Posts Tagged ‘Jiangbo’

Recently trading stopped on shares of Jiangbo Pharma, because the SEC wants some more information from the company. I have yet to see a good report on exactly what information has been requested, however.

This in itself is no great surprise, the company is reverse listed and used to be audited by the shorters favourite Frazer Frost, which is by now almost synonymous with fraud allegations and delistings.

What is more interesting is that on the face of it, the investment in the company still doesn’t seem so bad, as the market cap of the company was around 42 million while it held cash of 146 million (assuming we can trust the books on this). Thisseems like an odd thing to have happen until you look through their corporate structure and find that basically all of the company’s assets is sitting in the VIE for no apparent reason.

I doubt that this is what the market has been pricing the company for, however, it seems more likely that the market assumed fraudulent books and overstated profits/cash positions. But nevertheless investors could quickly learn just how much 146 million in a VIE could be worth if the owner decides to pack it up.

JGBO’s structure is a very simple VIE arrangement with the entire operating part of the company in the VIE. It should be noted that there is no legal reason for the entire company to be run as a VIE, some areas are restricted but much of it could reasonably be run through a WFOE.

Even though all of the normal contracts are in place the company appears unwilling to transfer any of their assets out of the VIE, even to the extent that they failed to make their interest payments/penalties on convertible notes in the US due to an inability to transfer money out of the VIE.

If the contracts that they claim to have are in place the money should, at the very least, be able to travel to the WFOE without much hassle or expense. Even if transferring it out of China does require SAFE approval, SAFE approval is not a valid excuse for holding all of the company’s assets in a legally questionable VIE arrangement without any security for the investors.

The company seems to be making up excuses for why the money should stay in the VIE, where the investors have questionable control over it. If this turns into a legal case involving fraud my guess is that investors will come to the stark realisation that 146 million in cash stashed in a VIE might well be worth nothing at all.


Read Full Post »