CGA Embroiled in SEC Inquiry, Alleged Financial Fraud
China Green has issued a press release disclosing an SEC inquiry and the
fact that the company's legal representative in the U.S. "[…]
has voluntarily provided a comprehensive report on selected issues that
were of interest to the SEC to the Los Angeles Office of the SEC."
The company, which produces organic fertilizer, is representative of similar controversies of alleged financial fraud dogging hundreds of Chinese companies. Specifically, many such firms have been going public in the U.S. through a back-door process known as a “reverse merger,” in which a private company bypasses much of the “red tape” involved in going public by taking over a publicly traded company.
China Green issued a number of press releases in September defending the accuracy of its financial figures and denying that it has been involved in financial fraud. Last week, the company also hired Sitrick & Co., a NY public relations firm specializing in crisis management.
Ingrid Yin, a China stock analyst at Brean Murray, noted that CGA executives have fallen short on promises to show proof that would refute several specific pieces of evidence suggesting that China Green was distorting its numbers in order to raise capital in the U.S.
Brean Murray, which has a robust interest in holding aggressive small cap China stocks, recently changed its position on the CGA from hold to sell.