Come On Obama: Get Tough

I almost hate to go back and revisit any of the 2011 frauds. I’m hoping that era can become a distant memory, and the well behaved companies and their shareholders get rewarded for their patience.

Come On Obama : Get Tough

However, when I read a recent article about the fraud committed against US investors by Ming Zhao, the Chairman of disgraced former China stand out Puda Coal (formerly NASDAQ: PUDA), I was horrified at our weak response.

The primary asset of Puda Coal was Shanzi Puda Coal mining. As it turned out, in 2009, Chairman Zhao sold the assets of Shanzi to himself, then turned around and sold Shanzi to a Chinese state owned company- Citic Trust.

After formally transferring the asset and taking the money, Zhao was able to raise $112.8 million from US and Canadian investors based on Shanzi, which the company no longer owned. He managed to fool light weight auditor Moore Stephens- these guys be penalized for failing to protect US investors as well.

When the fraud was uncovered in 2011, Zhao produced a letter from Citic stating they did not own the Shanzi coal mine. As it turned out, the letter was a forgery.

The whistle was blown on this one by anonymous web site Alfred Little. A fund manager was able to confirm the fraud by simply spending $500 to have an investigator look at some government filings in China showing the asset had changed hands.

The NY Times published an article back on February 23rd concerning the charges the SEC filed against the Chairman and CFO of Puda. Click Here to read the article.

Had such a blatant fraud of these massive proportions been perpetrated in the US, those offenders would be looking at long jail terms.

Here’s what I find astonishing- how is the US allowing these guys to walk around free? Now, I know these are Chinese citizens, and I know the Chinese are tough to deal with.

However, it seems to me our government should be doing something to strong arm those Chinese citizens into a one way ticket to the US so they can face trial, or forcing the Chinese government to take criminal action against these guys.

I don’t care how many of our Treasuries they own. If we’re prepared to unseat dictators in the Middle East to assure oil supplies, why are we allowing Chinese to simply steal $112.8 million from US investors, and get away with it?

Surely, there must be something we can offer the Chinese government in exchange for surrendering those offenders to US authorities.

Come on Obama-

Get Tough and show some back bone. This is ridiculous, and you should do something to get those crooks to US soil immediately.

Just throw one of these guys in jail, and make sure everyone in China knows about. The China/US relationship is far more important to China than a couple of thieving coal executives. With the proper leverage, those crooks would be in jail.

Come On Obama- how about protecting American investors!!!

China Markets Shaping Up.

I’ve been saying all along the China small cap sector would not improve dramatically until the China markets themselves made the transition from Ursine to Bovine.

Take a look at the Shanghai “A” Shares in 2012- China’s version of the S&P 500:

There’s a lot to like about this chart, but it’s a little premature to call it a Bull Market in break out mode.

Coming off the December lows, the Shanghai A’s have improved about 17%. As the index is moving up, the volume is increasing, which is a great sign.

A breakout above the November highs of about 2650 (above the blue line) on volume would suggest we have a new Baby Bull coming out of the gates in China, and there will be plenty of room to run.

Renewed enthusiasm for China stocks is being reflected in large cap sector. My personal favorite- Baidu (NASDAQ: BIDU) is back over $140, and eventually headed for $200. Even beleaguered and heavily shorted Sina Corp (NASDAQ: SINA) was up over 10 points this past week, moving from $62 to $74.60 in the last 4 trading days.

At the same time, the China small caps continue their listless, sideways, light volume trading.

I don’t know if this will change after earnings releases. I suspect there are some great trades, but it is yet to be determined if earnings can turn the tide.

It’s going to take a high profile, major short squeeze to bring attention to the undervalued nature of this sector and bring some institutional money back to these stocks.

I really like YONG for an earnings trade. The Yahoo! earnings calender says they will announce on March 12th, but there’s no confirmation on the company web site. The stock is so cheap bad numbers will probably drive it up.

China XD Plastics (NASDAQ: CXDC) is due out Monday according to Yahoo!, but I haven’t been able to find confirmation from the company.

I’ll be keeping my eye on the news flow and the response in the stocks in order to formulate some trading ideas.

Stand by for a much busier two weeks.

While you’re there, sign up for my free Webinar on:

How China Companies Commit Fraud < < ==

Warmest Regards,

Larry Isen