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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
  • Misinformation Or Mendacity... ? 0 comments
    Jul 15, 2014 10:32 AM | about stocks: KNDI

    Among all the world's races… Americans are the most prone to misinformation. This is not a consequence of any special preference for mendacity… It is rather that so much of what they themselves believe is wrong. ─ John Kenneth Galbraith

    The SEC Office of Investor Education and Advocacy in its Investor Bulletin: Reverse Mergers, http://www.sec.gov/investor/alerts/reversemergers.pdf., cautions investors about the risks associated with investing in companies that became public via a reverse merger. If you have not already read it I suggest it's an Investor Bulletin well worth reading. The bulletin is four pages with a fair amount of white space, is well structured and easy reading.

    Among other things, the bulletin discusses that if the reverse merger company's securities are listed and traded on an exchange, the listed company must meet the exchange's initial listing standards to be eligible for listing. The listed company must also satisfy the exchange's maintenance or continued listing standards to remain listed and must comply with the exchange's rules, the federal securities laws, and other applicable provisions of the law.

    The key takeaway in the SEC Investor Bulletin: Reverse Mergers is that investors should be careful when considering investing in the stocks of reverse merger companies and should make sure that they have accurate and up-to-date information about a company before investing. The bulletin advises that if you cannot obtain current, reliable information about a company and its stock, it may not be a suitable investment. The SEC takes explicit exception with companies that fail to make required periodic filings-filings that should contain information of critical importance to U.S. investors.

    In summary, the above referenced bulletin states, "Take Precautions: Look for Reliable Information, Research the Company, Review the Company's SEC Filings, Be Aware of Companies That Do Not File Reports With the SEC, Be Skeptical," advice that should be followed when evaluating all public companies, regardless of how the company became public.

    This is important to me because I am a shareholder of Kandi Technologies Group, Inc., (NASDAQ: KNDI). KNDI became public in a reverse merger in 2007. Numerous articles written since then, some fifty or more, condemn KNDI as a "reverse merger company" to be avoided at all cost.

    Certainly no one can imply KNDI falls within the realm of the types of companies that the SEC cautions against in its Investor Bulletin: Reverse Mergers, right?

    After all, KNDI has filed several registration statements (the fullest of full disclosure among SEC filings) since its reverse merger in 2007 which have all been declared effective and recently filed a $300 million mixed securities shelf registration statement which is awaiting effectiveness. Since its reverse merger in 2007 KNDI has filed its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and numerous Form 8-K disclosures, among many other SEC filings. Additionally, KNDI is traded on NASDAQ, is a Global Select stock, and has always met all the exchange requirements of NASDAQ ─ always.

    There are many large, successful public companies that became public in a reverse merger. Berkshire Hathaway (NYSE: BRK-A, BRK-B) is probably the most well known and others include Turner Broadcasting Company, Blockbuster Entertainment, Tandy Corporation, Waste Management (NYSE: WM), The New York Stock Exchange (NYSE: AMZI), Texas Instruments (NYSE: TI), and Occidental Petroleum (NYSE: OXY).

    So then why have so many articles condemned KNDI as a "reverse merger company"? Maybe they're not aware of the SEC Investor Bulletin: Reverse Merger, or maybe they don't understand what it means, or maybe they don't care and their case against KNDI is simply misinformation. Then again, maybe it's mendacity.

    Fortunately, the best defense is the truth.

    Disclosure: The author is long KNDI.

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