The following letter was sent to David Sherman (Independent Board Member), Anthony Chan (Auditor Representative), Muriel Cheng (Auditor Representative) on Aug. 3rd 2011.
Part 2 of the report on KGJI will be coming out shortly.
August 3rd, 2011
Attention: Independent Members of the Board of Directors & Auditor
Kingold Jewelry, Inc.
15 Huangpu Science & Technology Park
Jiangan District, Wuhan,
430023 Hubei Province, PRC
David Sherman (Independent Board Member)
Anthony Chan (Auditor Representative)
Muriel Cheng (Auditor Representative)
Ladies & Gentlemen:
On July 29th, I published excerpts from a report attached to this letter in Seeking Alpha. In this report I provide very compelling evidence that calls into question the financial numbers reported by Kingold Jewelry publicly in the United States.
This requires your immediate attention.
Specifically, a Chinese government sponsored exchanged published a much lower net income number than what Kingold reported in the United States. I have provided contact names and numbers for both the china based auditor and the exchange for you to verify the accuracy of the discrepancies I have identified. This requires your immediate attention as it is very simple for you to verify with two phones calls discrepancies that once you verify, call into question the legitimacy and accuracy of the audits. I believe once you confirm the information I have presented, you will be left with no choice but to pull the audits and initiate an independent investigation.
I am asking you to take reasonable and prudent action given the evidence I have presented. I believe to not take this action would be both negligent and possibly make you complicit in any wrong doing that may have occurred.
There is no logical reason for the Beijing Shouchuang Investment Co. Ltd, to provide these lower financial numbers to the Beijing Equity Exchange if they are not true and correct.
Being US based and thus subject to US laws unlike the residents of China, I believe it is incumbent on you to act prudently and with the fiduciary duties your jobs entail.
Kingold has threatened me with criminal charges and well, a lot of Chinese companies have raised a lot of money and are prepared to spend more than I can afford on legal proceedings. I have published nothing but information from third parties, or more specifically, Kingolds business partners, presenting what they believe to be the truth, and your company is trying to keep me quiet. It is now of public record whether you are prepared to act prudently or are you complicit in the company’s activities?
With 2 phone calls, you have the power to determine fraud.
I and all your shareholders, whether buying or selling have an expectation that the auditor and independent directors will act prudently and with due care.
I am seeking nothing more and nothing less than a uniform explanation from Mr. Zhizhong Jia and Beijing Shouchuang Capital as to why this discrepancy in net income exists.
Much Thanks…. Pete Long
cc: Herb Greenberg, CNBC
James Sterngold, Bloomberg
Junling Ma, SEC Representative
Edward Knight, NASDAQ Representative
Disclosure: I am short KGJI.