Add A-Power to Nasdaq's Naughty List

Not again! Not another Chinese small-cap company that was claiming to be something it wasn't. This week A-Power Energy (Nasdaq: APWR  ) was halted after the company's auditor and two independent directors quit, leaving this Fool to throw his hands up in disgust.

Nasdaq halted shares on Monday because of a lack of information, and Yahoo! Finance is quoting A-Power's shares at a big fat zero right now.

MSCM is the auditor that quit, and considering the company's affiliation with Moore Stephens, this mess shouldn't be a surprise. A Moore Stephens affiliate was censured by the Securities and Exchange Commission for its involvement in another Chinese scam, China Energy Savings, one of the few companies actually facing fraud charges right now.

This shouldn't come as a surprise to anyone who has watched Rino International, China MediaExpress, Puda Coal (AMEX: PUDA  ) , Advanced Battery Technologies (Nasdaq: ABAT  ) , and Longtop Financial Technologies (NYSE: LFT  ) all come into question by the market. When you're accused of fraud, your auditor quits, and Nasdaq says "No mas," the only thing to conclude is that it's time to be wary of everything China.

I'm not even sure if we know whom we can trust in China. The list of companies whose financial statements we can't trust seems to get longer by the day. And with so many questions surrounding some Chinese stocks, it's reasonable to assume all Chinese stocks will be devalued for fear their company is next.

Left empty-handed
So what are shareholders of A-Power Energy left with? If Puda Coal, Longtop Financial, and others are any hint -- maybe nothing. Shares in those companies haven't traded since Nasdaq yanked them, and there's no sign of life.

Cautions like "buyer beware" may not be enough in China any more. Just stay away all together. No company seems to be safe.

Fool contributor Travis Hoium does not have a financial position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

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Read/Post Comments (6) | Recommend This Article (4)

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  • Report this Comment On June 29, 2011, at 3:21 PM, jhsellars wrote:

    While there is definite cause for concern your blanket "the sky is falling" is a disservice to companies and investors alike. I can understand this kind of verbage from the Seeking Alpha and Muddy Waters of the world. They intend to make money from the panic selling the cause. Unless you have the same intentions you are just a fool..............not to be confused with a Fool.

  • Report this Comment On June 29, 2011, at 4:22 PM, mikekato2002 wrote:

    "it's reasonable to assume all Chinese stocks will be devalued for fear their company is next."

    I don't know where you've been but most Chinese companies are trading at PE's of 5 or less. Many are trading at PE's of 2. I would say that in the not too distant future,when the fraudulent companies are gone,the rest of the Chinese stock will make its shareholders a fortune. China's growth makes the rest of the world look like it's sitting still. China stocks will not continue to trade at 1/10th or 1/20th of its world competition for long.

  • Report this Comment On June 29, 2011, at 4:58 PM, Eck2666 wrote:

    I don't know where Yahoo gets its figures from. APWR is shown at $1.67 both in my Fidelity account and on NASDAQ.

    But YES, I am very much worried about investing in Chinese companies, and have been kicking myself for having ignored Cramer's advice to avoid them. My ABAT is down another 13% today, with a P/E of 1.42. Buy more, or run? I'm losing my confidence.

  • Report this Comment On June 29, 2011, at 7:40 PM, CSIHawaii wrote:

    More inane fear pedaling from the Motley Fool. Clearly, one of their rules is: keep away from facts as much as possible. Another is to repeat a list (for the 100th time) of other Chinese companies involved in fraud or accused by short sellers. None of the Motley Fool writers seems capable of assembling the relevant facts, putting them in perspective, or having an original thought.

    First, if you are going to mention other Chinese Companies with problems, and you don't want to mislead (integrity), you have to mention how many (or the percentage) Chinese companies doing fine with no auditing problems. Then you have to recognize that those with problems are all different, ranging from fraud to misleading and filing errors of little consequence.

    Second, if you are going to provide one or two facts about A-Power, and you don't want to mislead (integrity), you need to provide some significant financial facts based on the last audited report. The resigning auditor did not invalidate prior reports. It is also good not to plant a veiled lie like "big fat zero" when you know the zero indicates no price is quoted, and it is not a market valuation. Some of the financial facts that must be included to give the reader perspective are last known: Price = $1.67, Cash per share = $3.63, P/E ttm = 4.56, E ttm = $0.37, Op Cash Flow > Net Income. It would be remise not to mention that A-Power is well positioned in a rapidly expanding business sector in a rapidly expanding economy.

    It would be responsible to consider that the resigning auditor has only identified one concern: the need for a forensic evaluation of certain business transactions. How can the Motley fool not include this - the most relevant fact? The auditor has given no reason to doubt the latest balance sheet or earnings. If something was stolen it wouldn't be shown as existing in the balance sheet. One should ask if this issue is likely to reduce the actual value of the company. Management have certainly failed in one area - but remember it is an Engineering company - accounting is only a service to the business. The share price has already dropped 68% since the 2010 report was first delayed whereas the actual value may not have been affected. The current value of the company may not be apparent, but one year from now this will all be resolved, and we will be dealing with the real facts about A-Power. We won't find them on Motley Morons.

  • Report this Comment On July 01, 2011, at 11:04 AM, azumpire wrote:

    Too bad people were actually stupid enough to believe ABAT was a fraud, which is proving to be otherwise. I took the opportunity to load up the boat at 85 cents and 90 cents, and 99 cents. This company is very real, and people who tout otherwise are very very mis-informed.

  • Report this Comment On February 24, 2013, at 9:22 PM, keaters wrote:

    Those who actually go out in the field and do their own research will be rewarded. Those who stay home and read magazines may do ok if they diversify enough. Those who buy the latest trendy stock will own shares in the latest trendy stock.

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