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I have been investing in stocks for over 36 years. I am a CFP, licensed since 1988. I was a CFO/Financial principal (series 7, 24 and 27) of a retail brokerage firm, at one time a R.I.A. (Registered Investment Advisor) and worked as a Sr. Financial Analyst for TransAmerica prior to its takeover... More
  • Advanced Battery Technologies: Truth or Consequences 2 comments
    May 2, 2011 1:29 AM | about stocks: ABAT
    I have been a CFP® the past 23 years and an investor in stocks for over 32 years. I have no need to write an anonymous article as some strictly for the purpose of spreading false information for my enrichment. I am long in Advanced Battery Technologies (OTCPK:ABAT) stock.   This is the first Chinese company stock I purchased directly.
    When the Variant View Research (NYSE:VVR) article on ABAT came out on March 30th,  this anonymous source was given a national internet platform to disseminate misinformation.   As the bottom fell out of the stock, the anonymous source was given additional credibility as the article questioning the company’s honesty spread to other popular business news outlets.    Immediately thereafter lawsuits followed and then came downgrades from analysts.    An egregious short’s ‘research’ article published strictly for financial gain became a reality despite Advanced Battery Technologies refuting the claims. Unfortunately this is the media era we live in as a new form of cyber short terrorism has struck our financial markets.
    To this date no news outlet has questioned or vetted the source of the information.  
    These are the facts as of this writing:
    1. 1.   On March 30th an article by Variant View Research, an anonymous source, was distributed as ‘News’ or ‘Headlines’ that caused more than a $120 million loss in shareholder’s equity in ABAT stock.
    2.  2.  The anonymous shorts and his/her cohort took a large short position prior to the release of the article and profited substantially from the financial collapse of the stock.
    3.  3.   The article's content and news of the drop spread like wildfire to other popular new sites with no news source questioning the contents or background of the anonymous source.
    4.  4.   On March 30th, the same day as the stock collapse, legal firms launched an investigation of possible securities fraud against Advanced Battery Technologies based on the anonymous writer(s) article. 
    5.  5.   Numerous lawsuits against Advanced Battery Technologies followed within days of the original ‘research’ article.
    6.  6.   On April 6th Advanced Battery Technologies responded to the allegations.
    7.  7.   On April 6th, soon after Advanced Battery’s rebuttal, Variant View Research disputed the company’s $20 million purchase of a Shenzhen company using a plaintiff’s complaints in a lawsuit to substantiate its claims.
    8.  8.   On April 7th Variant View Research responded to Advanced Battery Technologies dispute of the original article.
    9.  9.   On April 15th, another anonymous article, written by an individual who claims to be an attorney in China, was disbursed claiming Advanced Battery’s $20 million purchase of a Shenzhen company was a fraud.
    10.
    On April 17th, John Petersen, wrote an article that had the same distribution as the Variant article stating he felt Advanced Battery Technologies was a legitimate company praising its cost control measures.
    Conclusion:  It is easier to make money shorting a stock by preying upon people’s worst fears than praising a stock and taking a long position catering to people’s best hopes. Although we live in a society whose first amendment to the Constitution supports free speech, there are laws against yelling ‘fire’ in a crowded movie theater.
    Variant View Research had less than 10 followers prior to its article on March 30th being widely disbursed.    John Petersen, has over 53,000 followers on the same site and, although he refuses to get involved in a ‘dogfight’ between VVR and ABAT, he is still positive on the company.   Further John views the VVR articles as ‘three "hatchet-jobs’.    He has followed the company a couple of years and notes ‘that ABAT is the only publicly held pure play in the e-bike space and seems to have a bright future as a vertically integrated manufacturer of e-bikes, the most popular electric vehicles in the world’.
    Conclusion:   So why is an anonymous sources ‘hatchet job’ given more credibility than an acknowledged well-followed individual whose background is in the stocks he writes about?   Again, it is easier to make money shorting a stock by preying upon people’s worst fears than praising a stock and taking a long position catering to people’s best hopes.
    Worst Fears
    Please review the article I posted on the InstaBlog disputing a number of Variant View Research claims.     At best I discredited the VVR’s allegations and at worse raised a shadow of doubt.  Also review the attached article by Kurt Shrout that provides investors the common characteristics of a cyber short attack on a Chinese stock.   http://seekingalpha.com/instablog/702244-kurt-shrout/136965.    Kurt has other informative articles on these short cyber terrorists that also are a must read.
    VVR was able to cater investor’s worst fears as Chinese companies have no shareholder conference calls, no investor relations person to contact, language and cultural differences and finally some history of fraud.    It was a perfect storm for VVR.   However, there are reasons why legitimate Chinese companies sell for a substantial discount to their US counterparts….lack of transparency.  
    VVR was able to ‘yell’ fire in a crowded movie theater alleging ABAT management fraud by manipulating facts, numbers and verbiage.   VVR claims that ABAT advertises its products as ‘electric cars’, threatens to kill it former employees and provides a paper trail from limited information obtained on ABAT’s financials substantiating that transactions were fraudulent.   VVR achieved their objective profiting substantially from their ‘research’ article decimating the company. But there could be unexpected consequences for VVR. 
    What’s Next for Variant View Research
    I will preface my beliefs by stating I’m not an attorney.   However, with over 32 years of investing in stocks I have seen numerous shareholder lawsuits.    Lawsuits have been filed when a company makes an offer to go private because the takeover price isn’t sufficient, by former employees,  contract disputes with suppliers, patent infringements, corporate restatements that lead to a reduction in prior earnings, product defect litigation and the list goes on. But never in my life have I seen lawsuits filed over an anonymous ‘research’ company’s allegations of corporate fraud.    So what happens next? 
    My assumption is that the primary witness for the plaintiff’s case is the writer(s) of the article as the lawsuit is based on information provided by that individual(s).    The financial internet site from whom the article was published has all information as to the writer’s identity that will be divulged with proper legal correspondence.  Ask yourself this question though, if you are the writer(s) of this article and you have profited substantially from other misfortunes, is there any more money to be made from being an expert witness for the plaintiff?   Also, what information do you have that you have not already disclosed to nail down your allegations?  With no additional information to provide does VVR risk jeopardizing their ill found gains and risk possible Barry Minkow prosecution? This could be Variant View Research worst nightmare in so many ways.  
    Advanced Battery Technologies Recourse
    As ABAT is a Chinese company, I’m not familiar with their limitations on filing lawsuits in United States courts.  If there are limitations the Company needs to come out and state what they are. If not ABAT needs to go for the jugular. These short attacks will not come to an end until the company takes a stand against the perpetrator(s).   
    One avenue of recourse, as I mentioned in a previous article, is to follow the course of another company, ZAGG, who also was accused of corporate fraud again by an anonymous writer.   After the collapse in ZAGG’s stock the company took the following action:  
    ‘ZAGG has issued a statement refuting the implications in a recent blog posted on’ a reputable finance internet site ‘about the company, which Zagg claims was issued specifically to cause a decline in the company stock price to support the increase in the short interest in the company stock, and purchases of stock options related to these short positions. The company has begun an investigation into the circumstances around the trading in ZAGG stock and options on Thursday, Dec.16, 2010, and has filed a formal complaint with the Chicago Board Options Exchange. Zagg says it will report this matter to the SEC and take other appropriate action if needed. has filed a formal complaint with the Chicago Board Options Exchange and will report this matter to the Securities and Exchange Commission's Division of Trading and Markets and Division of Enforcement. The company will take other appropriate action if needed to protect its business operations and the reputation of its management team, board of directors, employees and partners.’
    Since that time the poster has not had any other article posted other than on the reputable finance internet site.   His short rants continue and border on ridiculous, however, his national platform to rant has been removed.      
    What charges could Variant View Research face in the future? Is VVR guilty of‘market manipulation’? Was the VVR article was a ‘deliberate attempt to interfere with the free and fair operation of the market and create artificial, false or misleading appearances with respect to the price of, or market for, a security, commodity or currency?   
    Market manipulation is prohibited in the United States under Section 9(a)(2)[2] of the Securities Exchange Act of 1934’.  It appears Variant View Research may have more specifically violated ‘the Securities Exchange Act of 1934 under Rule 10b-5 -- Employment of Manipulative and Deceptive Devices’ as ‘it shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,
    a.      To employ any device, scheme, or artifice to defraud,
    b.      To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
    c.       To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person,
    In connection with the purchase or sale of any security’.
    Assuming Variant View Research is called as the plaintiff’s expert witness, VVR will need to provide more detailed information from ABAT’s books to substantiate the ‘research’ company’s financial claims.    
    Having worked in the financial control division at a major corporation, it’s next to impossible to identify discrepancies short writer(s) have disclosed without having access to the full financial records of the company and the ability to drill down to the specific entries involved.   The fact is one number on a public financial statement could be linked to 100’s of transactions. Details are only known if one has the drill down capability.    Additionally I was involved in a criminal investigation with the IRS for a company I did some financial planning work for back in the late 1980’s. Although there were tangible assets involved, the IRS criminal investigators needed a paper trail to prove that the investment company was perpetrating a tax fraud by creating false tax shelters and illegal deductions for its investors. The IRS had all tax filings and individual investor tax returns and was never able to prosecute the principals of the scam after years of investigating.   It was the Department of Corporations who sent the two major principals of this financial company off to jail.   The Department of Corporations showed that the partnerships created violated security registration laws and more importantly partnership funds were illegally shifted from one entity to another.   It was a ponzi scheme with real buildings and other real property.  
    Auditors who review the records, the company financial management and governmental regulators are the only ones who can drill down to the entries associated with what goes on in a financial filing.  This is true for any public entity.  Variant View Research never had complete access to the financial fraud charges they allege.   It is my strong belief that other than providing what was written in the ‘research’ articles, VVR will not be able to substantiate any of their fraudulent claims. They will be asked specifically what transactions on the books of ABAT  can you identify that shows the company was creating a false transaction?   There is no way to answer this other than with what they saw on the public financial records.   Going back to the IRS tax investigation I was involved in, the constant question to me was, ‘where is the paper trail to the deductions on the tax returns we showed you?’  Repeatedly I answered ‘there was none’.   
    Truth or Consequences
    ABAT no longer has an option to the course they pursue. If the Company fails to attack the egregious shorts aggressively, more equity in ABAT will vanish and the company’s reputation further tarnished. This is the Truth or Consequence moment. Only time will tell whether it’s ‘Custer’s Last Stand’ for Advanced Battery Technologies or ‘The Beginning of the End’ for Variant View Technologies. I’m betting on the latter though.       
    Finally, as I always say, consider the source prior to evaluating content of any ‘research’ article. If you don’t know anything about the source how do you know they are credible? If the author's name is not given, you need to be very skeptical of the report's contents.

    Above all do your due diligence and remember what Ronald Reagan said….’Trust, but verify’.
    I have a 5,000 share long position in Advanced Battery Technologies and recently bought 3,000 shares more on April 11th. My position in ABAT is an insignificant portion of my total portfolio. My name is Steven Borovay. I am CFP® and I have over 32 years investment experience.
      
     


    Disclosure: I am long OTCPK:ABAT.
    Themes: Chinese Stocks Stocks: ABAT
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Comments (2)
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  • belsey
    , contributor
    Comments (11) | Send Message
     
    Another great article. Keep fighting for us longs. Unimaginable how a sleezy short group like VVR could so adversely affect a solid company like ABAT. I hope they get what is coming to them.
    5 May 2011, 08:27 AM Reply Like
  • NanoTech Analyst
    , contributor
    Comments (516) | Send Message
     
    Here are my comments:

     

    investorshub.advfn.com...
    8 Jul 2011, 01:48 PM Reply Like
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