China Integrated Energy
posted by The Traveller on Thursday, September 16, 2010
China Integrated Energy (CBEH) has come under pressure yesterday and posted a new low at $6.47 on a green day for the general markets. The stock dropped 26% in the past four weeks. Let's have a look at CBEH's current situation.
Attack: Barron's mentioned the company in connection with Du Qingsong, Mary Xia and Asia Pacific Securities who assisted the Company in its reverse merger. Du was sent to jail for "fraudulent investment schemes" and bribery but according to Barron's he claims to be innocent. Xia started Asia Pacific Securities with Du which assisted CBEH and other Chinese companies like China Medicine (CHME) with their mergers. In March 2004 Mary Xia was appointed "Head of China Operations" of Bio-One Corp., a nutritional supplements company based in Florida that was charged with fraud in 2005 and subsequently delisted. No direct accusations against CBEH were made by Barron's.
China Integrated Energy is also being watched for their continuous involvment with Sherb & Co., a small public accounting firm with just seven partners that is very popular with Chinese reverse-merger clients. Sherb's current clients include Wowjoint Holdings (BWOW), China Direct Industries (CDII), China Education Alliance (CEU), China Wind Systems (CWS) and China Shen Zhou Mining (SHZ) among others. Sherb & Co. has been accused of wrong-doings in the past, and the Public Company Accounting Oversight Board (PCAOB) issued a report on the firm in 2007 (PDF).
Defense: CBEH issued a press release last week, announcing that the improvement of corporate governance is expected to be completed by the end of the third quarter of 2010. CBEH said that Mary Xia has never played any role in the management or operations of the company, and that they "consider the reputation and integrity of China Integrated Energy to be of utmost importance to our future success, both from an operational and a public Company perspective."
My Position: In the current environment for Chinese reverse mergers the company's next step has to be proactive. Sherb & Co. does not stand for "utmost reputation and integrity" and this tiny accounting firm is no longer appropriate for a company with annual revenue of $425 million and net income of $52 million. CBEH can afford to hire a Big4 auditor immediately and have them go through the complete history of the company, remove all possible merger-related inconsistencies and put the company in a position of strength. It's not enough to proclaim that reputation and integrity is of utmost importance to the company, CBEH has to act accordingly.