Article Source: China’s National Business Daily

NDB Reporters YUE Qi, JIANG Ran, HU Feijun, from Chengdu & Guangzhou

Publishing short reports by American research organizations is also referred to as “Whistleblowing”, and this time the whistle is blown on a U.S. listed Chinese company named L&L Energy, Inc (NASDAQ: LLEN or hereunder as “LLEN”).

Yesterday (September 23, 2013), National Business Daily has obtained exclusive information from Dan David, Senior Vice President of an American research organization named GeoInvesting (hereafter referred to as Geo), that this organization has filed a whistleblower report to the NASDAQ and SEC, and has taken the initial step of communication with the SEC in regard to this matter.

The report alleged that LLEN has been defrauding investors through many irregular actions including booking substantial revenue from operations that have been idled.  Dan David told our reporter that Geo would not issue a short report on a U.S. listed Chinese company unless the issues with such company reached a level that warranted delisting from the market.  Additionally, Geo has collected more evidence that is still not yet public and is in the process of presenting such evidence to the U.S. authorities.

LLEN, on the other hand, has formed an independent special committee and responded publicly, claiming that Geo has made no attempt to reach out to L&L to verify these allegations, and that it will file formal complaints to the appropriate regulatory bodies.  Yesterday in an email response to our reporter, Gary Dvorchak, the Vice President of ICR, the financial communication consulting company listed on LLEN’s official website, stated that he had forwarded the email requesting an interview from our reporter to LLEN, but that he did not think that LLEN intended to make any comment considering the current situation the company is facing.

Short Seller Organization “Blowing the Whistle”

It is reported that LLEN was founded in 1995 and in the business of coal mining, washing, coking, and wholesale, with over 1,000 employees.  It has production bases in both Yunnan and Guizhou provinces.  The company is registered in the state of Nevada, USA, and it has offices in Seattle, WA, as well as representative offices in the cities of Guangzhou, Shenzhen, and Hong Kong in China.

When Geo issued the short report on LLEN in the early morning of September 20, 2013 (China time), its stock price dropped to $1.27 per share, a 38.65% decline.  The report concluded that LLEN’s string of acquisitions and divestures of various assets and properties over the last few years is a “bait and switch shell game.”

The reporters also confirmed with Dan David that Geo is indeed holding some unpublished evidence, and the reason that Geo has not presented all the information is to prevent any potential negative impact from happening to the investigators and interview subject personnel.  After the short report was issued, LLEN announced the establishment of an independent special committee on its official website, and said that the committee, which consists of 4 members, including a lawyer, a former U.S. official, and a mining expert, would conduct an independent and full investigation into the allegations by Geo.  Dan David claimed that these members all have, or once had, relationships with the company and thus it is reasonable to question the independence of this committee.  With regard to this matter, Dan David added that a truly independent investigation should be performed by engaging an independent third party of experts or organization, and official documented proof must be presented to counter the allegations.

The Company is Alleged to Engage in Financial Accounting Fraud

In the “short” report released by Geo, there was an executive summary of the investigation results that listed 15 items, each with corresponding explanation and evidence including photographic evidence.  Among the allegations there are questionable revenue figures, falsified transactions, and false assets ownership issues.  From Dan David’s point of view, the most convincing and most serious problem for LLEN is its falsified revenue booked from its Hong Xing Coal Washing Factory located in Shizong County, Qujing City, Yunnan Province in China.  The most powerful evidence that Geo has presented is the official tax payment data of the Hong Xing Coal Washing Factory obtained from the local tax bureau.

“We sent some people to conduct an on-site investigation at these factories, mines, and facilities.  The local residents as well as the owners of other factories and mines nearby have also confirmed the shutdown of the Factory”, Dan David told the reporters of National Business Daily.

In LLEN’s financial reports from May 1, 2012 to April 30, 2013, the reporters found that LLEN claimed $8.2 million in revenue (sic – net income) from the coal washing business. The tax payment data for the Hong Xing Coal Washing Factory presented by Geo indicated that it only paid taxes of RMB ï¿¥30,000 in total from January to June 2012, and it had not paid any tax since June 2012.  Geo’s report pointed out that the Hong Xing Coal Washing Factory has been idled for more than 1 year since 2012.  LLEN announced on August 19, 2013, that it would sell the lucrative Hong Xing Coal Washing Factory, a move that in Geo’s opinion did not make any sense.

What’s worth noting is that, according to the Correction Warning Notice issued by the Shizong County Local Tax Bureau in April 2013, the Hong Xing Coal Washing Factory was being cited for failure to declare and file tax payable on time.  The Notice shows that the legal representative of the Factory is Bin Liu, and the enterprise is structured as a sole proprietorship owned by one individual, and the business address is within Lannigou Mine, Shizong County.  Another company, also warned for the same violation, was an entity called Yunnan Liwei Taifeng Mining Co., Ltd., an LLEN subsidiary in Yunnan province.  This company was also issued a notice of criticism during Qujing City’s 2012 joint annual inspection of foreign-invested enterprises.

Reporters discovered, from LLEN’s own financial reports, that it has two coal washing facilities with 480,000 tons of coal washing capacity.  The Hong Xing (sic — DaPuAn) Coal Washing Factory facility is mainly used for the DaPuAn Mine, and the other facility, PingYi Coal Washing Factory, has already been divested in April 2012, with its operations discontinued.

Reporters learned from the village government committee of Walu Village, Xiongbi Town, Shizong County, where the Hong Xing Coal Washing Factory is located, that the Factory was formerly affiliated with Shizong County Lannigou Coal Mine.  It was subsequently transferred to a person named Rifu Ma.  Ma Rifu later transferred the Hong Xing Coal Washing Factory to a person named Liu Bin.  “The Lannigou Mine is still in operation, but the Hong Xing Coal Washing Factory has been idled for a long time.  (I) Haven’t seen any production activity since roughly the end of last year and the beginning of this year”, one village committee official in charge with last name of Wang told the reporter.  When asked if he had heard of the American company L&L Energy, Inc., before, this official responded, “haven’t heard that this was owned by an American company; this is an private enterprise owned by individuals.”

Doubtful Real Ownership of Coal Mining Assets

Similar to the Hong Xing Coal Washing Factory, Geo’s report claims that the ZoneLin Coking Plant that contributed revenue to LLEN has also been shut down.  Geo has been able to verify this situation through a webpage announcing the progress of energy-saving and emission-reduction target tasks from the Qujing City Government’s website.  Reporters from the National Business Daily have, through inquiry of the official website of the State Administration of Industry and Commerce (SAIC) of Yunnan province, found that the registration of Luoping County ZoneLin Coking Co., Ltd. has been cancelled, but the Luoping County ZoneLin Coking Plant remained registered.  The person in charge of both of the enterprises is Laozhong Yang.

In addition, Geo’s report also claimed that, during the consolidation and reorganization activities within the coal industry in Guizhou province, the Daping Mine was assigned to the Pan County Pannan Coal Investment Co., Ltd., not really swapped to Guizhou Union Energy Mining Co., Ltd. (hereafter referred to as Union Energy) in a transaction previously disclosed by LLEN.  Another fact inconsistent with the disclosed information by LLEN, was that the Hezhang County LuoZhou Mine and LaShu Mine should be under LLEN’s name, however, they are actually owned by Union Energy, according to the consolidation & reorganization information results produced by the Guizhou provincial government.  The information concerning these mine assets was both verified (by the reporter) inthe coal mining industry consolidation and reorganization public announcements issued by Guizhou provincial government.

LLEN’s financial reports show that the company currently has five mines, including DaPuAn and SuTsong mines in Yunnan province, China and Weishe, Lashu and Luozhou mines in Guizhou province, China.  However, based on the coal mines consolidation & reorganization information published by Guizhou province, with the exception of the SuTsong mine, all the other four mines are owned by Union Energy.   The SuTsong mine, based on the information shown on the Yunnan Provincial SAIC website, is a mine organized as a sole proprietorship with the legal representative being Yong Yang.  This information is inconsistent with LLEN’s own disclosure about this mine being a partnership enterprise.

In the above financial reports, the reporters discovered that as of April 30^th 2013, LLEN claimed to have three major mines, with a total of 600,000 tons per annum in production capacity, in Hezhang county, Guizhou province.  The total capacity of the three mines is expected to reach 1.2 million tons per year in 2015 after technical improvement and expansions.

In January of this year, the official notices published by the Guizhou provincial government mandated that the main entity used in the mine consolidation process must have a annual designed capacity of at least 1.5 million tons.  The Guizhou mines under the name of L&L Energy apparently do not meet this requirement.  On the other hand, L&L Energy is also not on the list of “Qualified Coal Mine Consolidation Entities” published by Guizhou Province.

The Value Chain Behind Short Selling

Based on public records, Geo is a website specialized in collecting, analyzing, and publishing information about publicly traded companies, and mainly provides analysis and opinions on small/micro cap stocks.  The value chain behind shorting US listed Chinese stocks is composed of multiple parties such as short sellers, short publishers, class action law firms etc.  Third party research organizations such as Geo publish reports questioning companies’ performance as a publisher.  Once a stock price drops upon publication, short sellers dump the stock, and lawyers represent (shareholders) in class action lawsuits, suing the short selling targeted company for damages.

As for profiting through short selling, Dan David explains, under the legal system of the United States, it is not only legal but also being encouraged.  “The short selling wave is just like a process of washing the sands in the wave (Chinese idiom for survivor selection – by washing away the bad and keep the good)”, explained Dan David.  In the 2^nd half of 2012, after the previous round of shorting, the dramatic rally in US listed Chinese stocks basically showed that the ones that survived the short selling waves are valuable (investments), at least without major problems.  “It’s like picking out the bad apples, what’s left must be quite valuable.”

In addition, questioning the reliability of the financial statements has become a common method of shorting US listed Chinese stocks.  The short selling organizations typically research the financial data reported to the US SEC by the target company, then compare them to the information filed with the local Chinese SAIC, SAT etc.  In addition to the intelligence gathered by following, secret filming, impersonation of certain organizations, based on the understanding of the Chinese government and companies, short selling firms can also obtain SAIC and taxation related information via various channels.  As previously reported by other media, some domestic agencies opportunistically profited by selling SAIC information of target companies to short selling firms.

Article Source: China’s National Business Daily

The original article found on National Business Daily’s website is shown below.

——————————————–

龙腾矿业在美遭做空 疑涉财务欺诈

每经记者 岳琦 江然 胡飞军发自成都、广州

美国研究机构发布做空报告亦被称为“吹哨子”，这次哨子吹到了中概股龙腾矿业身上。

昨日（9月23日），《每日经济新闻》独家从美国研究机构GeoInvesting（以下简称Geo）资深副总裁Dan David处了解到，该机构已经向纳斯达克证券交易所以及美国证券交易委员会提交做空龙腾矿业的报告，并与证券交易所åˆæ­¥æ²Ÿé€šã€‚

报告指控龙腾矿业通过为已经停工的业务，记录可观收入æ¥æ¬ºéª—投资者等多项è¿è§„行为。DanDavid对记者称，中概股不到摘牌退市的标准，Geo是不会发出做空报告的，而且该机构还掌握ç€æ›´å¤šè¯æ®æœªå‘公众发布，正处在向美国相关部门提供的过程中。

龙腾矿业则迅速成立独立调查委员会并公开回应称，Geo没有试图接触龙腾矿业验证指控，公司将向监管机构发起正式投诉。昨日，龙腾矿业官网公布的顾问公司ICR副总裁GaryDvorchak在回复记者采访邮件时称，已将采访邮件转发给龙腾矿业，但他认为出于公司目前的处境，恐怕不会置评。

做空机构“吹哨子”

据悉，龙腾矿业成立于1995年，拥有超过1000名员工，是一家从事煤矿开采、清洗、焦化和批发的公司，该公司在云南和贵州拥有生产基地。企业注册地在美国内华达州，在华盛顿州西雅图以及中国的广州、深圳、香港å‡è®¾æœ‰åŠžäº‹å¤„。

Geo在20日凌晨发布做空龙腾矿业报告当日，龙腾矿业股价跌至每股1.27美元，跌幅达38.65%。报告认为，龙腾矿业在过去几年中的一系列并购和对不同产业的剥离操作，是“一组投饵再换壳的把戏”。

记者亦从DanDavid处证实，Geo确实有未公布的证据，未公布完整信息的主要原因是防止可能发生的，对调查人员及受访人员的不利影响。做空报告发布后，龙腾矿业在其官网宣布成立独立调查委员会，委员会的4名成员由律师、前任美国官员及采矿专家构成，将对Geo的指控进行独立深入的调查。对此，DanDavid表示，这些成员都与公司有关系或曾经有关系，有理由怀疑其独立性，真正独立的调查应该是雇佣独立第三方专家或机构，如果要反驳，应该拿出正式的文件æ¥è¯æ˜Žã€‚

公司被指涉嫌财务欺诈

在Geo公布的做空报告中，调查结果摘要共列出15项内容，并逐一解释和列出相应证据图片。其中涉及营业收入不符、交易内容不实、所属资产不实等多个问题。在DanDavid看æ¥æœ€ä¸ºç¡®å‡¿å’Œä¸¥é‡çš„，是龙腾矿业位于云南省曲é–市师宗县的红星选煤厂营业收入不实的问题。Geo列出最为有力的证据，是从当地税务部门获取的红星选煤厂纳税数据。

“我们派了指定的人去这些厂矿设施，现场观察。当地居民以及其他附近厂矿所有者也确认了厂矿的关闭。”DanDavid告诉 《每日经济新闻》记者。

记者从龙腾矿业2012年5月1日至2013年4月30日的财报中了解到，龙腾矿业称煤炭洗选经营收入有约820万美元。Geo出示的红星选煤厂纳税数据显示2012年1~6月，共纳税3万元人民币，而2012年6月之后没有纳税。Geo报告称，自2012年起红星选煤厂已被关闭超过1年，而龙腾矿业则在2013年8月19日公布出售利润丰厚的红星选煤厂，Geo认为这是不符合常理的。

值得注意的是，在师宗县发布的地方税务局2013å¹´4月限期改正公告中，红星选煤厂被指未按期申报应纳税款，法人代表为刘彬，企业性质为私营独资企业，经营地å€ä½äºŽå¸ˆå®—县烂泥沟煤矿内。而同样曾经被通报的，还有龙腾矿业旗下的云南利维泰丰煤业有限公司，该公司还曾在曲é–市2012年外商投资企业联合年检中被通报批评。

记者在龙腾矿业上述财报中发现，龙腾矿业拥有两个洗煤设施，拥有总年产约48万吨的洗煤能力。红星选煤厂的设施，主要用于大普安煤矿；而另外一个PingYi洗煤厂已在2012年4月被卖出，终止经营业务。

记者从红星选煤厂所在的师宗县雄壁镇瓦鲁æ‘æ‘委会了解到，红星选煤厂此前为师宗县烂泥沟煤矿附属公司，后æ¥çº¢æ˜Ÿé€‰ç…¤åŽ‚转让给一位名为马日富（音）的人，马日富又将红星选煤厂转让给了一位名为刘彬的人。“烂泥沟煤矿还在生产，但红星选煤厂已经停产很长时间了，大概去年底和今年åˆå°±æ²¡æœ‰çœ‹åˆ°ç”Ÿäº§äº†ã€‚”瓦鲁æ‘委会王姓负责人告诉记者。当问及是否听说过美国龙腾矿业公司时，该负责人回应“没有听说过是美国公司的，这是一家私人企业”。

煤炭资产归属疑云

与红星选煤厂类似，Geo报告称，对龙腾矿业有收入贡献的忠林焦化厂也已被关闭。Geo从曲é–政府网站上的节能减排目标任务完成情况中证实了这一情况。《每日经济新闻》记者从云南省工商部门网站亦查询到，罗平县忠林焦化有限责任公司已被注销，而罗平县忠林焦化厂仍续存，两企业负责人å‡ä¸ºæ¨è€å¿ ã€‚

此外，Geo报告称在贵州省煤炭兼并重组中，大åªç…¤çŸ¿è¢«åˆ†é…è‡³ç£å®‰åŽ¿ç›˜å—煤炭投资有限责任公司，而éžæ­¤å‰é¾™è…¾çŸ¿ä¸šæŠ«éœ²çš„置换给贵州优能矿业股份有限公司（以下简称优能矿业）。与龙腾矿业披露信息不符的还有，赫章县罗州煤矿和拉苏煤矿本应在龙腾矿业名下，但按照贵州省公布的重组信息，两煤矿å‡å±žä¼˜èƒ½çŸ¿ä¸šåä¸‹ã€‚上述信息å‡åœ¨è´µå·žçœå…¬å¸ƒçš„煤炭兼并重组公示中得到证实。

龙腾矿业上述财报显示，公司目前有5个矿区，为位于中国云南和贵州两省的大普安煤矿、树冲煤矿、威奢煤矿、拉苏煤矿和罗州煤矿。而按照贵州省公布的煤炭兼并重组信息，除树冲煤矿外，其余4处煤矿å‡åœ¨ä¼˜èƒ½çŸ¿ä¸šåä¸‹ã€‚而树冲煤矿在云南省工商部门网站的登记信息显示，该煤矿为个人独资企业，负责人为æ¨æ°¸ã€‚这与龙腾矿业披露的该矿为合伙企业并不相符。

记者在上述财报中发现，龙腾矿业称截至2013年4月30日，公司有三大矿山，其中贵州省赫章县现有总生产能力为每年60万吨，三个矿山总生产能力经过技改力争在2015年达到120万吨/年。

今年1月，贵州省下发文件，要求兼并重组的主体煤矿企业的设计规模不得低于150万吨。龙腾矿业旗下贵州煤矿显然并不符合此项要求，而在贵州省公布的煤炭兼并重组主体资格名单中，也未见龙腾矿业的身影。

做空背后的利益链

公开资料显示，Geo是一家搜集、分析、散布在美国金融市场交易的上市公司信息的网站，主要业务是对中微型股提供见解。做空中概股背后的利益链，由做空者、唱空者、律师事务所等多方构成。Geo这样的第三方研究机构发布报告质疑公司业绩，扮演的就是唱空者角色。股价应声下跌后，做空者抛售股票，律师则代理集体诉讼，向被做空企业索要赔偿。

对于做空获利的说法，DanDavid表示，在美国的法律体系下，这是合法的，而且这种做空机制受到鼓励。“做空浪潮就像一个大浪淘沙的过程。”DanDavid表示，在做空潮后的2012年下半年，中概股出现的大涨就说明了经过做空潮后的中概股是有价值的，至少是没有大问题的，“就像挑烂苹果，剩下的就相当有价值。”

此外，质疑财务报告的真实性已成为做空中概股的常用方法。做空机构通常是研究该机构上报给美国证监会的财报数据，再与该公司在中国当地工商、税务等信息进行比对。除了部分机构通过采取跟踪、偷拍、乔装等手段搜集情报外，基于对中国政府和企业的了解，做空机构也可能从各种渠道获取工商资料及税务信息。此前有媒体报道称，一些国内中介机构趁机牟利，高价向做空机构出售目标公司的工商资料等信息。

Article Source: China’s National Business Daily