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What: Shares of Chinese insurer CNinsure
So what: An analyst at small, China-focused research firm OLP Global raised questions today about CNinsure and its compensation practices. Specifically, OLP's report suggests that the company's sales incentive program is actually an equity incentive plan that should be, but currently isn't, reflected in the company's expenses. The end result is that CNinsure may have been overstating net income "by a meaningful amount."
Now what: Interestingly, this news came on the same day that fellow Chinese small cap RINO International
But it's notable that OLP isn't just some random folks hanging up a shingle and calling themselves a research shop. The company's founder, Adele Mao, was formerly at Susquehanna International covering Chinese stocks and was with Lehman Brothers before that. Also interesting is the fact that Mao was raising questions about RINO's corporate governance and accounting practices as far back as April.
I recently noted that the fact that CNinsure came to the U.S. markets via a traditional IPO process and is audited by Deloitte Touche Tohmatsu should give investors some comfort on the company's internal controls, but the concerns raised by OLP definitely give me pause.
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Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or on his RSS feed. The Fool’s disclosure policy assures you no Wookiees were harmed in the making of this article.