Company Case Study: China Based, U.S. Listed Companies
- Bodisen Biotech, Inc. Case Analysis -
- Collusion Between Stock Short Sellersand Tabloid Writers in the U.S. Capital Markets -

(Archived article from Benjamin Wey's  website)

Bodisen Biotech, Inc. (“Company”), formerly listed on the American Stock Exchange (“Amex”) in 2006
under stock symbol “BBC”, was the first China based fertilizer agricultural product company publicly
traded on a U.S. stock exchange. Bodisen is perhaps the only China based, U.S. listed company that
has defeated a frivolous shareholders’ class action lawsuit in a U.S. federal court (United States District
Court Southern District of New York, case #: 06CIVIL13220(VM), resulting in the court’s dismissal of all
claims against the Company. The lawsuit was initiated and driven by stock short sellers, abetted by
tabloid writers - Christopher Byron (formerly with the New York Post) and Herb Greenberg (formerly with
the MarketWatch). The stories and publicity surrounding Bodisen’s U.S. public listing experience are
being used as a classic cross border transaction case study at several business schools.

Here are the Facts

Disclosure Responsibilities as a Public Company:

Regulatory disclosure and public filings with the SEC (the U.S. Securities & Exchange Commission) are
the responsibilities of any U.S. listed public company. It is standard practice for a corporate finance
advisor or investment banking firm to provide services to a public company client based on written
engagement agreements with the client. It is the client, a public company, not its investment bankers,
that holds the responsibility to disclose all material events related to the Company in a way deemed
appropriate by the Company’s own management, legal advisors, independent auditors and board
members. Bodisen did just that. Bodisen had repeatedly disclosed the names of its advisors as well as
payments made to those advisors in various quarterly and annual reports as well as registration
statements filed with the SEC. The SEC had also cleared all of Bodisen’s 3 separate registration
statements which made possible for the Company to raise a total of $34 million in capital through debt
and equity offerings among institutional investors. The Company successfully listed its shares
concurrently on the AMEX, the London Stock Exchange, as well as the Frankfurt Stock Exchange.

Bodisen Was Advised by a Team of Highly Qualified Advisors:

At all times, Bodisen had highly competent legal advisors and a reputable independent reporting
accounting firm. According to SEC filings, Bodisen engaged several advisors in its February 2006
securities offering. Bodisen’s legal advisor and SEC counsel was law firm ReedSmith, one of the 15
largest law firms in the world with nearly 1,600 lawyers (www.reedsmith.com). Bodisen’s independent
reporting accountant was Deloitte & Touché, a “big four” accounting firm. China deal transaction expert
New York Global Group (‘‘NYGG”) was disclosed as the Company’s corporate advisor. The SEC
reviewed and cleared the offering prospectus without comments. Law firm Jones Day
(www.jonesday.com), another large global law firm with more than 2,500 lawyers worldwide, acted as the
Underwriters’ legal counsel in the offering. The names of these advisors and compensation paid to them
were disclosed in Bodisen’s various SEC filings.

Stock Short Sellers Caught “Short”:

In the spring of 2006, shortly after Bodisen’s London dual listing (London and the Amex) IPO success,
Bodisen’s share price rose sharply. Several mutual funds, including the largest U.S. mutual fund family
Fidelity Investments, publicly disclosed their ownerships in Bodisen shares. As Bodisen’s share price
soared past $20 per share, the Company became one of the top 5 best performing stocks in the U.S.
stock markets in early 2006. Stock short sellers including several New York and Connecticut based
hedge funds that had sold short Bodisen shares at single digit share price levels, hoping to profit from a
falling share price, got caught up in a classic “short squeeze”. The short sellers were losing an estimated
more than $20 million on paper. As Bodisen continued to report positive fundamental earnings growth,
the only way for the short sellers to reduce their losses was to find “creative” ways to get the share price
to fall drastically in a hurry. The short sellers successfully created these “miracles” with the help of their
tabloid writer friends. The coordinated efforts between the short sellers and their tabloid writer friends
proved highly effective in driving down Bodisen’s share price.

“Mysterious” Tabloid Writers Suddenly Emerged:

Suddenly, the number of Bodisen shares that had been sold short surged 4 times to more than $30
million in shorted stock value within two weeks prior to May 1, 2006, a highly unusual move considering
the size of the bets and the timing involved.

Then, “mysteriously,” on May 1, 2006, and without the Company’s prior knowledge, traders on the
Chicago Board of Trade started listing Bodisen stock options for trading which would allow investors to
put bearish bets on the stock. On the exact same day, New York Post tabloid writer Christopher Byron
surprised the market by publishing a negative article with fabricated information on Bodisen and its
advisors. The article caused the share price to drop more than 10% on heavy volume. A few days later,
another tabloid writer by the name of Herb Greenberg, formerly with MarketWatch, published a similarly
negative article on Bodisen and its advisors, quoting Byron’s articles as “facts”. Both writers
subsequently published series of negative articles on Bodisen and its advisors. In these articles, the two
men also accused the Amex for loose supervision over its listed companies.

Oddly enough, neither Byron nor Greenberg speaks or understands the Chinese language. Neither of
the two had ever spoken to Bodisen’s management. Neither man had ever visited Bodisen’s facilities.
Neither of the two had ever been to China and neither man had previously written anything negative on
China based companies. Now, all of a sudden, these two writers embarked on a journey of targeted
“mad revenge” against Bodisen and Chinese companies. While the two men continued with several
articles over a few months, both men’s lengthy articles somehow “conveniently” avoided mentioning the
large amount of relevant content in Bodisen’s SEC filings, which was readily available to the general
public.

The self-conscious Herb Greenberg is not a novice at serving his short seller clients. As a matter of
public record, in 2006, the SEC investigated and subpoenaed writer Herb Greenberg during the SEC
investigation of market manipulation by several stock short seller hedge funds. According to the Wall
Street Journal article (http://blogs.wsj.com/law/2006/02/24/sec-subpoenas-financial-journalist-hankgreenberg), Greenberg refused to cooperate with the SEC investigation citing his constitutional rights
and “freedom of speech.” Herb Greenberg refused to give his testimony to the SEC against the short
sellers. Why not? What did Herb Greenberg have to hide? Those short seller funds were and still are his
paying clients. They paid and still pay him today for his “services”.

On Wall Street, perception is reality. The two tabloid writers successfully “created” the reality on behalf of their short seller clients and made millions for their clients.

“Class Action” Lawsuits Filed Against Bodisen in 2007:

Shortly after the tabloid articles, shareholder class action claims were filed by several small law firms.
They cited the Byron and Greenberg tabloid articles as “facts” and sought damages against the
Company.

Defendants Named in the Bodisen “Class Action”

In a consolidated “class action” lawsuit filed in 2007 in the United States District Court Southern District
of New York, Bodisen and its management team were named as defendants. None of the Company’s
advisors or other associated persons was named. Law firm ReedSmith represented Bodisen in its legal
defense.

Bodisen’s Delisting from the Amex in 2007:

The American Stock Exchange itself at that time was suffering severe financial losses due to years of
poor management and stiff completion from the NYSE and the NASDAQ. The Amex was actively
seeking financing alternatives including selling itself. Nervous over Bodisen’s potential negative “image”
impacting its own dealings, the Amex staff refused to meet with Bodisen’s advisors who had approached
the Amex numerous times in an effort to discuss the facts surrounding the tabloid articles. Amex delisted
Bodisen from the stock exchange under pressure from the tabloid articles. Bodisen’s share price fell to
the pennies and investors lost hundreds of millions of dollars in market value. A year later, the Amex itself
was out of business.

Bodisen Defeated the Shareholder “Class Action” in 2008:

On September 26, 2008, after two years of legal battles, the federal court Judge in New York’s Southern
District federal court issued a final Judgment dismissing the “class action” against Bodisen and all of the
case defendants. (Case #: 06 CIVIL 13220 (VM). The Judge stated the following in his ruling against the
plaintiff: “ORDERED, ADJUDGED AND DECREED: That for the reasons stated in the Court's Order
dated September 25, 2008, the complaint is dismissed in this action; accordingly, the case is closed.”
The Judge did not support one single claim alleged by the plaintiff. Despite the total victory for Bodisen, it
was two years too late for Bodisen shareholders. Bodisen shareholders had already lost more than $350
million in market value. Ironically, no reporter or any writer has ever written a positive article or provided
even an update on the status of the case, despite the Company’s total victory in court. No one cared any
more except the investors who had total loss on their investments.
What Has Happened Since Then?

• Tabloid writer Christopher Byron’s contract was not renewed at the New York Post. He lost his job in 2007. 
• In 2007, tabloid writer Herb Greenberg quit his poorly paid job at the MarketWatch a year later and started his own “investigative firm” by the name of GreenbergMeritz (http://www.greenbergmeritz.com), a paid subscription based service bringing trading ideas to short sellers.
• The many stock short sellers and hedge funds that Greenberg had helped writing negative articles while working for MarketWatch became his paying clients. Herb Greenberg benefited fromBodisen’s misfortune, at a cost of $350 million to Bodisen shareholders.
• Oddly enough, one cannot find GreenbergMeritz’s office address anywhere. Its only contact
  information publicly available is a post office box listed on its website, which makes one wonder
  again what Greenberg has to hide from the public or from the SEC.
• In 2010, GreenbergMeritz’s website listed Herb Greenberg as the “co-founder emeritus”.
  Greenberg’s business venture failed again. A few months later, Herb Greenberg himself was found
  appearing on a network TV show pitching nonsense for a living again.
• Bodisen and its management were exonerated in the class action lawsuit. Bodisen paid
  approximately US$2 million in legal fees for its defense. Bodisen’s D&O insurance (directors and
  officers liability insurance) carrier AIG significantly raised the insurance premium on Bodisen citing
  past litigation costs.
• The American Stock Exchange sold itself to the New York Stock Exchange in a fire sale at a price
  less than the value of the building which the Amex had occupied, thus ending the life of the
  “image-conscious” Amex. Several of the former Amex officials that had refused to meet with
  Bodisen’s advisors lost their jobs along with the death of the Amex.
• Bodisen’s former advisors, law firm ReedSmith and Deloitte Touché have continued to prosper and
  gain clients worldwide.
• Bodisen’s former corporate advisor New York Global Group has continued to build a successful
  business focused on servicing China based clients. In 2005, New York Global Group was named
  "The best foreign investment advisory firm in China serving China's middle markets" by China
  Securities Daily. In 2006, New York Global Group was named "One of the largest Wall Street middle
  market investment banking and corporate advisory firms in the Chinese mainland" by China Daily.
• The President of New York Global Group, Benjamin Wey, one of the targets of the tabloid articles
  was named a visiting professor of finance at several universities and has become a senior
  economic advisor to several Chinese cities.
• Bodisen left the U.S. capital markets and is working on a new listing on China’s own Shenzhen
  Stock Exchange. Bodisen’s Chairwoman and founder became a top economic advisor to the local
  governor. The highly profitable Company is now the largest organic fertilizer manufacturer in
  China’s Shanxi province.
• The BIGGEST WINNER: Several hedge funds that had shorted Bodisen shares made tens of
  millions of dollars. Tabloid writer Christopher Byron is semi-retired in Connecticut and Herb
  Greenberg is still hustling business and trying to make a living.
• The BIGGEST LOSERS: The 3,000 plus U.S. shareholders who bought the stock on the Amex and
  had a total loss of more than $350 million in market value.

Today, Collusion Between Short Selling and Tabloid Writers Continues on Wall Street:

• No regulatory body ever investigated the hedge fund short sellers in the Bodisen case. Although the
  Amex had been informed of heavy short selling activities in Bodisen shares prior to the initial
  publication of those negative articles on Bodisen, the Amex did nothing.
• In the middle of the 2009 U.S. financial crisis, the SEC put unprecedented curbs restricting short
  selling of some of America’s biggest companies.
• The short sellers went on to short sell Citigroup, Bank of America, Morgan Stanley, Goldman Sachs
  as well as other US companies and brought those American icons to their knees in the 2009
  financial crisis.
• In February 2010, the SEC passed rules that added limits to the short selling of stocks on U.S. stock
  exchanges.
• In March 2010, the US Federal Reserve, Justice Department, and SEC announced joint
  investigation into several hedge funds that had spread rumors in a collusion shorting European
  sovereign debts. Two of the Connecticut based hedge funds named in the investigation were also
  the largest short sellers in selling short Bodisen shares in 2006.
• Again and again, one notices that prior to the publication of a negative article on a publicly traded
  company, short selling on a stock increases significantly in a short period of time just before the
  publication date. The company names mentioned in a negative article always experience declines
  in share prices. After an article is published, one could notice the short selling shares come down,
  reflecting short sellers buying shares back while pocketing the price swings as profits. The investing
  public always gets short changed in this exercise. It is indeed a “party” of short sellers in the U.S.
  capital markets.

The short sellers make money. The tabloid writers get to write sensational stories and sell papers.
Tabloid writers often receive favors or get paid on the side by the short sellers. The general public is
taken for a ride along the way. Collusion between tabloid writers and short sellers continues on Wall
Street today.