Advanced Battery Tech (ABAT): Yet Another China Company Accused Of Fraud, Shares Plummet Further

It seems the name of the game, particularly this year, is run through the financial statements and conduct interviews of China based companies to find evidence of shady dealings of fraud.  Then short the stock and publish the piece which will be picked up by Seeking Alpha.  Profit handsomely.  Wash, rinse, repeat.  Citron Research was really the first firm to have an impact in this regard, but lesser known firms are joining the ranks as well such as Muddy Waters and Variant View Research.  The research is often very thorough and compelling and the stock usually plummets in response.  Often times it doesn’t come back.

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Just in the past year or so in the green stocks space there have been accounting concerns at companies such as Duoyuan Global Water (DGW), China Integrated (CBEH) and Rino Intl (RINO).  Rino plummeted quickly and last I checked traded on the pink sheets.  Today, it’s Advanced Battery Tech (ABAT) which is plummeting to a more than two year low after a research report by Variant View Research was published at Seeking Alpha.  The original report was published on Variant’s site a couple days ago.

Here are the 12 reasons Variant is short the stock:

  1. The Chairman appears to have transferred ownership of ABAT’s key subsidiary to himself without explanation or compensation
  2. ABAT leads investors to think that it makes cutting-edge electric cars, when in fact it produces cheap scooters and bicycles
  3. ABAT claims unrealistic margins in what it admits is a commodity space
  4. ABAT claims to have increased revenue from $4.2 million to $97.1 million from 2005 to 2010 while DECREASING its employee count
  5. ABAT claims distribution relationships which appear to be fake
  6. ABAT is a serial issuer of equity at low prices
  7. ABAT spent $20 million to acquire a company linked to the Chairman without disclosing the relationship
  8. ABAT spent $22 million or 7x sales to acquire a failing and possibly related company
  9. ABAT issued 11 million shares to the Chairman and other individuals to repay a “loan” which appears to be entirely fabricated
  10. Despite a parade of auditors and multiple restatements, ABAT still has material weaknesses
  11. ABAT’s RTO promoter, John Leo, is behind a number of suspicious Chinese reverse mergers, most notably CYXI
  12. No fundamental institutions are significant shareholders

Should the company respond to this report, I’ll update this post.

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