Another day, another Chinese RTO (Reverse Take Over) company is halted; the shorts were correct again and the vehement complaining of the longs will likely end, once again, in despair. This has become a near-epidemic problem with Chinese RTOs, resulting in hundreds of millions of dollars of losses for US investors. (See the article I wrote a few weeks ago for GuruFocus) http://www.gurufocus.com/news/130207/confessions-of-a-chinese-rto-investor The money was pocketed by someone, and it was not the guys wearing the "white hats." It is now time for the SEC to do some investigative work and levy some harsh penalties in hopes of halting the process, which makes it far too easy for unscrupulous profiteers to defraud US investors.
Their are many culpable parties in the case of CHBT. However, for the purpose of this article, I am going to focus on the role of Lewis Fan who was hired as the chief financial officer at China-Biotics for a brief period of time in 2009. The following is a profile of Fan provided by his latest employer, Rodman and Renshaw:
Managing Director and Senior China Analyst
Lewis Fan is a Managing Director and Senior China Analyst covering sectors ranging from consumers to industrials. Mr. Fan’s previous Wall Street experience includes serving as a senior analyst at Brean Murray, Carret covering small cap Chinese healthcare companies, and as an associate analyst at UBS covering the large cap U.S. biotech sector. He started his Wall Street career working as an emerging markets strategist at Deutsche Bank for nearly four years, focusing mostly on sovereign credit and credit derivatives. He also served as Chief Financial Officer at China-Biotics, Inc. Mr. Fan’s opinions have been cited in a wide variety of financial news media such as CNBC, Bloomberg, Washington Post, Investor’s Business Daily, DWNews, PharmAsia News, and theStreet.com TV.
Mr. Fan holds an MBA in finance from the Stern School of New York University, an MS in medicinal chemistry from the University of Michigan, and a BA with honors in biology and chemistry from Luther College. Prior to his Wall Street career, Mr. Fan spent over 5 years as a scientist at Schering-Plough focusing on natural products drug discovery research.
Interesting choice for a CFO – no experience in accounting, although he did receive an MBA in finance. Other than his five years as a scientist, it appears that Fan spent most of his career as a healthcare analyst. Nothing the matter with working as an analyst although it hardly prepares one to serve as a CFO for a Nasdaq-listed public company, particularly in the age of Sarbanes-Oxley.
So why exactly did China-Biotics select Lewis Fan as their CFO? I have no direct knowledge but I will offer up my opinion: Mr. Fan was hired for his Wall Street connections. More specifically, he was hired to promote the stock and raise millions of dollars for CHBT in a private placement. In that regard he was extremely successful.
Fan began his tenure at China-Biotics in March of 2009. By October of 2009 he had resigned. However, in those short months he was successful in completing a large private offering for China-Biotics. Fan was sent to the US to help promote the private placement to US investors. I recall Fan conducting interviews explaining the merits of the company. Some of his sales pitch was recorded on Internet videos. Since the CEO of CHBT is not fluent in English, an established analyst such as Fan, highly experienced in covering Chinese companies, was imperative in convincing potential investors that CHBT was a good thing.
Fan was successful in promoting the merits of China-Biotics and the private investment in public equity (PIPE) was over-subscribed. CHBT sold a total of 5.29 million shares at a hefty price of $15 per share, raising over 79 million for the company before fees. Almost immediately after the private placement was finished, Fan resigned as CFO of China-Biotics.
One might ask, since Fan quickly resigned his post after spending only a few months as the CFO, why should he be held culpable? The answer lies in the fact that Fan signed off as the acting CFO of CHBT for the fiscal 2009 annual report. If the 10K filed by CHBT for fiscal year 2009 turns out to contain fraudulent information as many of the short-sellers contend, then Mr. Fan is in violation of the Sarbanes-Oxley law:
"Corporate officers are highly liable in many phases of the Sarbanes Oxley Act. Moreover, ignorance is not an acceptable excuse. Corporate officers are expected to be accountable for the contents of anything they sign off on, and if they don’t know what’s in the document it’s considered to be their own fault."
http://legalcatch.wordpress.com/2007/02/10/how-are-you-liable-under-the-sarbanes-oxley-act/
Short sellers have contended that CHBT has dramatically inflated its revenues and earnings, noting that they do not match up with Chinese SAIC filings. http://seekingalpha.com/article/223068-china-biotics-vs-spreadtrum-communications-why-aic-filings-matter.
Additionally, Citron Research has contended that CHBT grossly overstated the amount of outlets which the company claimed to operate. For the record, the 2009 10K which contains Mr. Fan's signature reported that the company had opened 106 outlets in a total of 13 different Chinese cities. http://www.classactioncentral.com/2010/09/citron-research-claims-china-biotics-chbt-is-a-fraud-securities-class-action-filed/
It is time for the SEC to start reviewing Chinese reverse-merger fraud cases and prosecuting the offending officers of the fraudulent companies to the fullest extent of the law. Thus far, CHBT has not been delisted, merely halted, but it is highly likely that BDO, their current auditors, will refuse to sign off on their annual statement. The SEC will then have a perfect opportunity to investigate the company and interview Lewis Fan about his short time as the CFO at China-Biotics.
Even if Mr. Fan was ignorant of the potential fraud that existed at the company, he needs to be held accountable under the rules of Sarbanes-Oxley. Furthermore, Mr. Fan was instrumental in promoting the company to gullible US investors who participated in large private stock placement of CHBT stock which occurred in the fall of 2009. Encouraging those investors to participate in the PIPE was a shameful act and he needs to be held accountable.
Disclosure, no position in CHBT
Their are many culpable parties in the case of CHBT. However, for the purpose of this article, I am going to focus on the role of Lewis Fan who was hired as the chief financial officer at China-Biotics for a brief period of time in 2009. The following is a profile of Fan provided by his latest employer, Rodman and Renshaw:
Managing Director and Senior China Analyst
Lewis Fan is a Managing Director and Senior China Analyst covering sectors ranging from consumers to industrials. Mr. Fan’s previous Wall Street experience includes serving as a senior analyst at Brean Murray, Carret covering small cap Chinese healthcare companies, and as an associate analyst at UBS covering the large cap U.S. biotech sector. He started his Wall Street career working as an emerging markets strategist at Deutsche Bank for nearly four years, focusing mostly on sovereign credit and credit derivatives. He also served as Chief Financial Officer at China-Biotics, Inc. Mr. Fan’s opinions have been cited in a wide variety of financial news media such as CNBC, Bloomberg, Washington Post, Investor’s Business Daily, DWNews, PharmAsia News, and theStreet.com TV.
Mr. Fan holds an MBA in finance from the Stern School of New York University, an MS in medicinal chemistry from the University of Michigan, and a BA with honors in biology and chemistry from Luther College. Prior to his Wall Street career, Mr. Fan spent over 5 years as a scientist at Schering-Plough focusing on natural products drug discovery research.
Interesting choice for a CFO – no experience in accounting, although he did receive an MBA in finance. Other than his five years as a scientist, it appears that Fan spent most of his career as a healthcare analyst. Nothing the matter with working as an analyst although it hardly prepares one to serve as a CFO for a Nasdaq-listed public company, particularly in the age of Sarbanes-Oxley.
So why exactly did China-Biotics select Lewis Fan as their CFO? I have no direct knowledge but I will offer up my opinion: Mr. Fan was hired for his Wall Street connections. More specifically, he was hired to promote the stock and raise millions of dollars for CHBT in a private placement. In that regard he was extremely successful.
Fan began his tenure at China-Biotics in March of 2009. By October of 2009 he had resigned. However, in those short months he was successful in completing a large private offering for China-Biotics. Fan was sent to the US to help promote the private placement to US investors. I recall Fan conducting interviews explaining the merits of the company. Some of his sales pitch was recorded on Internet videos. Since the CEO of CHBT is not fluent in English, an established analyst such as Fan, highly experienced in covering Chinese companies, was imperative in convincing potential investors that CHBT was a good thing.
Fan was successful in promoting the merits of China-Biotics and the private investment in public equity (PIPE) was over-subscribed. CHBT sold a total of 5.29 million shares at a hefty price of $15 per share, raising over 79 million for the company before fees. Almost immediately after the private placement was finished, Fan resigned as CFO of China-Biotics.
One might ask, since Fan quickly resigned his post after spending only a few months as the CFO, why should he be held culpable? The answer lies in the fact that Fan signed off as the acting CFO of CHBT for the fiscal 2009 annual report. If the 10K filed by CHBT for fiscal year 2009 turns out to contain fraudulent information as many of the short-sellers contend, then Mr. Fan is in violation of the Sarbanes-Oxley law:
"Corporate officers are highly liable in many phases of the Sarbanes Oxley Act. Moreover, ignorance is not an acceptable excuse. Corporate officers are expected to be accountable for the contents of anything they sign off on, and if they don’t know what’s in the document it’s considered to be their own fault."
http://legalcatch.wordpress.com/2007/02/10/how-are-you-liable-under-the-sarbanes-oxley-act/
Short sellers have contended that CHBT has dramatically inflated its revenues and earnings, noting that they do not match up with Chinese SAIC filings. http://seekingalpha.com/article/223068-china-biotics-vs-spreadtrum-communications-why-aic-filings-matter.
Additionally, Citron Research has contended that CHBT grossly overstated the amount of outlets which the company claimed to operate. For the record, the 2009 10K which contains Mr. Fan's signature reported that the company had opened 106 outlets in a total of 13 different Chinese cities. http://www.classactioncentral.com/2010/09/citron-research-claims-china-biotics-chbt-is-a-fraud-securities-class-action-filed/
It is time for the SEC to start reviewing Chinese reverse-merger fraud cases and prosecuting the offending officers of the fraudulent companies to the fullest extent of the law. Thus far, CHBT has not been delisted, merely halted, but it is highly likely that BDO, their current auditors, will refuse to sign off on their annual statement. The SEC will then have a perfect opportunity to investigate the company and interview Lewis Fan about his short time as the CFO at China-Biotics.
Even if Mr. Fan was ignorant of the potential fraud that existed at the company, he needs to be held accountable under the rules of Sarbanes-Oxley. Furthermore, Mr. Fan was instrumental in promoting the company to gullible US investors who participated in large private stock placement of CHBT stock which occurred in the fall of 2009. Encouraging those investors to participate in the PIPE was a shameful act and he needs to be held accountable.
Disclosure, no position in CHBT
