as the initial offering ended, the major ongoing problem with these funds was a requirement of "right of participation for subsequent financing". A burden that until recently has made it almost impossible for the Company to escape their clutches and bring in new upscale Investment Bankers. So to date, all subsequent financing raising close to $150 million and causing more than a doubling of shares outstanding were done under the control of these same Transactional Funds.

    Now you may wonder what is a Transactional Fund?

    A Transactional Fund as compared to an Investment Fund, is a fund that by charter will do a financing based on the "transaction" economics alone". In the case of Convertible securities, while it may initially appear the conversion price is at a premium, they usually also require warrants and "reset" provisions to both the convert and warrant strike prices that all but guarantee a profit. In the case of a Stock offering, they require "Units" made up of stock and warrants with deep enough discounts to basically guarantee they will get their money back. To assure this goal they calculate stock trend, current volume, stock sentiment and overall market conditions, along with sophisticated stock shorting and options hedging. Some investors were surprised that shortly after the initial offering discussed above, in spite of the stock only trading in the $3 area, public stock options began trading in mid-2010. This was not surprising to me at the time since Susquehanna, the parent of one of the above funds is well known as a major options Specialist firm. By having KNDI options trading, it gives much more depth to their hedging capabilities.

    Prior to the initial financing and inclusion in public options trading, though listed on NASDAQ for over a year and a half, the reported short in KNDI's stock was negligible. After the above initial financing, the reported short started quickly increasing to as much as 15% of the 2010 float. For the two year term of this note alone, though the stock spent most of the time trading under the ultimate $3.60 conversion price, the short continued to grow and the stock traded as low as $1.90. Now to the less knowledgeable, one might wonder "what incentive would a convertible or warrant holder have trading a stock from the short side under conversion or strike price"? PLENTY! In fact most transactional funds would rather not have a quick and large move up shortly after their offering was completed. They would rather have the stock settle into a somewhat predictable trading range that lasts the term of their convert or warrants giving them numerous opportunities to short and cover all the while being protected against loss on an explosive move up by the convert or warrant.

    Now don't get me wrong. There is absolutely a necessary place and a need for TFs as a funding source for infant companies, and the Susquehanna and Hudson Bay groups are about as fair and well respected as any I have seen in my 41 years as a market pro in this usually "scummy" space. Where it not for the $150 million plus they have provided over the past four years, it is not very likely KNDI would be in its current position as China's dominant EV Company.

    But now as the leading EV Company in China, it's time for KNDI to move on and "upscale" it Investment Banking/Broker (IBK) relationships. No major US IBK firm is going to give more than a passing "look" to a Company that is "glued" to TFs with ongoing Right of Participations (NYSE:ROP) and a lot of overhanging warrants. Why waste the time of negotiating a Banking relationship with the risk that they can lose the deal simply by the TF taking over their deal? As far as Analyst are concerned we have the same problem. The Analysts that count are the ones working for the major IBK firms. If they can't see how their firms can make money; why waste their resources?

    But there is a "light at the end of the tunnel" for this conundrum KNDI has been in for the past five years. Last September when the Company completed its last rather complex looking $71 million 4,127,908 TF "Units" offering at $17.20 which included 4,127,908 shares and 743,024 $21.50 Warrants (complex due to an attached 100 day option which expired without exercising on Nov. 17, allowing the same TFs to purchase an additional $30 or around 1.74 million of the same units at the same price). While there is still a subsequent ROP attached to that financing, it has dropped to only 30% and even this expires on September 4, 2015.

    OK, so now we know why there is such a big difference in stock performance after offerings to TFs as compared to similar direct offerings to Investment Institutions and Retail Brokerage firms. In KNDI's case as in most TF funded companies, professional short-sellers know the constraining stock pressure of overhanging warrants held by TFs and feel more comfortable in initiating large short positions; particularly in KNDI's case, the company contributed to the "comfort" by extending warrants on at least two occasions as you can see from the blue ovals in the chart below. Those who don't know the company well, might even have mistaken these warrant extensions as a sign of "desperate need for cash" causing even more short selling. However, in spite of neither extension culminating with any additional warrants exercised, ergo any additional cash raised, the current accelerating growth should belay that now apparent wrong supposition.

    So How Does This Affect Where Does The Stock Goes From Here?

    At the close of business on Friday, IMO, a little observed but very important event took place. An event that could portend the beginning of a major move up in the stock price. In fact, due to KNDI's solid performance over the week, closing higher four out of the five days in spite of another supposedly damning short seller attack article on Tuesday, the "move up" may have already begun.

    As you can see from the chart below, at Fridays close, the seventh of eight continuous TF warrant issues (and hopefully last) with a strike price under $21.50, expired worthless. The issue that expired had a strike price of $14.99 and was for a substantial 1.43 million shares. The last remaining warrant issue outstanding with a strike price of $21.50 is a smaller issue of only 743,000 shares and expires Feb 6, 2016.

    (click to enlarge)

    I might add, the short term $17.20 Option on the chart was the 100 day option to buy 1.74 million additional units mentioned prior which were also allowed to expire without extension. I might also note here that another by-product of having so many warrants outstanding is their effect on reported GAAP accounting numbers under "change of fair value of financial derivatives." With a lot of warrants outstanding, the more a stock moves up from quarter over quarter, the bigger the "GAAP" loss in the following quarter. The converse when a stock goes down from quarter to quarter. Strange but true. (There are still a few hundred thousand warrants left, mostly in the $20+ level, but not in the hands of TFs)

    Now looking at the above chart and all of the continuous "upside protection warrants" the TFs have been armed with to trade from the short side, it doesn't take a market genius to begin to see why it has been so difficult to see the stock move up alongside fundamentals. As further evidence that having this "protection" is so important to the TFs, you can see from the chart that they had two very good opportunities during the one year life of the$15 warrants that just expired to "cash out" with at least a $5 profit. But to their way of trading, keeping the warrants alive to "trade against" was perceived more valuable in their long run.

    So, now where do these TFs likely stand today? Well, one thing is for certain. You can bet they have been in constant contact with the Company over the last week or two trying to convince Mr. Hu, the CEO, to once again extend the warrants. Knowing Mr. Hu as well as I think I do, he likely kept his options on this decision open with them until the last few days until he probably made it clear he was not going to extend early last week. Based on the recent swings in price, you can also bet that they had been carrying a very significant short position against these $14.99 warrants. With the continuous light volume we have been seeing over the past weeks, even if they have been carrying as little as 750,000 short or only 10% of the reported 7.6 million share reported short, covering that short at the current price levels without a hedge would not be easy. But I would be willing to bet that a good bit of the upward movement this past week was caused by these funds attempting to flatten out their short. Some in the open market, and some by hedging in the options market. We did see some pretty aggressive positive options action, both in Calls and Puts this past week.

    Now as I mentioned above, as far as TFs are concerned, these Pros have a reputation for being fairly "square shooters". As compared to most of the short sellers in KNDI, they are only short as part of their chartered trading strategies. They know how to do their Due Diligence and were/are not short because they have any fears about the Company, if they were concerned about items like the old "SEC Investigation" which the Company reported in March, they sure would not have taken down the $71 million financing in September. In fact the Parent Company of one of the TFs, Susquehanna, has consistently been KNDI's top Institutional holder.

    (click to enlarge)

    Table Courtesy of Yahoo Finance

    So my guess is that with these last of the low priced warrants expired, one of at least two positive things are now going to happen.

    1) IF these funds are still carrying an unhedged short position, they will cover it this week. This would likely be almost mandatory since most TF charters don't give much leeway in carrying unhedged positions.

    2) But even more important, until the stock gets up close to the $20 price where the much smaller 743,000 21.5 warrants start coming into play, you won't be seeing the rest of the 7.6 million share short position aided by these funds.

    ...AND, one outlier possibility since the "Parent" of one of these TFs has historically been long a significant amount of KNDI stock, we could see aggressive heavy buying over and above any short covering by one or more of the non-transactional funds controlled by these two groups. They know as well as I, and now you should too, that the "overhang" of all these warrants has compressed the stock price over the years, this latest expired piece recently. With the massive size of the current short position which makes up over 25% of the non-insider owned float, most recently reported 9.3 Days to Cover and stock borrowing costs as high as 99% in recent days, it only takes one or two aggressive 500,000 buyers to prime the pump and squeeze the stock up to where the $21.5 warrants start coming into play.

    (click to enlarge)

    Chart courtesy of NASDAQ.com

    Let's Get Down To What's Really Important Here: The Facts

    As a 41 year stock market pro to include Stockbroker, Stock Brokerage Firm President, Investment Banker, OTC Market Maker, last 20 years investor only and author of more than 30 articles and blogs on KNDI, who has researched and owned KNDI stock continuously since mid-2007 and also visited the Company twice in China (2010 and 2013), I venture to say I probably know more about this Company than any other Western investor. With that said, I could care less about who buys or sells KNDI stock. It is your money and you should do with it what feels right. If I have a Mission with my writings, it is only to inform with facts and observations in the public domain to help investors to make an objective decision as to whether to be a KNDI shareholder or not.

    I have gladly stood in defense of the Company against some 35+ attack articles (seven in just the last several weeks) written by those who have attempted to publish personal opinions under the guise of fact. While the 35+ have penned "rumor, innuendo, distortion, misinformation and out of context statements, I find it curious that none have dared to make claims of "fraud" or any derivative of the word based on their independent findings in any of the articles. I also find it curious that in spite of their attempts to "protect" innocent investors and support their reported short positions, that not one has taken the time and spent a few thousand dollars to go visit the Company in China. Why? IMO because the truth is not their friend in this argument.

    However, as a long term holder who has no interest in "trading" the stock, contrary what one might think, I embrace these authors' feeble attempts to discredit the Company as the main reason KNDI currently has such a passionate and strong investor base and growing name recognition. A situation no amount of promotional money could have bought, particularly for an exclusively US traded China based company who has, even in its infancy, already proved to be a true and awarded EV Innovative Disruptor in the eyes of top level National government officials in its 1.3 billion populated home country.

    For those who are avoiding the stock due to the most recent attack articles who's primary subjects of attack are; a 2013 SEC Fact Finding Investigation covering events that may or may not have taken place in 2009 by early promoters of the stock, I suggest you read my recent Seeking Alpha blog titled: " Why Kandi Technologies Inclusion In A 14 Month Old SEC Investigation Gives Me Comfort And IMO, Any Intelligent Investor Ought To Find Comfort Too". And most recent attack article which in ten thousand words attempts to accuse the Company and or its CEO of likely falsifying recently reported EV sales numbers from KNDI's 50-50 Joint Venture with China's largest ICE passenger car manufacturer, Geely Automotive (OTCPK:GELYF). If this latter article concerns you, let me leave you with a few pertinent thoughts on this subject.

    In order for one to believe the latter accusation being likely, then one would also have to believe the following:

    1. KNDI's JV Partner Geely Auto and its Founder CEO Li Shifu would have to be equally liable as a "co-conspirator", a very dangerous situation for either Hu or Li with President Xi JingPing's campaign in high gear to wipe of business fraud and corruption, particularly in light of the PRC government alone handing over a subsidy check for around $8,100 for each JV car claimed sold. (for some reason the attack writer has avoided including Li in his accusations.)

    If you think Geely's CEO is separating himself from KNDI, here is a translated quote in their mutual home town newspaper, the Zhejiang Daily Jan 6th from Li Shifu about his feelings for his JV Partner, Hu Xiaoming.

    "Create a "micro bus" of Hu Xiaoming

    Hu Xiaoming is my good partners and good friends. His path to the development of electric vehicles in China has a very clear understanding, we were looking at the "micro-bus" from ideal to become a reality, the electric car will be the future of the automotive industry. Xiaoming is an "old car people", and has been a breakthrough Chinese electric car industry and marketization of dreams, this feeling, I agree, is also very supportive."

    2. Since the published CarShare numbers (both short term rental and long term lease) being painted as false by KNDI have all been in the last few months, you would have to believe that KNDI CEO is "thumbing his nose" at the SEC and his own Securities Counsel and publishing false statements in the middle of an SEC Investigation. And for what reason? He certainly doesn't seem to care about promoting the stock right now or he would have put out a PR on he and KNDI winning the 2014 Green Car Innovator award given Hu just a week ago or a PR in the US about the accolades heaped on the Company and its CarShare (micro bus) program by top level PRC Ministers as I linked above. When I sent an email to KNDI IR last week after finding the article in China about the "Innovator" award, here is the email I received in return from IR:

    Dear Investor,

    "Thank you for your email and thoughts on the Green Innovator Award. At this time we do not plan to issue a press release about the award. While we are proud to be recognized, of course, we must also balance this with our desire to sustain our credibility with US investors. As you are aware, investors will usually discount or ignore the news flow from management teams they consider overly promotional. In other words, too many announcements can end of devaluing the truly important news. Mr. Hu determined that this award, while desirable, did not rise to the level of national or global significance, so we are electing to let the news filter out naturally. You found it easily enough-- we are confident in an age of Google Alerts, Seeking Alpha alerts and so forth, that our investors will rapidly become aware of the recognition; we do believe a press release will add value on top of that. You may or may not agree, but keep in mind that we are balancing many competing factors in order to maximize our credibility with investors. Their trust is the surest way to foil short sellers and improve our valuation."

    Does this response to shareholders sound like that which would come from a Company pumping its stock?

    With all this said, let me leave you with one last obvious reminder. When it comes down as clear cut a decision as recent attack articles have left you with; Believe what the Company CEO tells you, or believe what an attack writer's opinion, if you feel you cannot trust what this or any Company CEO for that matter tells you, then it is time you got out of, or avoid, that stock.

    Feb 01 3:48 PM | Link | 116 Comments
  • Why Kandi Technologies Inclusion In A 14 Month Old SEC Investigation Gives Me Comfort And IMO, Any Intelligent Investor Ought To Find Comfort Too.

    I have posted this blog not because I particularly care who buys or sells Kandi stock, it is your money and you should do with it what you like. I have posted this because I am tired of all of the false or misleading rhetoric being spread on the company causing innocent shareholders to sell for the wrong reasons. If you look at my SA "Bio" you will see that I have over 41 years of extensive Stock Market Experience. Re. KNDI, I have followed it closely and been a shareholder and solid supporter since it first started trading in the US in mid-2007 and have made two personal trips to China specifically to visit the Company.

    This blog is not aimed at the Investor who has little or no knowledge about KNDI. It is targeting those existing shareholders who do have basic knowledge and are concerned about the barrage of recent attack articles launched by declared short sellers in just the past two weeks and why these shorts are currently feeling so motivated. If you are new to KNDI I suggest you start your Due Diligence by reading some of the recent PR's put out by the company, and their SEC Filings followed by the many SA articles, both pro and con published to date.

    Three and a half years ago the SEC said it had put together a "task force" to scrutinize China Companies trading in the US likely due to all the ChinaPhobia based on hundreds of short seller attack articles at that time. Maybe to some a form of racial profiling, but no real threat to the vast majority of honest China companies listed here like NASDAQ listed Kandi Technologies, Group Inc. (NASDAQ:KNDI). But rightfully bad news for those few who purposely try to scam US investors. Penalties for China wrongdoing companies are really no different than that of the hundreds of US based companies caught violating Securities rules each year. Anything from stock halts and delisting to fines and censures.

    Most of the "violators" caught and penalized to date never reached the "listing" stage on one of the major US Exchanges; and even fewer who started trading here through Reverse Mergers or Reverse Takeovers (RTO) have been severely penalized after passing several rounds of SEC Registered Financings after being listed on a major stock exchange. In reality, other than a sponsor Investment Banker, the only difference between a RTO company in a SEC reporting shell company and an IPO Company is an Audited Registration Statement approval by the SEC for new share issuance at the time of initial trading.

    Yes, Kandi Technologies did come public in the US by way of an RTO similar to other successful public Companies such as, Occidental Petroleum, Turner Broadcasting, Tandy Corp. (Radio Shack), Texas Instruments, Jamba Juice, and even Berkshire Hathaway. Some (likely at times to include KNDI's CEO with all of the short & distort abuse his Company has had to deal with the last few years) might say "regrettably", but realistically, it is very unlikely US investors ever would have had the opportunity to be shareholders in what is now clearly China's #1 EV player had the Company not come public through the US RTO route.

    A Little Background Here

    Around the beginning of 2007, a Canadian businessman by the name of Paul Kelly, whose Company specialized in bringing China companies to the US to trade was introduced to KNDI's founder and CEO as a possible RTO candidate. Based on what at that time appeared to be a successful track record on bringing several other China companies public in the US, Kelly convinced KNDI's founder to also become public in the US. While KNDI shares first started trading in the US mid 2007 on the OTCBB market, a year later it was approved for listing on NASDAQ and received approval by the SEC for first registered financing Dec. 24, 2009. KNDI completed its first US financing in Q1, 2010. From that first approved Registration Statement to current, the SEC has satisfactorily reviewed and declared "Effective" a total of 7 Registration statements. With this background in place, let's jump to the Fact Finding Investigation short sellers would like you to be concerned about. But to first set the record straight.

    Contrary to what others may want you to believe, KNDI had no requirement to make this investigation public. While some may be upset that the Company elected to publicly report it anyway, it goes to show how important it is to its CEO to be as transparent as possible. As you can see from the SEC's own website, it does not require any company to publicly disclose Investigations unless or until it files an action in court.

    Investigations by the Securities and Exchange Commission

    "Securities and Exchange Commission (SEC) investigations are conducted confidentially to protect evidence and reputations. Important documents could be destroyed if an investigation is publicly announced, so confidential treatment may help to preserve key evidence in a case. A confidential process also protects the reputations of companies and individuals where the SEC finds no wrongdoing by the firm or the individuals that were the subject of the investigation. As a result, the SEC generally will not confirm or deny the existence of an investigation unless and until it becomes a matter of public record.

    An investigation becomes public when the SEC files an action in court or through an administrative proceeding. The SEC website contains information about public enforcement actions. For additional information on how SEC investigations work, please see the following bulletin by the SEC's Office of Public Affairs."

    The Roots of the Much Talked About SEC Investigation.

    In Mid-2013, the investigation against Kelly, et. al. (the 5) began at least six months before KNDI was subpoenaed making, IMO, the ultimate inclusion of KNDI inevitable if for no other reason than to get sworn info from the Company about the 5. And while two have settled, one is assisting the SEC and two more are continued to contest the allegations against them. (One of which is extremely wealthy and can certainly afford to fight as long as necessary.) So under any circumstance, I personally, don't expect any end to this until at least the time when all the 5 have settled or been adjudicated, irrespective of whether or not any KNDI wrongdoing comes to pass.

    But based on common sense, once the SEC starts subpoenaing records, particularly with all the cry baby short sellers sending speculative negative comments, insinuations and suggestions to the SEC, KNDI the company would also likely be scrutinized as in the case of any public company, China or U.S. With this type of microscopic scrutiny, it would not be surprising if something turned up if for no other reason than unintentional oversight or translation discrepancies. But this scrutiny is the Good Thing I am getting at with this blog.

    Particularly because I was aware of the 5 party promoter investigation as early as mid 2013 as I referenced in the link above. Subsequently, when the Company filed a normal S3 Registration statement in October of 2013, an event that usually takes 30 days or so to be approved, but after two months later still had not received approval, I started to become a bit suspicious that KNDI had now been brought into the investigation.

    My small concern at the time had nothing to with the accusations made against the 5, even if it were true that Kandi's Founder and CEO Xiaoming Hu gave them some 350,000 shares in Sept. 2009 for "stock promotion"; there is nothing illegal about any Company paying for IR with stock. As long as the Company reports the new shares in its SEC filings. BTW, at the time the SEC PR and "Complaint" came out on the 5, I immediately called Kewa Luo, KNDI US IR and asked her to ask Mr. Hu if he would affirm or deny the accusation he gave shares to Lockhart and Tazbaz in Sept. 09 as stated in the SEC Complaint. Knowing how conservative Mr. Hu was based on spending time with him on my two visits to the Company in China, I would have found it very surprising if this accusation were true. Her response the next day was Mr. Hu said it Did not happen. Not stock, or warrants.

    I then found out from very reliable sources that both Lockhart (who had already settled by that time with the SEC and certainly had no incentive to lie) and Tazbaz (who is still fighting) also denied it ever happened. Subsequently at the recent San Francisco Shareholders Meet and Greet in Sept. (which I attended) Mr. Hu, when asked about the Investigation by an attendee, reiterated to the group that the giving of shares or warrants to either of the two did not happen. His only possible speculation how this subject may have come up was tied to a transaction (similar due only to timing and security size) involving 350,000 $2.50 warrants (not shares as mentioned in the complaint) he did use to pay two Chinese Auto Marketing Consultants for EV research in China around the same time.

    These warrants at $2.50 were at a significant premium to the market price of the shares at the time and a big difference from "giving" shares for free as mentioned in the "complaint". Plus, if the rest of the accusation that the "shares" were to be given as incentive to "move" the stock to over $3.00 was accurate, the small $.50 difference and fact the warrants were not part of any registration statement, so they would have to be exercised first, then held for at least six months before they would be liquid, leaves little if any incentive for a promoter. CEO Hu at the meeting said the China consultants completed part of their job and did earn the right to convert 250,000 warrants which they subsequently exercised but lost the last 100,000. All this has been reported in past SEC filings going back to that time.

    So, since there was no upward adjustment in any shares in subsequent SEC filings to account for the supposed 350,000 shares given, only the shares ultimately exercised by the China consultants, my thought at the time was either they were legally given and accounted for, or it didn't happen. Now one might wonder why the SEC is trying to make an issue out of this at all if it is legal for the Company to give stock or warrants in the first place? Well, had the Company given stock promoters shares, depending on how the promoters "used" the shares, there could easily be a "case" against the promoters.

    But let's get back as to why having KNDI under the eye of the SEC gives me much comfort.

    As mentioned above, the SEC held up the October 2013 registration until June 6, 2014 followed shortly by two more registration which were approved on August 6, 2014 and August 19, 2014, totally representing some 7+ million shares and around $100 million cash raised. It was the initial delay which insinuated to me that the Commission was at least initially concerned that maybe KNDI did something serious enough to halt the shares. (IMO, certainly the SEC is not going to want to allow a Company to issue millions of more shares if it was likely they would turn around and halt trading) But by opening up and approving subsequent registrations after eight months of investigation, my assumption was that such a serious penalty as a "halt" is likely off the table. But does it mean KNDI could not face some possible fine or censure? Of course not. I doubt there is any significant NASDAQ or NYSE Company trading today that hasn't at one time or another faced some form of formal participation in an SEC investigation, from AAPL to GS, MSFT to XRX and according to rumor, possibly even TSLA,(Maybe TSLA followed the SEC Guidelines above and is saying nothing). Now in each of these cases, I am sure some short seller has attacked each Company planting fear of the investigation and enticing some ignorant shareholders to sell, likely with later regrets.

    In KNDI's particular case, I think it goes without saying to knowledgeable investors that its exponential current growth, paired with KNDI's incredible "logical" China EV potential; much of which has appeared just during the last year while the Company has been under SEC scrutiny, is the reason the stock should be at least speculatively trading much higher. Common sense would dictate that any Company who knows they are under a "Regulator's" "microscope" would be extra careful to be accurate in their reporting. Giving me even more comfort, shortly after the Company was initially subpoenaed, they brought in the "Blue Chip" NY Based Pryor Cashman Law firm as new SEC counsel. You can bet they are also aware of any and everything the company is saying and requiring incontestable accuracy in reporting.

    But, now we are seeing what appears to be a very desperate band of short sellers who have incredulously trapped themselves with a 7.5 million share short (27% of the non-insider float) paired with rapidly diminishing trading volume realizing they are approaching the cusp of financial peril. This due both to little or no stock left to borrow or if stock found "share borrowing rates" of up to 95% interest annually. As what is appearing to be a "last ditch" effort to hurt the stock, we have seen some 5 "Short & Distort" attack articles by declared short sellers published in just the past couple of weeks. And what is the topic dejour of all these articles? Is it the incredible recent growth reported in China? (Eight new cities for a total of ten added in just the past three months) Nope, it's the four and five year old, non-ev related items tied into the SEC Fact Finding Investigation.

    Do I think the short sellers themselves are as "smart" as I am about why the SEC investigation is a "good thing" for KNDI patient investors? You Bet I Do. That is exactly the reason you see them being so desperate in trying to scare out shareholders ASAP!

    How desperate are they? The recent attack article headlined and linked below tops any I have ever seen. The declared Short Selling author writing his first Seeking Alpha article was so desperate to cover his short position that he breached, IMO, a "Cardinal Sin" by personally invoking the name of the current SEC Commissioner in his headline in such an affirmative way; that any normal shareholder might assume she was about to personally bring an action against the Company,

    Kandi Crushed: Mary Jo White's "Broken Windows" Policy Makes An SEC Enforcement Action Inevitable

    Note, he didn't say it was his "opinion", or that the Enforcement Action was "possible". He said it was "Inevitable"! Not surprising, within minutes, well before anyone would have had time to read his lengthy tome, the stock dropped over 10% to a $11.30 low or over $50 million in value vanished on the heaviest volume in over a month in just a few minutes. But also not surprising, once investors had a chance to read the article and realized there was nothing new, just the exact same but slightly reworded "Short & Distort" Fears mongering published over half a dozen times in the past year by other short sellers, the stock rallied back regaining more than half the drop and by the next day was trading even higher than before the article. (see chart below) Likely a good bit of this rally back up was short sellers trying to cover to include the author himself taking advantage of his financially self-serving manipulation creating stock sales out of fear from innocent investors who took the headline seriously.

    (click to enlarge)

    Chart Courtesy of Yahoo Finance.

    I ran this article past two attorneys whose specialty is the practice of SEC law as to their opinion how the SEC, (The Commissioner herself in particular) would react to this apparently fraudulent tactic by a short seller. A short seller who if you believe his Seeking Alpha bio is a third year Harvard law student! Both were amazed at his culpable stupidity or desperation in titling the article the way he did. I further told them that this author, after having his article backfire and rally to higher prices, has now been continuing his fallacious attack against KNDI through heavy use of Twitter; even going so far as to starting to attack me personally in his some of his Tweets. (#Porcanzischeme childish, but not surprising) But also not surprising, both agree with my assertion that the SEC would not take lightly being used as a pawn to gain personal financial benefit by either long or short-sellers and the author would likely regret the day he stooped to this tactic.

    In Summation: It is my opinion that the short sellers in KNDI are now under "Siege". Even with all these attack article the stock seem to not want to go down. While active traders may lose interest in the stock due to the tightening of liquidity, longer term intelligent longs should be happy in anticipation that the stock appears to be at a "tipping point". With the incredibly high 7.5 million share reported short position, (almost double a year earlier) paired with both small float and disappearing volume (Friday's slight move higher to $13.07 on only 357,000 volume, in spite of a hard down market was lowest ever with the stock trading about $7), it would only take one opportunistic hedge fund or large investor to realize the precarious position shorts are in and start buying the stock aggressively. As you can see from the chart below, this stock can make up the $9+ decline from its last years twin $22 highs in days, not months based on past trading action.

    (click to enlarge)

    So, old Investors, sleep comfortably and embrace the SEC investigation. New investors thank the short sellers for the incredible speculative discount they created in KNDI shares. And both be thankful for the honest, brilliant and disruptive Founder/CEO of KNDI who has taken Kandi branded EV's in China from a "footnote" to the unquestionable current EV sales leader in less than a year and what's looking like its third consecutive 100%+ growth year.

    Tags: KNDI
    Jan 11 4:44 PM | Link | 45 Comments
  • Kandi Technologies: A Losing Battle For Trapped Short Sellers- A Rebuttal Of Karl Richter's Visit To Fantasyland..

    Mr. Richter, I am so glad you came out of the shadows and gave me a venue to respond to you farcical attack on Kandi Technologies (NASDAQ:KNDI) and me personally. You have now given me the opportunity to expose you as the shill you really are.

    (Authors Note: I apologize for taking up the first quarter of this response defending Richter's direct challenge against me; feel free at any time to skip down to the section title: "Back to your farcical article- Your Credentials" to get to the important part of challenging his bogus article against Kandi.)

    This InstaBlog is in partial response to an attack article against Kandi Technologies and myself for supporting Kandi Tech for over seven years, referenced in a syndicated article published on Oct. 10, 2014 titled:

    "Worst stocks win awards in hedge fund 'short' contest"

    As one can see in the Comment section of the above article, the original author of the "attack report" which also attacked me personally for supporting KNDI; posted a comment below the main article "Calling Me Out" with the below comment after I had the audacity to make some despairing comments about his "take" on the core published article:

    KARL.RICHTER • 14 hours ago

    Are you the same Arthur Porcari who got into trouble with the Securities and Exchange Commission for stock manipulation and "predictions without a reasonable basis" in 1994?

    http://www.sec.gov/news/digest/1994/dig060794.pdf

    Are you the same Arthur Porcari who had his securities registration revoked by the National Association of Securities Dealers?

    http://finra.complinet.com/en/display/viewall_display.html?rbid=1189&element_id=1159003969

    I certainly am that Arthur Porcari. But you know that and so do thousands of followers of Kandi over the last half dozen years. Why do they know who I am? For two reasons;

    1) I am extremely proud of the type of multi-thousand hour detailed Due diligence I have done on Kandi (to include TWO personal trips to visit the Company in China- How many have you done?) for no compensation other than for a few free meals in China. And

    2) busting irresponsible short sellers who think they found they key to guaranteed riches by hiring "guns" such as yourself to spend a few hours nitpicking and embellishing worthless antiquated minutia to distort all the positive work of decent Companies. You don't have to be a student of Psychology (which I happen to be by degree), to learn that it is a lot easier to "scare" investors out of a stock, then to scare them into one.

    The problem with your article is that it was so poorly done that no one in the Sum-Zero Hedge Fund community, supposedly numbering in the many thousands, gave it any credence so you had to get it featured in some bogus contest article. My claim is proven by the fact your actual attack article was published and dated a month ago on Sept. 12, but got little traction from hedge funds until it was put out to public innocent individual investors on Friday by Mr. Jannarone's syndicated article. I say "little traction" in that the recent short interest report showing 7 million or 30% of the float, has remained stable at that level for the past month.

    Last 3 Short Interest Reports- Courtesy of NASDAQ.com

    (Last 3 Short Interest Reports- Courtesy of NASDAQ.com)

    However, as you can see from the chart below, gross short selling had been quite low but picked up dramatically around Oct. 1. Likely on the rumor to the Sum-Zero group that your hit piece finally found an outlet for general publication to retail investors. This dramatic pickup to as high as 52% on Thursday, the day before publication, and continued, but lower net shorting on Friday, tells me we should see a large jump in the next reported short interest numbers.

    Daily Short Sale Volume
     
    Kandi Technologie
    Last Trade: 12.10 -0.99 (-7.56%)Trade Time: Oct 10, 4:00pm ESTShort Interest Ratio: 3.70
    Disclaimer: Volume and short volume of a stock in the chart are limited to the aggregate volume traded on the NASDAQ, NYSE and OTC that has been reported to FINRA Trade Reporting Facility. We make no guarantee on the accuracy of the data. Please email any corrections or suggestions to webmaster@shortvolume.com. This site is supported by visitors like you. Thank you.
     

    © 2011-2014 shortvolume.com. All rights reserved.

    (The above table above courtesy of shortvolume.com gives a sample view of Gross Inter-day Shorting Measured by how orders were originally entered. A general rule-of-thumb is if the blue line (% of trades entered as short sale) is above 2.5 (25%), the likelihood is that day ended with net short sales added. Below 25%, likely net shares covered)

    You see Mr. Richter, I am no "Spring Chicken" when it comes to dealing with short sellers. If you read my bio on Seeking Alpha you would have noted though retired for some 25 years, I was a Market Pro to include a few year Brokerage/Investment Banking stint at Merrill Lynch in the mid-'70's as well as being President and owner of a regional full service stock brokerage firm and head OTC market maker. This followed by a few years of having an IR consulting firm.

    In my Brokerage firms days, I dealt with and sometimes joined in with some of the legendary short sellers of the late '70's an '80's. While I respect the good and necessary work done by short sellers to weed out the numerous "bad apple" companies that prey on innocent investors, I also detest the strategies of "bad apple" short sellers who perhaps innocently got trapped into a bad short position just due to the fact this is a China company; and are now desperately trying to sucker innocent investors into selling their stock to let that short seller out of his own trap. Jim Cramer as a former hedge fund manager does a very good job warning investors about how low Short Sellers will stoop to rescue a bad decision in this TV interview.

    Jim Cramer reveals dirty tricks short sellers use to manipulate stock prices down

    It is for these reasons I publish proudly under my own name (22 published articles on Kandi) and because of this, I have personally been attacked in no less than a dozen KNDI attack articles by incompetent hacks who quickly discovered "if you can't factually attack the message of the Company, then attack the messenger."

    Kandi Technologies: If You Don't Like The Message, Attack The Messenger

    What I find most hilarious is that all of you shills continue to link my sole interaction with the SEC which dates back to something over 25 years ago in 1989 where I was accused of creating a short squeeze. Obviously no "long" shareholder is going to make such a complaint, so what sympathy do you think you are going to get from Long shareholders pushing this in an article? What is even more hilarious is if you read the last paragraph of the Order, you will note what I was accused of was exactly what you and other shills are doing today on the "short" side with reports such as yours.

    "…The commission further found that, in connection with his efforts to bring about a short squeeze in Cedar's securities, Porcari made predictions, without reasonable basis, to registered representatives that "Cedar's" stock price would rise to a specified levels within specified periods of time. Also, the Commission found that Porcari advised groups of registered representatives to purchase specified amounts of Cedar's securities simultaneously in order to raise the market price of those securities.."

    Now in my defense of that charge, I didn't tell the crybaby short seller to get caught in his own trap by shorting almost 100% of that New Issue below $3 which only had a float of around a million shares. (sounds like a modern day "GoPro" but on a much larger scale, doesn't it?) Also, to be clear. If you read the "order" I was not convicted of anything by the SEC. I simple settled after fighting it for five years and a heavy five digit legal fee for me and who knows how much tax payer money for SEC costs, neither admitting nor denying any guilt and was NOT levied any fines, fees or disgorgement.

    Regarding the second "FINRA (then, NASD") allegation dated April of 1989, was a fine levied against the Brokerage Firm with many brokers of which I was formally President. The Petra situation had to do with the Firms purchase of some 8,700 shares of a stock purchased at $.30 a share (yes around $2,500 worth of stock) which did shortly go up to over a dollar a share, but collapsed back to our purchase price when the deal did not happen. We Never sold the shares we bought and ultimately wrote them off as worthless. The second part of the NASD allegation was generated based on a closing transfer audit after my partner and I sold the Firm a year earlier in 1988 and voluntarily left the Brokerage Business due to the advent of competitive Discount Brokers like Charles Schwab appearing. Since we were no longer "in the business" and had no interest in returning, we never fought the decision as we were not required to pay the fine unless we elected to return as Registered brokers.

    Back to your farcical article- Your Credentials;

    I noticed from your Techtonics bio that in your 15 years' market experience, you spent most of your time at Susquehanna and SAC Capital Advisors. In your report, you bring out the Companies lack of institutional following. The one point I agree with you has to do with the Companies small institutional following likely due to the Company not (yet) doing Conference Calls. Yes this is likely true since no Wall Street quality analyst is going to be the first to follow a young company that does not do quarterly conference calls or give forward guidance. HOWEVER: the Company has opened up the Annual Meeting to shareholders telephoning where questions are asked and answered. The very subject that you attempt to distort was a question that was answered at last year's call:

    Q: Will the Company start providing quarterly investor conference calls and some "guidance", once sales start to normalize?

    A: While we have confidence in launching our EV product offering in China, our progress is still in the early stages. The management is not ready to provide financial guidance at this point. However it's our intention to keep shareholders well informed on the progress. The Company will provide quarterly investor calls when the time is appropriate.

    If you know anything about emerging "Disruptive Innovations" in complex societies as the PRC has in China, you would know that any Company which initially relies on announced, but not yet completely implemented actions such as; Grants, Federal and Local tax breaks and subsidies, particularly a young company that come out of a totally unrelated business like Kandi, is going to be subject to a myriad of what seems like "never ending" changes before final long term reliable rules are implemented. Even now, while KNDI has finally received a small first installment of some $31.8 million covering only the PRC Subsidy payments for sales up to March 31, 2014, they, along with all other EV manufacturers are still waiting to be paid the Hangzhou City share of subsidies for all of the EV sold to date; pair this payment along with further PRC subsides up through Sep. 31. and you get in total, the amount now owed KNDI is likely over $100 million. The fact that the PRC did pay its first installment and also requires the local Governments to effectively "match" the PRC payments, takes out the "if" leaving only the "when" for future payments.

    While most US based Companies with a primary goal of enhancing their stock price would be willing to gamble with their future by premature public speculation through Conference Calls and Guidance, the heavily China politically connected CEO of KNDI knows when to speak and when to keep his mouth shut. That is how KNDI has jumped into the current #1 slot for Pure EV's in China (#2 behind BYD when Hybrids are included) and #4 Wordwide behind Nissan, Tesla, and Toyota and #9 when hybrids are included.

    "Plug-in the first half of global car sales rankings: Top Ten China accounted for two seats"

    Brokerage Research Recommendations.

    Once again, you prove you have not done your homework. KNDI does have at least two major China based Brokerages firms in China, Though China residents are forbidden from investing in US traded Companies like KNDI, these firms have still each given "Overweight" Ratings to KNDI.

    Citi Orient Securities - KNDI Ranking "Overweight"

    Shun International Securities- KNDI Ranking "Overweight"

    Your Two Former Hedge Fund Employers have been Two of KNDI's Largest Holders over the past year!

    But, irrespective of the fact you either didn't take the time to do a thurough research on the Company, or just chose to ignore the CEO's comment above on the call, I find it very interesting that of the few 50 institutions that have reported as being Kandi Shareholders over the past year alone, both Susquehanna and SAC are included (Go to pg.2 for SAC). While you can see from this link notorious SAC did sell the last of its position in Q2, what I find it even more interesting is that Susquehanna, your home town Philadelphia based Stock and Options Market giant is not only Kandi's current largest Institutional shareholder with some 735,000 shares, but is also one of the two Hedge funds that has participated individually to the tune of over $100 million total (including warrants) in every Kandi financing since the first in 2010, to include likely having 4.9% $30 million of the recent $71 million financing you speak of in your report.

    Now; "Inquiring Minds" might just wonder. "Is it just a coincidence that the only two 'Buy Side' firms you worked for in your short career on Wall Street, happened to have had enough confidence in the Company to be recently reported long shareholders of Kandi; or was this bogus report just a way for you to lash back at them for laying you off?" (Based on the poor quality of work you did on this KNDI slam based on "other peoples" antiquated and debunked attacks and maybe some disgruntled former Geely employee, don't for a second think that any intelligent investor would believe that you left a "posh" life as a Big Company Wall Street analyst with your "Bachelors of Engineering" degree to start your own research firm (Techtonic) to sell your independent research except to short sellers that are trapped and will pay for any trash, true or otherwise to be published)

    Karl Richter - Portfolio Manager

    ​Karl K. Richter is the founder of Tectonic Investments LLC. He has fifteen years of investment experience, including thirteen years investing in long/short equity fundamental hedge fund strategies.

    Before founding Tectonic, Karl was a senior portfolio manager and founding partner at AlphaOne Capital Partners. Previously, he had eight years of experience as a portfolio manager and fundamental research analyst at Susquehanna International Group and SAC Capital Advisors. He started his career in equity research at Robertson Stephens and Lehman Brothers in San Francisco.

    Education:

    Massachusetts Institute of Technology, Bachelor of Science, Mechanical Engineering.

    KNDI's Auditor

    Though KNDI has been publicly trading in the US since 2007, only in the past year did it become recognized enough to break though the $250 million mini-micro-cap barrier. They have used the same auditor for some six years now and have had no problem arise with the SEC regarding their auditor as is likely evidenced by SEC "Effective" rulings on more than a half dozen registration statement; (three so far this year). Which BTW, should likely give a "hint" as to the direction of the SEC Fact Finding Investigation you pointed out in your report that was first published in Kandi's last years 10k.

    KNDI/Geely JV- Your Comment is a Joke, Right?

    It must be because it is not backed up by the actual facts. However, it is interesting how you painted the "picture" of how Geely "passed off" an "idle factory" to the JV. But wait! Isn't this what Toyota, Tesla's early "Strategic Partner", did with your beloved TSLA's one and only manufacturing facility? However, what you forgot to mention was a year prior to the JV (not KNDI, but the 50-50 JV) taking over the Shanghai Maple plant, Kandi sold their new Changxing EV plant to the same JV.

    Kandi Technologies Completed China's First Full Scale Production and Assembly Line Specialized for Pure Electric Vehicles

    "…This new production line combines the advanced production equipment and manufacturing technologies. It also integrates the robust manufacturing concepts and experiences of Kandi technologies and its JV partner, Geely Auto…

    Mr. Hu Xiaoming, Chairman of Kandi remarked, "With the unprecedented enthusiasm and unwavering support from all levels of government leaders, Kandi Changxing will take full advantage of the technology strengths and expertise of Kandi/Geely Auto in the EV area to develop pure electric vehicles that consumers can afford to buy and drive while adopting practical business models to provide reliable and convenient services to our customers. Carrying the great expectation as well as the social responsibility, we are confident that Kandi will contribute its part in building the green economy in China."

    Mr. Yang jian, Vice Chairman of Geely Automobile Holdings Limited congratulates the completion of this new production and assembly line and commented, "We have full confidence with our partnership with Kandi to further expand in the electric vehicle market. With years of exploration, Geely has accumulated rich experience and technological reserves in R&D and marketing of electric vehicles. We believe that the pure electric vehicle industry will witness a great prospect of remarkable growth in the future".

    Or how about this joint announcement where Geely sent their Founding VP of Marketing who took Geely from nowhere to the #1 passenger car manufacturer in China to take over the same responsibilities at the JV. (funny how Geely's sales and stock price cratered starting about a month after they lost this SVP to the JV)

    Zhejiang Kandi Electric Vehicles Co., Ltd. Appointed Mr. Liu Jinliang as Vice President of Sales & Marketing

    "…Zhejiang Kandi Electric Vehicles Co., Ltd. ('the JV Company') appointed Mr. Liu Jinliang as the Vice President of Sales & Marketing for the JV Company, effective immediately.

    Mr. Liu Jinliang joined Geely Auto Co., Ltd in 1995, and from 2005, Mr. Liu was in charge of the sales for Geely Auto. Mr. Liu became the Vice President of Geely Auto Holding Group ('Geely') and General Manager of Zhejiang Geely Holding Group Automobile Sales Company Limited in 2007.

    Mr. Hu Xiaoming, the General Manager of the JV Company, comments, "The appointment of Mr. Liu Jinliang, one of the most seasoned and experienced sales and marketing senior executive in Geely, to become the VP for Sales and Marketing of the JV Company, demonstrates Geely's great support and focus on the new energy vehicles and the JV Company. We are confident that with Mr. Liu Jinliang in charge of sales and marketing, the JV Company will achieve great development in the new energy vehicle business."

    Mr. Li Shufu, Chairman of Geely Auto Holdings Ltd., comments, "New energy vehicle is the strategic business sector for Geely. After years' preparation and accumulation in technologies and marketing, especially the cooperation with Kandi, our new energy vehicle business has entered into a fast development lane. We believe that Mr. Liu Jinliang will utilize his experience and expertise, as well as deploy his resources and take action to make a break-through for the sales of the JV Company's new energy vehicles."

    You claim Geely has not transferred any of their auto technology to the JV. Once again, you didn't do your homework. Geely and KNDI jointly developed the EV version of Geely's #1 selling ICE car the Panda. This is four door EV designated the SMA7001BEV that is being used in both the carshare and long lease programs.

    And let's not forget this comment from a Dec. SEC 8K filing"

    "The JV's current panda 7001 pure EV is remodeled based on Geely's original panda vehicle. There are also other models from Geely that are in the process of being remodeled. Volvo is a part of Geely; at the current stage, we aren't working on any of Volvo's vehicle models."

    Self Dealing Through Kandi USA

    Not Hardly. As you pointed out, Kandi USA has always had absolutely nothing to do with KNDI. This is no different than if a Ford Motor Company heir decided to open up a Ford Master Franchise. However, I do remember before Kandi USA was started some four or five years ago. KNDI was selling their two door LSEV's to the prior distributor for slightly more than $4000 per car. By the time the end consumer had a chance to buy the car it had a sticker price of over $12,000. After Mr. Hu, KNDI's CEO's son started Kandi USA, the export prices increased some 25% and the end user price declined.

    Let Call a "Spade, a Spade".

    KNDI over the past four years, has been the target of more than two dozen attack articles such as yours by a half dozen sources. ShareSlueth alone (whom you credit with giving you most of your four and five year old data along with the personal attack on me) has published 13, with a 10 going back to when the stock was trading between $2.5-4.5 a share. During that time the reported short interest has grown from a reported one million shares or around 4% of the float, to the current 7 million shares or close to 30% of the float. (About the same percentage TSLA was when it finally broke out through $50 a couple of years ago)

    In all of those articles, never once has any writer, (to include yourself in the current piece) ever accused KNDI of even doing anything illegal, let alone accuse them of "Fraud". All that is ever attempted is to discredit by insinuation, distortion, innuendo, mis and dis-information in order to "raise doubt" in the minds of intelligent investors to sell their stock to let the shorts out of their trap. Why has the short continued to go up along with the stock price? IMO, because of these articles. They draw attention to the Company forcing inquisitive investors to do a little research. Each day more and more intelligent investors who take a little time to truly research the Company in current light; and take the easily attained massive information proliferated all over the China Media (by using Google Translator, search words Kangdi Electric Vehicles); pair it with the "common sense" that tells China with its very cheap electricity is the one Country that has no choice but to use EV's to help alleviate their pollution problems. And the answer is overwhelmingly simple: Investors would rather be long than short KNDI.

    In this current time of Stock Market turmoil and unrest, Nothing, I repeat, Nothing, happening anywhere in the rest of the World is going to negatively affect the growth of EV's in China or KNDI specifically. KNDI, with its miniscule $500 million Market cap and very strong cash heavy balance sheet increased by the recent $71 million $17.20 share financing; is going to likely increase its incredible business momentum in its trillion dollar potential sector in China. Even in catastrophe, the last stimulus that the PRC dare cut is the one to help cure their living environment. Air pollution already has the Government on the edge of Anarchy.

    Mr. Richter, it is your opinion that KNDI stock price should be somewhere between "0" and $7, you are certainly entitled to your opinion.

    It is my opinion that in the next few years KNDI will have a three digit share price. You would not argue that I am entitled to my opinion.

    As ridiculous as it might sound in attack articles about a multi-million share a day volume NASDAQ Company such as KNDI, as mentioned above, I have been personally accused of over-supporting the stock. This is not true. I could care less what the stock does on a day to day basis. However, I proudly admit I have been extremely supportive of the Company and its brilliant Management. I have been in KNDI continuously for over seven years and expect to be holding a position on my last days on earth. At age 67. I have been in the market since 1974 when the Dow traded as low as 576 and watched the birth of most of "today's" tech giants without being smart enough to participate.

    IMO, at this early stage, KNDI, while still legitimately speculative in the eyes of many, has potential that far exceeds any of those missed passed opportunities at equivalent age levels. I could care less who buys or sells the stock. It's their money and they can do with it what they want. My writings are only to help "Level the Playing Field" and not passively allow investors to sell or not partake for the wrong reasons.

    Oct 12 4:24 PM | Link | 27 Comments
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