WestPark Capital's RTO Deals
posted by The Traveller on Saturday, March 26, 2011
WestPark Capital's CEO, Richard Rappaport invented a mechanism he called WRASP, in which a company becomes publicly traded through a reverse merger and trades directly on a senior exchange (NYSE, Amex, or Nasdaq), avoiding the OTCBB completely. Rappaport praises his invention, stating that it has "generally proven to be less costly, less time consuming, involves less risk and even less dilution of ownership than a traditional IPO or a reverse merger. ... The 'WRASP' generally possesses superior liquidity, valuation and institutional coverage, combining the benefits of an IPO and Reverse Merger."
In the past two years, WestPark completed five such WRASP deals. A sixth, China Wesen Recycling Technology, is currently in the IPO pipeline.
- March 2009 - NIVS IntelliMedia Technology (NIV, NYSE Amex)
- October 2009 - ZST Digital Networks (ZSTN, Nasdaq)
- January 2010 - China Electric Motor (CELM, Nasdaq)
- June 2010 - China Intelligent Lighting & Electronics (CIL, NYSE Amex)
- February 2011 - China Century Dragon Media (CDM, NYSE Amex)
NYSE issued a similar press release for the NIV trading halt. But here we have since learned a lot more details about what happened. In an 8-K Filing late Friday, it was revealed that Malone Bailey submitted its resignation as the Company's independent auditor. The firm based its resignation on what it characterized illegal acts involving the Company's accounting records and bank statements and discrepancies in accounts receivable. And if we look at MaloneBailey's resignation letter in detail, we can see that this is likely another case of accounting fraud:
In our resignation letter dated March 24, 2011, MaloneBailey cited that MaloneBailey found accounting fraud and irregularities in forging accounting records and bank statements during 2010 NIVS audit. On March 21 with email and On March 22, 2011, MaloneBailey, LLP, informed Charles Mo, NIVS independent board member and the chairman of the audit committee about "significant difficulties encountered during the 2010 audit." During the conversation, MaloneBailey, LLP informed Mr. Mo that two other public companies audits were conducted at the NIVS accounting department location. These two companies are located in Beijing and Guangzhou. However, their books and records were shipped to NIVS accounting department and MaloneBailey conducted the audits of these two public companies at NIVS accounting department. NIVS accounting personnel were involved in coordinating the two audits. MaloneBailey found accounting fraud and irregularities in these two audits. After the discovery, we encountered difficulties with management trying to limit our scope of the NIVS audit.NIV and China Intelligent Lighting (CIL) have a lot in common. They share the same facilities, same auditor, and there are many connections within senior management (founders, directors). It is reasonable to assume at this point that the trading halt for CIL was imposed for related issues.
Which brings us back to WestPark Capital and Richard Rappaport. It might just be coincidence that 60% of the firm's "WRASP"-IPOs were halted within three days, but I wouldn't bet the farm on this. In fact, I would be very careful with the two remaining stocks, CELM and ZSTN, until we learn more details. The latest of WestPark's deals just became a public company last month, and should CDM's situation be similar to that of NIV, it will fall back directly to WestPark and the quality of its pre-IPO due diligence process. The firm has been in trouble already last year, when FINRA fined WestPark to pay $400,000 for failing to supervise brokers with histories of disciplinary actions (a matter of general securities fraud), and suspended its former Chief Compliance Officer and Chief Operations Officer for several months.
Here is a list of all reverse merger deals of the past few years, involving shells owned by WestPark Capital / Richard Rappaport:
- Asia Time (ATYM.PK, SRKP 9 Inc.), delisted from NYSE Amex on April 23, 2009
- China Century Dragon Media (CDM, SRKP 25 Inc.)
- China Electric Motor (CELM, SRKP 21 Inc.)
- China Intelligent Lighting & Electronics (CIL, SRKP 22 Inc.)
- China Shenghuo Pharmaceutical (KUN, SRKP 8 Inc.)
- China Wesen Recycling Technology (SRKP 23 Inc.), pre-IPO
- Feigeda Electronic Technology (SRKP 20 Inc.), not yet listed
- Highpower International (HPJ, SRKP 11 Inc.)
- NIVS IntelliMedia Technology (NIV, SRKP 19 Inc.)
- Yinlips Technology (SRKP 17 Inc.), unlisted, applied for NYSE Amex listing on June 16, 2009
- ZST Digital Networks (ZSTN, SRKP 18 Inc.)