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.

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8 Comments:

At September 16, 2010 7:24 pm , Anonymous Anonymous said...

Dear Traveller

What is your opinnion of idea that some of these micro-cap chines stocks could pay dividend? Are there any of them which do that? Have you talk with company insider people? Are they planing to do that ever? In my opinnion even small dividend would make any micro-cap stock much much more better stock.
-tuoki

 
At September 17, 2010 8:34 am , Blogger The Traveller said...

Agreed. I believe many of the small caps with operating cash inflow should seriously consider paying a dividend. While only micro-cap SIAF has announced a dividend recently, some others seem to get more friendly with that idea. I don't know of any immediate plans (other than SIAF) but wouldn't be surprised if we hear more such announcements in the next 6-12 months.

 
At September 18, 2010 2:03 pm , Anonymous Anonymous said...

Barrons article is accurate but over-stated.

Mary Xia from Princeton area, her husband Lawrence Pan (former head of NASDAQ China) and her partner Eva Tsai from Philadelphia are long time active in China fraud. As USA citizens who enjoy 30% equity ownership in all these China deals (similar to stakes owned by Dr. Kit Tui and Benjamin Wey), they should pay their taxes.

A few rotten apples spoil the sector. Most Chinese involved in RTO are good, honest, people.

 
At September 26, 2010 4:36 am , Anonymous Anonymous said...

The press release stating Mary Xia is not involved is propaganda. Be afraid of this stock. Money is missing if you work out numbers.

Look it up, she is the sole shareholder and a director of Redsky LLC where Mr. Gao Xincheng is the executive officer and director. That entity owns ~2/3rd of the shares. About half of the rest is controlled through entities affiliated with Mr. Sumichrast, such as Windermere Insurance Company Limited, Vision Capital (or other names starting with Vision), Castle Bison Inc., etc.

Read about Czech Industries Inc. and Stratton Oakmont Inc. and Unipro. These sorts of past affiliations may be why Meiyi goes by Mary, or Benjamin Wei goes by Wey, or Mr. Martin Sumichrast and other of his ilk sometimes operate through non-US jurisdiction corporations. Mr. Martin Sumichrast knows the conditions that create fraud, and though he will not admit it, he promotes it indirectly through pressure in a position of both profit and deniability. Read about pressure and fraud in GAAS manual by AICPA. Don't touch any of these stocks affiliated with any of these people, though you may have a one-off shot of these companies eventually shooting straight. China Fire is another. These stocks are not worth shorting either as many big MM's are involved, and can steamroll any poorly capitalized trader. DEER WWIN, CGA, and a good number of others are affiliated with Qingsong, or Yingshing To, Mr. Pan, Ms. Xia, or Mr. Wei.

Until these companies elect a big-4, institute a whistle-blower program, and disassociate themselves from fraud affiliates, they cannot and should not be trusted. They have already defrauded millions from foreign investors, and in most cases the US and the Chinese governments are turning a blind eye. These cons have positioned themselves such that jurisdiction is ambiguous, or there are HK-Mainland jurisdictional complications as well. The end result is, frequent impunity, and no recourse for investors to recover money.

 
At September 26, 2010 8:28 pm , Anonymous Anonymous said...

Previous post is wrong FYI. I did look it up, and it clearly explains that Gao owns the "~2/3" (64%), or 21.9 mm shares.

http://finance.optonline.net/optonline/?GUID=14671121&Page=MEDIAVIEWER

Agreed a Big 4 or 10 firm is necessary, but i would hope you do better DD than this to substantiate your short position.

 
At September 27, 2010 2:48 pm , Anonymous Anonymous said...

Seems like the last poster is wrong:

http://www.secinfo.com/d12TC3.u1xh6.htm#1stPage

SEC filing with EDGAR clearly shows Mr. Gao Xincheng owning shares is through Redsky LLC., which the CBEH press release claims is [technically] under the control of Gao Xincheng. SC13D filing shows Ms. Meiyi Xia as the only shareholder of Redsky LLC.

 
At December 04, 2010 11:52 am , Anonymous Anonymous said...

Can a company that is listed at NASDAQ publicly tell a lie and get away with it? What about press agencies, like Reuters? They quote press releases from CBEH itself but apparently they do not check on the contence. Is it really as bad as it looks?

 
At December 09, 2010 1:12 pm , Anonymous Anonymous said...

Depends on the way you look at it. China way of doing bussiness is different from American way. No use looking at it through single-cultured eye. China Integrated recently been recognized (again) as top High-Tech Research and Development Enterprise by Shaanxi Provincial Government. Governement officials not stupid.

 

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