This morning’s Seeking Alpha article by Ian Bezek outlined various issues contained in YONG’s 2010 10-K. This is one of many articles that have questioned the legitimacy of YONG’s business.

YONG is a company we had been quite cautious of in the past. The company had negative cash flow, raised money at valuations levels we deemed inappropriate, and was not fully disclosing information pertaining to its independently-owned Yongye branded stores (which they now have done). We recently initiated our Stage 1 due diligence process on the company, which involves pulling the SAIC filings. To our surprise, for 2008 and 2009, SAIC matched SAT matched SEC. Currently, we are attempting to verify that these filings are the originals and not amended reports. The company has told us that they are the originals. Interestingly, to our knowledge, YONG hit pieces fail to mention anything about SAIC/SAT filings matching SEC filings–something we take very seriously and use a starting point in our ChinaHybrid analysis. However, we will be open to the existence of contradictory information. Show us your cards who ever you are. We are willing to work with anyone in the quest for the truth.

YONG has a formidable short position. Now that it looks like SAIC/SAT/SEC filings may be in order, the bar for identifying foul play has been raised and increases the risk of a net short position. Without the use of PRC filings, hit pieces will have to focus on other issues such normal business risks that are similarly inherent with any company, as well as topics of lax disclosure practices. Overall, we would like to see an improved disclosure policy in the ChinaHybrid space as well.

For now, we will attempt to verify that our SAIC filings are originals. We will also begin the extensive on-the-ground due diligence that is now required before making definitive conclusions on companies in the Chinese RTO universe. In the meantime, invest at your own caution and stay tuned for updates. We are still long YONG with a partially hedged position using Puts. ( We have reduced our hedge at current prices).

GeoInvesting followers may have noticed that we have recently issued negative pieces on a few stocks; and there will more to come in an effort to purify the space. However, readers need to keep in mind that we are also searching for solid firms that will rise once (if) the ChinaHybrid space regains some of its lost glory.”We are cautiously optimistic that YONG can be one of them if on-the-ground DD concurs with our preliminary SAIC/SAT findings.”