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Gerald Klein
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Forty year career in finance and executive management beginning on Coopers & Lybrand audit staff (CPA) culminating with twenty-six years as CEO of publicly-held companies. Prior to that and after leaving C&L served in CFO and COO capacities, all in publicly-held companies. Was an EDGAR... More
  • How KNDI Shareholders Actually Got Punked 12 comments
    Jul 11, 2013 10:59 AM | about stocks: KNDI

    July 11, 2013

    Open Letter To:

    Chairman and Commissioners of the United States Securities and Exchange Commission Robert Greifeld, CEO,NASDAQ

    Richard G. Ketchum, Chairman and CEO, FINRA

    Dear Esteemed Mesdames and Messrs.:

    My affiliation with public companies began in 1971 as an auditor for Coopers & Lybrand and I passed the Uniform CPA Examination in 1973. In the early 1980s, as CFO for Checkpoint Systems, Inc. (NYSE:CKP) I was as an EDGAR Pilot Program Filer. My career was devoted to serving in CFO, COO, and CEO capacities of public companies.

    I consider myself an active and sophisticated investor. I am a capitalist and believe in full disclosure, transparency, free trade, and level playing fields. Human nature what it is, I believe laws, rules, and regulations, despite being burdensome at times, are necessary to assure level playing fields.

    What I need from you collectively is your help to understand how Kandi Technologies Group, Inc., ("KNDI") a China based emerging growth NASDAQ listed company who I know intimately and whose common stock I own, can trade 102,791,879shares over the past 25 trading sessions, including one day of over 18 million shares, or more stock then traded in the prior 637 trading days dating to November 8, 2010 according to nasdaq.com, KNDI Historical Stock Prices. During the 636 days period KNDI's float increased approximately 2 million shares to about 18 million shares until last week when KNDI sold 4.7 million shares under an S-3 offering at $6.03. Since the offering KNDI has traded below the offering price. What I want you to explain are the 102 million shares traded since June 4th, the erratic trading activity, and the price swings KNDI has suffered.

    Checking with experts, at no time during this high volume run, has KNDI's shares ever been reported as an "easy borrow", instead, "no shares available" has been reported most of the time. The only logical conclusion is abusive naked short selling or more appropriately, counterfeiting shares. Which results from either blatantly selling shares not owned and marking them as a "long sale", or using "high frequency trading" tactics which illegally allow hedge funds to attack bids without a legitimate borrow before quickly buying back the same shares in different accounts creating the impression "real" sellers are everywhere while in reality there are none, thereby manipulating the price. If I understand today's regulations correctly, a short seller who hypothetically legitimately borrows or reserves 100,000 shares to short, cannot legally "reload" with that same borrow or reserve without reinstating a new borrow or reserve. Considering KNDI had a number of heavy selling volume spurts of one million or more shares in just a matter of minutes since June 4th, anyone would find it inconceivable applicable laws, rules, or regulations are thought about, let alone obeyed.

    Given my background I am aware of critics who contend that despite SEC laws, stock exchange rules, and brokerage regulations, counterfeiting shares remains widespread and a dirty secret the securities industry and regulators choose to ignore to the cost of small investors. Other critics contend counterfeiting shares and manipulation is "devil's theory" and a waste of regulatory resources. I contend recent enforcement actions confirm the reality of the practice of counterfeiting shares. KNDI's recent trading activity reveals something is certainly amiss and demands your attention.

    Having witnessed Enron, Bernard Madoff, and numerous other schemes that defrauded investors, it's understood there always remains the possibility laws, rules, and regulations can and will be circumvented. Please do not offer that as your answer in your endeavor to quiet my inquiry.

    Respectfully yours,

    Gerald W. Klein

    Disclosure: I am long KNDI.

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Comments (12)
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  • randix
    , contributor
    Comments (21) | Send Message
     
    I totally agree with what you expressed.

     

    It is pathetic that the SEC has buried its head on this subject for so long, obviously there are vested interests that carry their weight with the SEC so no progress is made on the deficiencies you so elegantly describe.

     

    The fact that in Kandi's instance, this behavior has gone on so blatantly, is even a greater testament to the fact that the modern day thiefs who perpetrate this behavior feel invincible, notwithstanding the trail that their trading leaves behind.

     

    In addition to the SEC being beholden to certain interests in the financial community who profit from this illegal behavior, is the fact that if this type of behavior was publicly aired in a manner that was understandable to those not sophisticated, it would undermine to even a greater extent, confidence in our markets, then did the trading lapses over the past several years. And given the SEC's colored past, not only in the financial crisis but with Madoff, I'm sure they are not eager to have that dirty launder aired, something which they've sat on for decades.

     

    Some companies without the knowledge of their shareholders, do pursue tracking down the identity of the individuals involved, by getting the exchanges to permit them to inspect and review trading records, and then passing the results on to appropriate entities such as the Department of Justice for criminal prosecution, the SEC for civil enforcement, and certain interested individuals who wish to pursue their own civil action for damages under the securities laws. But none of that ever makes it on CNBC or the front page of the New York Times, and the "quiet" handling of these few situations as they weave their way through the courts, only attracts the interest of the lawyers and some shareholders, who more often than not, find no recovery even though they prevail.

     

    The real solution is the entity that receives our tax money, the SEC. There are rules on the books, they are not enforced. And as in the case of Kandi, it is brazingly obvious. It is a disgrace, and even a greater disgrace that those respected leaders in the financial and investment community have done nothing about it, something that goes on under their watch.

     

    Thanks for the post.
    11 Jul 2013, 07:57 PM Reply Like
  • Peoples_Voice
    , contributor
    Comments (4) | Send Message
     
    Open Letter To:
    Gerald W. Klein, SA User Handle Gdubw

     

    Dear Gerald,

     

    I totally disagree.

     

    You have asserted that there is substantial abusive naked short selling for Kandi shares based on no factual representation of proof. You present your opinion as fact itself, which it is not. Your "logical conclusion" considers no other possibilities. You have not provided physical evidence in the form of trading statements from specific market participants, and specifically for Kandi shares, that naked short selling has taken place. Irrespective of naked short selling elsewhere, high share volumes or price movements, that does not "prove" impropriety. If you have such proof then I assume you would have passed this on to the SEC rather than write them an open letter. Have you done so?

     

    If supporters of Kandi dislike innuendo and biased claims against their stock, then it does them no favors to mimic the same behavior. You all lose the moral high ground, and you lose my support.

     

    It is rather odd that you assume Kandi's recent unusually high share trading volumes can ONLY be caused by naked short selling. But Kandi's share trading volumes were also very high in the first two to three weeks of last June when the shares were going up in value. Based on your assertion that unusually high share trading volumes can only be linked to naked short selling, can you please explain why the Kandi share value went up do dramatically during this period?

     

    If the upward share price movement and high volumes in the first few weeks of last June can be attributed to buyers of the stock, then why have you failed to consider that the subsequent high volumes and fall in share price after that could also be those same people selling what they had bought just two or three weeks earlier? This is an equally if not more logical conclusion than your conspiracy theory.

     

    In fact, for Kandi shares, there was much more trading volume in the first few weeks of last June then there has been in the last two weeks. This means, for the last two weeks, that there was an ample supply of shares to sustain relatively high volumes from those same previous buyers who had then decided to sell.

     

    Hence the shares price falls on high volumes because previous buyers have now become sellers. It is rather odd that you did not consider this.

     

    Or are you seriously suggesting that ALL those people who bought Kandi shares in the first few weeks of last June are all long term fanatical holders, and not traders hoping to make a quick buck?

     

    As with your assertion, I cannot "prove" my thoughts, but the very fact that a reasonable alternative explanation does exist means that your "logical conclusion" of naked short selling does not stand, because it is based on a default which assumes no other possibilities, and has no physical proof.

     

    The examples of Enron and Bernie Madoff that you cite were indeed classic cases of fraud where the value of the investment was artificially PUMPED UP based on false representations of their financial affairs. Interestingly, the executives involved in these scandals had backgrounds equally impressive to your own. Prior to their downfall, Enron and Madoff were strongly supported by groups of apparently very credible people who were convinced that there was no wrong doing. However those people were later proved wrong and their reputations seriously tarnished. They were wrong because their claims of no wrong doing were based on an incomplete set of facts, poor analysis, and judgment.clouded by emotions. Be careful that you do not become one of those people.
    12 Jul 2013, 07:43 AM Reply Like
  • Gerald Klein
    , contributor
    Comments (171) | Send Message
     
    Author’s reply » Thou protest too loudly...
    16 Jun, 06:11 PM Reply Like
  • Arthur Porcari
    , contributor
    Comments (590) | Send Message
     
    Peoples-voice- You sure jumped at this simple query, quickly and aggressively. Almost in desperation. Did this hit a personal sore-point?

     

    There is no question, the KNDI trading over the past five weeks has been wrought with illegal naked short selling, There is no conceivable way the stock could be trading at anywhere near the current volume levels if this was not so. Just the fact that stock went up dramatically is no defense against naked shorting. In fact, most short squeezes happen due to naked shorting. Up until last week, KNDI's non-insider float was only around 18 million shares, and I know where at least 9 million of that float is firmly held and has been adding. Only last week did the float increase due to the offering, and unless the fund is taking an immediate 25% loss, those shares should not be affecting the market.

     

    Just the fact the reported short interest only went 3k shares up on this last report while the stock traded over 40 million shares at a range of 8.26 to 6.03 during that time, while during those 11 days, no brokerage firm had any shares to lend, That right, not a hard borrow. Just no shares at any price, tells me all of the available shares have been borrowed for almost a month now. So all the volume since cannot be caused by legal trading.

     

    Gerald doesn't have near the resources or direct market experience that I have over 40 years to include 10 as a Market Maker Without the resources of regulatory agencies, it is virtually impossible to for anyone, myself included to have access to hard facts, but the circumstantial evidence I personally have compiled is plenty to get regulators to review.

     

    Gerald has taken this "open" tact to address the problem, I prefer not to telegraph in public what I am doing. But this issue is not going to go away.
    12 Jul 2013, 08:40 AM Reply Like
  • Peoples_Voice
    , contributor
    Comments (4) | Send Message
     
    AP-You sure jumped at my comment quickly, almost in desperation, less than one hour after it was posted in fact. My comment on Gerald Kleins's post was not until the next day, not exactly quick. Do you often exagerate? Did this hit a personal sore-point?

     

    You have proved my point. Neither yourself nor Gerald Klein have any tangible evidence to say there has been naked short selling.

     

    You have also admitted that Gerald Klein does not have the resources or experience as a market maker in such matters. If this is the case, then his open letter open letter to the SEC is an opinion based on hearsay and carries little proof of scienter. If either you or him have tangible evidence, then contact the SEC directly. Neither you nor him have done that. This letter looks more like a show, and carries no credibility.

     

    Not everyone is gullible so I reject your claim that the share price initially went up because there was a short squeeze. There is as much, if not more, circumstantial evidence to show that the share price went up because at the time there were substantially more buyers. There was also minimal trading volume in the shares before last June, meaning that no significant short position could have been taken before that time to create a short squeeze compatible with subsequent trading volumes.

     

    The high trading volumes were caused by speculative investors buying then later selling shares. The share price goes up when they buy, and the share price goes down when they sell. This is exactly what happened. Supply and demand. This is a far more obvious and common explanation than some wild naked short conspiracy theory for which you have admitted that you have no tangible proof, despite all your resources and experience.

     

    The very fact that my explanation is possible means that some shaky naked short selling conspiracy theory cannot be the only reason.

     

    Just a few weeks ago on the 21st June, Jon Carnes tweeted that he had shorted Kandi and was long on Cleantech Solutions, because he was "separating the wheat from the chaff." A famous investigator for Chinese frauds thinks Kandi is CHAFF, and only worthy of trading in and out with short and long positions. I sure do not believe that he was "naked" short selling. But you are inferring that Jon Carnes, should be investigated for naked short selling, because all the available shares have been borrowed for almost a month now, during the time he was short. Is that your inference?

     

    You have also not been able to refute the claims from a SeekingAlpha commentator that the new institutional investor in Kandi was also short in that stock prior to their take up of the new shares from its recent capital raising. Why is that? If true, with yours and Gerald Klein's claims of naked short selling, according to you both they should also be investigated.

     

    Correct, this issue is not going away.
    14 Jul 2013, 11:13 AM Reply Like
  • Gerald Klein
    , contributor
    Comments (171) | Send Message
     
    Author’s reply » Dear Peoples_Voice:

     

    I did process a complaint with the SEC coincident with the release of my letter.

     

    Like I said in an earlier comment, I simply have to look outside to see that it's raining.

     

    Fortunately the SEC appears to be stepping up their enforcement action regarding abusive naked short selling but still far too little is being done.
    14 Jul 2013, 09:22 PM Reply Like
  • bazooooka
    , contributor
    Comments (2355) | Send Message
     
    GK,

     

    Twas a good call indeed.

     

    Usually when a stock is held down after abusive shorting - there is plenty of upward demand when the spring does uncoil. A year back I read your comments and now I see you are reaping your deserved rewards.
    24 Jul, 04:12 AM Reply Like
  • chiujienwu
    , contributor
    Comments (18) | Send Message
     
    Don't you think a certain person at Tesla has the means and capabilities to do this? This person does have an interest to defeat his competition one way or another, and to boaster the stock of Tesla as oppose to the competitor's stocks.
    12 Jul 2013, 08:14 PM Reply Like
  • Gerald Klein
    , contributor
    Comments (171) | Send Message
     
    Author’s reply » Tesla and Kandi have two different business models serving different consumers. Tesla is selling an open road, high-end sedan targeted at wealthier, environmentally concious consumers (while I drive a 2008 Ford Escape Hybrid).

     

    Kandi is targeting intra-city commuting in the most highly populated cities in China (which there are many) with a very elegant and fully-integrated electric vehicle solution.
    14 Jul 2013, 11:13 AM Reply Like
  • Gerald Klein
    , contributor
    Comments (171) | Send Message
     
    Author’s reply » Bazillions spent on meteorological forecasting. I simply have to look outside to see that it's raining.

     

    http://yhoo.it/10POokk

     

    http://bit.ly/1bdj2tQ

     

    http://bit.ly/14UVPov

     

    http://bit.ly/13FpMcX

     

    http://bit.ly/1bdj2tU

     

    http://cnb.cx/18vh5Ze

     

    http://reut.rs/1bdj4SF

     

    http://rol.st/1bdj2tY

     

    http://bit.ly/1bdj2u0
    14 Jul 2013, 01:32 PM Reply Like
  • Marc Chang
    , contributor
    Comments (128) | Send Message
     
    The China Securities Regulatory Commission (CSRC) spokesman said that after papers are handed to U.S. regulators, there would be no legal basis to prosecute the accounting firms.
    http://goo.gl/XU0mB
    15 Jul 2013, 08:42 AM Reply Like
  • Gerald Klein
    , contributor
    Comments (171) | Send Message
     
    Author’s reply » An interesting excerpt from the article at http://goo.gl/XU0mB.

     

    "The CSRC spokesman urged overseas regulators to punish ill-intended short sellers and protect the interests of overseas-listed Chinese companies and their shareholders."
    17 Jul 2013, 06:09 PM Reply Like
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