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Letter to the Securities and Exchange Commission (SEC), FINRA and other Regulatory Authorities

|Includes:ABAT, DEER, GURE, LFT, MOBI, ONP, Puda Coal, Inc. (PUDA), YONG, ZSTN

We believe that the practices of these “hit piece research” firms have significantly damaged the integrity of the public markets, the effectiveness of the SEC and FINRA, and have ignored the laws and regulations that a public company must follow and the standards and ethics that an individual acting as a “research” analyst must adhere to.  We have followed the actions of such individuals and companies (Geoinvesting, Alfred Little, OLP Global, Citron Research, John Hempton, and many more) and have seen a continual and significant degradation of the effectiveness of the regulations that are meant to govern and orderly and fair public marketplace.  To that end, we will take the time to briefly compare the actions that are taking place and why we believe it’s illegal, of low integrity and very damning to the integrity of the US public markets. 

Bona fide research analysts are held to certain standards and requirements that are monitored by FINRA, SEC and various other regulatory authorities for a reason.  Ultimately, they are an individual that performs significant research on companies, their environment, their filings, etc. They have to speak to management teams, determine the integrity of their statements, potentially dig deeper to discover the truth, and then translate all their due diligence data points and information into a report that is disseminated through public means. 

On the other hand, recently another type of “research” has surfaced that has been coined (even by the authors themselves) as a “Hit Piece”.  This type of “research” report has garnered this name because the author has intent of “hitting” (or substantially decreasing) the share price of the company with their report.  What is the difference, one may ask, of a “hit piece” author and a research analyst?

 

Discussion Topic

Research Analyst

Hit Piece Author

Interaction with company management to understand the business model.

Speaks to management to understand the full details of the business.  Interacts with all levels of the company and its service providers, customers, and stakeholders of the company to understand their business model and follows-up with management or the appropriate person to get their questions answered, if needed.    They can believe or question such statements, but they certainly run their questions through the company prior to forming their opinion on the company via their report.

Does not make an attempt to speak to management, either initially, or as follow-up. Many of these authors have actually stated publicly they prefer not to speak to management prior to releasing their reports.  While initially this may seem unusual, this is very consistent with the purpose of a “hit piece”,  as it would typically lessen their ability to publish negative statements and potentially lessen the damage to a company’s share price if management clarified their questions in a conversation exchange prior to the “hit piece” release.

 

 

 

Ability to trade on inside information.

Research analysts are restricted from trading in such securities prior to releasing the report and still post releasing the report.  Not only are they restricted, but the entire research department and employees of their firm are restricted as well.

Hit piece authors aggressively short sell securities or buy substantial quantities of puts immediately prior to putting out their reports.  Furthermore they typically sell such reports to their colleagues and enable them to front run such reports prior as well.  Only after they have their short positions or puts does the author post their reports with the sole intent of manipulating the share price.  In addition to this manipulative report, they further create the illusion of share price collapse through trading programs that aggressively overstate downward volume.  All of this is to create fear and selling in the share price, enabling them and their colleagues to immediately cover their shorts or sell or cover their puts. 

 

 

 

Access to non-public information and means of obtaining such information.

Research analysts are restricted to public information and are not able to utilize unscrupulous methods (such as bribes) to obtain information that deemed privileged and not public to the investing public.

Hit piece authors will commonly use corrupt methods and lie to companies or bribe and lie to other providers of information (such as clerks at local tax offices, government officials, etc.) to obtain any information they can to either prove their point or further enable them to manipulate the stock price of the security that they referencing.

 

 

 

Integrity

If a research analyst uncovered what they believe to be fraudulent activities within a company, they are required to immediately report such activities to the company for clarification, their compliance department, and/or the authorities to ensure that investors do not get harmed more than they should, and so that the authorities can take the necessary actions to ensure that the losses and damages incurred by the investing public is minimized.

If a “hit piece” author uncovers what they believe to be fraud, or even something that is minimally unclear to them (without requesting clarification from the company), they immediately utilize such information to trade on the security, draft a report, internally share their findings for a fee to their colleagues, then disseminate such report in the most extremes of damning manners that one can imagine, use trading techniques to increase volume and drive down the stock price to a maximum point and cover their trades to lock in their profits, while causing immeasurable harm to the investing public in the process. 

 

We believe based on the points above that these authors are not “research analysts”, but individuals that are that are getting away with crimes that are egregious, disturbing and increasingly damaging to the investing public.  The most disturbing thing of all is that they are doing it in broad daylight, right in front of the authorities as almost a sign of defiance, and claim that they are invincible to, or above, the law. 

Some may argue that they should be viewed as “journalists” versus a research analyst and should not be regulated; despite the fact they claim they are a research analyst themselves.  If this is the case then this still does not preclude these authors from abiding by the laws and regulations established by the SEC and FINRA.  If they want to use “yellow journalism” to profit at the expense of the investing public than we believe that is still just damaging to the average public and should be monitored, regulated and controlled.

We PLEAD that the actions of these individuals and companies are monitored, investigated and tracked and that all means are used to ensure that they are acting in accordance with the laws and regulations that were established to protect ALL investors, large and small.  If these actions are not stopped we believe that millions of dollars will be taken from the pockets of hard working Americans, and global investors, that have put the faith and trust in US securities regulations to monitor and stop such unscrupulous actions. 
 

Stocks: PUDA, GURE, DEER, ABAT, YONG, ZSTN, LFT, ONP, MOBI