Zhongpin (NASDAQ:HOGS)

The SEC has obtained a court-ordered freeze of the assets of six Chinese citizens and one British Virgin Islands entity charged with insider trading in Zhongpin Inc., a China-based pork processor whose shares trade in the U.S. The SEC’s complaint, filed in U.S. District Court in Chicago on April 4, alleges the defendants reaped more than $9M by trading in Zhongpin ahead of a March 27 announcement of a proposal to take the company private. The SEC alleges that the defendants violated federal anti-fraud laws, namely Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In addition to the emergency relief, the SEC is seeking permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties.

If you have not yet read "17 Reasons not to Take Chardan's Wavering Opinion on Zhongpin Seriously", you can now access the report openly.

It is obvious that the issues surrounding HOGS have developed into a multi-faceted story that can become difficult to digest. That is why we feel it necessary to peel the HOGS onion one layer at a time so investors can appreciate the breadth and importance of each layer individually. In this installment we discuss our view of Chardan Capital’s take on the HOGS story as well as a look at Chardan’s track record in the ChinaHybrid space. After this article, we will follow-up with evidence regarding what we feel are material misrepresentations made by HOGS management.

On September 27, 2011 Chardan Capital quietly downgraded HOGS from Buy to Neutral and cut HOGS price target to $9.00 from $14.50. The irony of this move is that it was only on August 9, 2011 that Chardan reiterated its "buy" rating on HOGS as Global Hunter Securities was being criticized for downgrading the company. Now it seems Chardan has had second thoughts about its seemingly unquestioned acceptance of whatever story the HOGS management team spins for the market. Could this be a sign that Chardan's motive for their initial reiteration of the buy rating was to support the stock?

read more...http://geoinvesting.com/companies/duediligence/Chardans_Wavering_Opinion_on_Zhongpin.aspx

Yesterday we released our thorough due diligence on Zhongpin Inc. (HOGS). Based on our work and the observations of our investigators who have visited HOGS facilities on various occasions, we conclude that: HOGS is in fact processing and selling pork products in China. However, while HOGS is clearly not an "empty shell" we did find clear and substantial evidence of possible fraudulent activities.
Summary of Findings

1. Overstatement of SEC net income vs. SAIC filings by nearly 500% in 2009.
2. GEO estimates 2010 net income of $10-20 million vs. $58 million reported to the SEC.
3. Deliberate manipulation of SAIC filings.
4. Likely diversion of almost $150 million of reported capex.
5. Inconsistent trends between inventories and sales.
6. Repeated capital raisings, despite assurances to investors that none were needed.
7. Capex concerns already noted by Roth Capital resulting in downgrade.

Please see our full report.