Advanced Battery Technologies Takes a Plunge

The fears of every Advanced Battery Technologies (Nasdaq: ABAT  ) investor came true yesterday when shares tanked after a series of lawyers began circling the company like vultures. The rush of press releases came faster than a Tesla Roadster zipping by the courthouse. Let's go through the day's timeline.

6:53 AM ET: Variant View Research posts a scathing report with 12 reasons to short Advanced Battery Technologies. Among the allegations are claims distribution relationships are fake, unrealistic margins for commodity products and an incredible rise in revenues despite falling headcount. All are very valid and points that kept this Fool cautious about the stock despite seemingly outstanding fundamentals. In full disclosure, Variant was short ABAT at the time of publication, so there was some self-interest.

11:23 AM ET: The Rosen Law Firm announces an investigation into potential securities claims. They include issuing materially false statements to investors and failure to disclose material related party transactions.

3:18 PM ET: Kahn Swick & Foti, LLC joined the party, opening an investigation into the company after the huge 43% one-day price drop.

5:58 PM ET: And just for good measure, Bernstein Liebhard LLP joined the fun by announcing their own investigation.

To be clear, the three law firms are following up on Variant's report. While this Fool doesn't have any concrete confirmation that the claims are true, I find them very plausible.

All the sudden the losses at A123 Systems (Nasdaq: AONE  ) , Ener1 (Nasdaq: HEV  ) and Valence Technology (Nasdaq: VLNC  ) look like a kick in the bucket for battery investors. At least we can trust their financial statements (we think).

Get out of China before it's too late?
The sad thing is that this continues a long line of troubles for Chinese companies trading in the U.S., like China MediaExpress (Nasdaq: CCME  ) , Fuqi International (OTC: FUQI.PK) and China Green Agriculture (NYSE: CGA  ) , all of them caught up in similar accusations. Can we trust anything that comes from these companies any more?

I've been skeptical of Advanced Battery Technologies, and while I haven't seen the company as a buy candidate recently, I could have been harder on the company in my analysis. I've learned that if a Chinese company looks too good to be true, it probably is.

Keep up with the latest on Advanced Battery Technologies by clicking here to add it to My Watchlist. My Watchlist will find all of our Foolish analysis on the stock.

Fool contributor Travis Hoium does not have a 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.

China Green Agriculture is a Motley Fool Global Gains pick. The Fool owns shares of China Green Agriculture. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (7) | Recommend This Article (6)

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  • Report this Comment On March 31, 2011, at 2:03 PM, Momentum21 wrote:

    "Variant was short ABAT at the time of publication, so there was some self-interest."

    You think there was just "some"?

    "I've learned that if a Chinese company looks too good to be true, it probably is."

    Will you stop analyzing Chinese equities altogether now?

    I would agree that the average investor should step aside from the Chinese Small Cap scene right now because there is definitely some major issues that need to be sorted out.

    I don't agree with further enabling attacks from anonymous short sellers. I think you should read the note your associate sent to the Rule Breaker Community regarding EBIX. Fraud should never be ruled out but I think we need a more credible source or two before making judgments about what is "too good to be true."

    Consider the fact that you are writing to current shareholders as well as those who might be considering buying shares for the first time.

  • Report this Comment On March 31, 2011, at 2:27 PM, JRIVER20 wrote:

    My comment:

    It sound... Like this is the key reason to invest on this company. You could be surprise if at the end of the investigation all it was " a currently circulating story or report of uncertain or doubtful truth" a RUMOR.

    If everything ends to be just a prank rumor by the vultures Law Firms trying to find a income, I see prices going back up to $3 or even $4 dollars per share.

    I will be at the hospital with a heart attack from listening to the cash machine ringing on my ear over and over and over.

  • Report this Comment On March 31, 2011, at 2:32 PM, TMFFlushDraw wrote:

    @Momentum21

    I take the fact that I am writing to current shareholders and people considering buying shares very seriously. Those investors need to know exactly what is going on with their company and ABAT has more than a few questions outstanding. That's why I didn't recommend the stock last week despite seemingly outstanding fundamentals (see the link in the article).

    Have you been to their website and seen what they label electric cars?

    http://www.zqpt.com/en/Product/ProductList.aspx?type=Categor...

    Yes, it's a scooter. And no scooter manufacturer has nearly 50% margins. The eye test just doesn't match up with what they're claiming.

    I also know that RINO, CCME and CGA have not recovered since allegations against them began. It isn't guaranteed ABAT will end up in the same boat but it isn't a bet I'm going to make.

    If you have any sort of proof that ABAT is in the clear please share it. If not I'll remain skeptical as I find Variant's report very plausible. Not absolutely undeniably true. Plausible. And even that is enough to make me want to stay far, far away from the stock.

    Travis Hoium

  • Report this Comment On March 31, 2011, at 5:15 PM, Momentum21 wrote:

    Travis,

    I do not have proof that ABAT is in the clear. They could very well be a fraud and I think that is basically what everyone thinks right now for 90% of stocks traded with a Chinese mailing address.

    I sold my holdings in CSR and HEAT a few weeks back because it was clear that the buyers of these stocks were drying up regardless of what was true or false. No doubt credibility is a real issue that investors must consider.

    My point was not that any of these companies are stellar investments. My point was simply that this research piece has a clear agenda and should be treated as such. All of the recent Seeking Alpha pieces are plausible...if they weren't we wouldn't be talking about it. Each of them is extremely compelling and well-crafted.

    What has to be questioned is the delivery, timing and motivation. I am not saying ignore all criticisms of your favorite stocks...that would be silly.

    I just feel that you give a tremendous amount of credibility to this source without a name who has a clear interest in the outcome.

    It is perfectly rationale to remain skeptical of companies like ABAT even without the Variant report, I just happen to think Variant deserves at least an equal level of skepticism in the current environment.

    M21

  • Report this Comment On April 01, 2011, at 8:57 PM, buffalonate wrote:

    It is very easy to tell if a Chinese small cap is a fraud. If after their stock crashes they buy back shares then they are legit. Ebix immediately announced they were buying back shares which is what you should do if your shares are dirt cheap.

  • Report this Comment On April 02, 2011, at 2:29 AM, JRIVER20 wrote:

    All I can said is that yes the company did a mistake by labeling a product area with the wrong name

    "electric car"

    As what the company told me " they are very sorry and Apologize for the misunderstanding" because the website developer is located in china and there was a communication issue that caused such mistake.

    However investors visit the company website and it is very clear that ABAT does not produce electric cars. but batteries that can be used on electric vehicles. I think someone go to see the opportunity on trying to make some money like the 3 law office.

    I just hope they have hard evidence other that the "electric Car" product labeling error.

  • Report this Comment On April 02, 2011, at 12:15 PM, jwaymoo wrote:

    I am one of the Fools who actually did invest in CCME and yesterday the value displayed in my portfolio is less than 1 cent per share – this may be a result of de-listing on the NASDAQ – but I don’t know for sure. CCME had until March 31st to submit a plan to NASDAQ and they may not have done so. Of course, the lawyers have been circling the company like vultures since the first report appeared in early February claiming fraud. On March 11th, CCME was notified that its principal independent accountant, Deloitte Touche Tohmatsu in Hong Kong ("DTT") had resigned its engagement with the Company, effective immediately. DTT was engaged by the Company on December 4, 2009 following the Company's business combination with Hong Kong Mandefu Holdings Limited, and performed the 2009 audit. The audit report of DTT on the financial statements of the Company for 2009 did not contain any adverse opinion or disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principles. The fact that Deloitte was the independent auditor and had found no problem during 2010 while doing the 2009 audit was a major factor in my decision to buy CCME. DTT now states that the 2009 report may not properly represent the condition of CCME. Does anyone remember Anderson, the independent auditor of Enron? In my view the lawyer vultures should be going after Deloitte instead of CCME – if CCME is a fraud there will be nothing to recover – if they are not a fraud, and are instead completely ignorant of necessary record-keeping, the lawsuits will destroy them – so investors lose either way.

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