As of September 21, 2011, the risk equation at Harbin Electric (HRBN) has fundamentally
changed due to the release of 2 new pieces of information which essentially prove
that HRBN has made material misrepresentations to the SEC, the NASDAQ and
to China Development Bank. The size and nature of these material misrepresentations
is now too big and too public to be ignored by the SEC, the NASDAQ or China Development
Bank. There now exists a very real basis for the NASDAQ to halt /delist the stock
and for CDB to walk away from the financing.
The irrefutable misrepresentations boil down to this:
·
One of HRBN’s major customers doesn’t even know who HRBN
is!
·
The Bait and Switch (ala YUII.PK): Creating a phony land acquisition
and then attempting to replace it with another transaction after having been exposed.
The first development was the surfacing of audio tapes on The Financial Investigator
which indicate that HRBN has completely fabricated its relationship with
a reported major customer, Jiangsu Liyang Automobile Seat Adjuster Factory.
GeoInvesting is strongly of the opinion that anyone who is following the HRBN transaction
should absolutely make it a point to listen to these tapes in their entirety.
[here and here]. GEO has spoken several times
with the interviewer who made the tapes to confirm their authenticity.
The contents of the tapes can be summarized as follows:
- A US
investor visited the facilities of Jiangsu Liyang in person and interviewed the
head of sales, and then subsequently followed up with a phone call with the
general manager (head of quality control)
- Both managers
in 2 separate conversations independently confirmed that Jiangsu Liyang has
no relationship with Harbin Electric, and in fact doesn’t even know who
Harbin Electric is.
- More
importantly, Jiangsu Liyang is effectively not even in the business of making electric
seat adjusters. The company makes MANUAL seat adjusters.
As can be heard clearly on the tapes, Jiangsu Liyang produced less than a total
of $500,000 of electric seat adjusters in the past 2 years. However, in HRBN’s
2010 10K (page 9) HRBN disclosed that it sold over $40 million in motors to Jiangsu
Liyang in the years ended 2008 and 2009.
- The
interviewer asked if he could see any electric seat adjusters and was told that
none were available because they are only made by special order and only comprise
1-2% of Jiangsu Liyang’s revenue.
- In each
of the past 2 years Jiangsu Liyang can be heard to state that they sold only about
1,000 motorized seat adjusters, and more importantly for the few motors that they
did purchase, they named their supplier as Shanghai Shenghuabo Motors, not Harbin
Electric.
For those who wish to independently confirm what Jiangsu Liyang produces, it is
easy to visit their website at http://www.lile.com.cn. It can be clearly seen
that Jiangsu Liyang includes pictures of all of their products and that none of
them are motorized or electric.
These facts are easily verifiable by the NASDAQ and in similar recent incidents
with China stocks the NASDAQ has acted relatively swiftly to halt the stock.
It is also now easy for China Development Bank to visit Jiangsu Liyang, or to even
simply call them and ask what they produce in terms of manual or electric car seat
adjusters. Barring that, CDB can simply visit the website of Jiangsu
Liyang and easily see that the company does not even produce motorized seat adjusters.
The second development was the September 21, 2011 after-market release of an 8K
by HRBN which effectively confirms the findings of AlfredLittle.com and GeoInvesting
regarding a reported land purchase by HRBN that never took place.
On September 6th, HRBN released a press release refuting a
report by AlfredLittle.com and GeoInvesting. HRBN stated:
“Regarding the land purchase referenced in the report, the Company stands
by the statements as disclosed in its 10-Q dated August 9, 2011. Harbin Electric
confirms that the land purchase was done in full compliance with various
relevant Chinese government entities and notes this transaction structure is a common
practice in China.”
Yet in the September 21st 8K, HRBN notes
that the land purchase had already been canceled as of August 24th.
HRBN notes that now a new transaction has taken place for 2 separate parcels of
land, yet both the total purchase price and deposit amounts required are exactly
equal to the amount of the first supposed transaction that never occurred.
Creating a phony land acquisition and then attempting to replace it with another
transaction after being caught is nearly identical to the situation that occurred
with YUHE International (YUII.PK) and which resulted in the almost immediate halting
and delisting by the NASDAQ.
Disclaimer: Short HRBN
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