On April 8th, 2011 Alfredlittle.com published a report alleging PUDA Chairman Ming Zhao secretly sold half the company and then pledged the other half to Chinese PE investors. The NYSE AMEX halted trading of PUDA within hours of the publication of our report. PUDA’s Audit Committee commenced an immediate investigation into our allegations and on August 30th, 2011 presented its interim findings to PUDA’s Board of Directors (the 8-K can be found here).
Despite “the lack of cooperation by key individuals”, the Audit Committee verified substantially all of the allegations of our original report (available here). Incredibly, and overlooked by the media losing interest in Chinese stock fraud, PUDA’s Audit Committee in section 6(b) of their report announced a major new finding: On or about April 26th, 2011 (following our April 8th report first exposing Ming Zhao's acts) without U.S. shareholder notification or approval the ownership of 99% of Puda Mining was transferred from Putai to Ming Zhao, once again leaving U.S. shareholders with no ownership or control of PUDA’s key operating subsidiary Shanxi Coal.
This expropriation of PUDA’s key operating entity persisted until August 3, 2011 at which point ownership of Puda Mining had been returned to Putai according to documentation provided by Ming Zhao, through counsel. The Audit Committee did not state in the 8-K who executed this latest ownership transfer (presumably Ming Zhao) nor why this transfer was not disclosed sooner to shareholders. PUDA investors continue to wait to see if Chairman Ming Zhao will ever actually buy-out their shares rather than simply expropriating ownership of the company’s assets.
Meanwhile, then PUDA reported that the SEC made a decision to serve Ming Zhao with a Wells Notice of their intent to serve him in Federal Court with a civil action charging him with violating Federal securities laws (link here). Is the expropriator about to be expropriated?
The story of PUDA should be a lesson to all investors who believe a buyout proposal negates past sins. Ming Zhao now appears unlikely to escape a reckoning day. Investors in Harbin Electric (NASDAQ: HRBN), another highly contentious buyout play, should take note.
Disclosure: I am short HRBN.