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Article Source: China’s National Business Daily

NDB Reporters YUE Qi, JIANG Ran, from Chengdu & Guangzhou

After being shorted by an American firm, L &L Energy (hereafter referred to as LLEN) has quickly reacted by fighting back. The fight between the two sides is escalating into a more intense seesaw match.

When the American research organization GeoInvesting (hereafter referred to as Geo) issued the short report on LLEN in the early morning of September 20, 2013 (China time), its stock price dropped to $1.27 per share, a 38.65% decline. The report concluded that LLEN’s string of acquisitions and divestitures of various assets and properties over the last few years is a “bait and switch shell game.”  In the early morning of September 25, 2013 (China time), on its official website, LLEN declared that the company’s management had submitted important documents to an independent special committee of its board to refute Geo’s financial fraud allegations. With regards to this (reaction of LLEN), Geo exclusively responded to the reporters of National Business Daily that the United States regulatory authorities had communicated face to face with them regarding the report; and that LLEN’s action of evading response to the crucial points and inadequately addressing the trivial points was totally expected.  Geo has the evidence to show that LLEN’s rebuttal is groundless.

Yesterday (September 27, 2013), the reporters from National Business Daily, through various channels, tried to seek comments from LLEN, but multiple people from both LLEN America and LLEN China only indicated that they were busy preparing a response (to those allegations), and the case had already entered into the judicial procedure.

What is worth noting is, according to some people familiar with the matter, LLEN and its actual controlling person Dickson Lee have attempted to raise capital from Taiwan’s stock market, for the purpose of expanding its coal business in Mainland China. An investor who claimed to have had contact with Dickson Lee told reporters of National Business Daily that the 60 plus year old American-Chinese Lee used to be a CPA with extensive experience in financial and corporate operations, and Lee encountered some obstacles when he tried to attract institutional investment from Taiwan.

Escalated Short Selling Seesaw Battle

The same day when the short report was published, LLEN quickly formed an independent special committee, responding publicly that Geo had made no attempt to reach out to LLEN to verify these allegations and that the company would file formal complaints to the appropriate regulatory bodies. In the early morning of September 25, 2013, LLEN released a rebutting press release again on its official website.  In reaction to this news, the stock price of LLEN closed at $1.60 per share, a 46.79% increase.

The seesaw battle just started.  LLEN claimed, in its September 25th 2013 press release that, according to the 10-K report submitted to SEC for the year ended July 31st 2013, it had clearly stated that it indirectly acquired the LuoZhou and Lashu mines by purchasing 95% equity interests in two Guizhou Union Energy Mining Co., Ltd. (hereafter referred to as Union Energy) subsidiaries, Guizhou Union Energy Shun Da Inventory and Transport Co., Ltd. (“Union ShunDa”) and Guizhou Union Energy WuZhou Energy Development Co., Ltd. (“Union WuZhou”). Union ShunDa and Union Wuzhou hold 100% controlling interests in LuoZhou Mine and LaShu Mine, respectively (according to LLEN’s claim).

Based on the SAIC information of Union Energy and other related companies, the National Business Daily reporters discovered that, as of September 2013, Union ShunDa controls 100% of the LuoZhou Mine.  Neither LLEN nor its subsidiaries are among the shareholders of Union ShunDa. Union Energy owns 100% equity interest in Union ShunDa.  Union Energy owns 90% of the equity interest of the Lashu Mine, while an individual named Yingquan Guo owns the other 10%. The 100% sole controlling shareholder of Union WuZhou is Union Energy itself and Union Wuzhou does not own any equity interest in the Lashu Mine.

Yesterday, a person from Geo had again responded exclusively to National Business Daily reporters that the rebuttal by LLEN was just as they had expected, but the rebuttal did not even touch the crucial issue of the operational status of the Hong Xing Coal Washing Factory. This person said that the short-term stock price fluctuation is quite normal during the short selling process, but in the long run, it is only a matter of time for LLEN to get delisted.

With regard to the possibility of LLEN not completing the official transfer of ownership title registration at SAIC in a timely manner, the person from Geo said that, if the actual transaction was indeed completed in November 2012, then it has been almost 1 year at this point.  The fact that it didn’t complete the SAIC transfer of ownership registration would make (the company) ineligible to pass its annual inspection [for 2012].

Behind the scene Operator (of LLEN) has not yet shown up to respond

Through multiple channels, National Business Daily has contacted LLEN.  An employee working in its Beijing office, Ms. Zhang, said that the short selling had caused loss to the company and this case has entered into a judicial procedure. But when reporters asked whether litigation has already been filed, Ms. Zhang said, “(I) can only say so much.”

A vice general manager in LLEN’s Guiyang office told the National Business Daily reporters that, (LLEN) is preparing to react (to those allegations), and the short selling organization only aims to profit from the short selling.  But Ms. Zhang told reporter that, “we hope to talk to the short selling organization in person, but (we) can’t find the people of the short selling organization.”

Then the reporter called phone numbers that Union Energy and its related companies left on SAIC records in order to verify  (the existence) of its transactions with LLEN, but the parties who picked up the call claimed to be its agents for SAIC registration.

Behind the series of transactions and mine operations, the name of LLEN Chairman and CEO of LLEN, Dickson V. Lee, has surfaced a number of times. The company under which LLEN operates its business in China is also called US Liwei Energy Co., Ltd.  From the Yunnan provincial SAIC website, the National Business Daily reporter discovered that, between November 2010 and April 2013, the Yunnan Liwei Taifeng Mining Co., Ltd., the Yunnan Liwei Taifeng Mining Co., Ltd. Kunming subsidiary, and the Guizhou Liwei Mining Co., Ltd. Kunming subsidiary were formed in sequence, and the person responsible for all these companies appears to be Dickson V. Lee.

Yunnan Liwei Taifeng Mining Co., Ltd. was cited for failure to declare and file tax payable on time by the Shizong County Local Tax Bureau, and this company was also publicly criticized during Qujing City’s 2012 joint annual inspection of foreign-invested enterprises. Dickson V. Lee once publicly stated that, through its (LLEN’s) already owned mine resources in Guizhou and Yunnan (provinces), he wished to connect the American clean coal technology and environmental pollution treatment capability, expanding the energy map between the two continents and the atlantic ocean.

In LLEN’s global map of operation, Guizhou (province) is considered to be its foundation. Based on public records, it was shown that Dickson Lee had reached an intention to cooperate with Guizhou province on the coal industry. However, LLEN did not directly participate in Guizhou province’s official coalmine consolidation and reorganization process in the following two years.

Public information indicates that Dickson Lee has an accounting and MBA background, with more than 30 years of securities and financial operations experience.   The aforementioned investor mentioned that Dickson V. Lee attempted to attract a Taiwanese institution to invest in LLEN, but the institution passed on the investment following its due diligence research.

Public reports show that LLEN planned to issue TDR (Taiwan Depository Receipts) in July of this year, and it originally scheduled to submit an application this September and get listed to start trading this December. The investor mentioned above told National Business Daily that Taiwan recently has been strict on regulating TDR’s, and, considering the negative influence caused by this short selling event, LLEN’s TDR issue is feared to be hindered.

This incident of short selling by an organization was a significant event to Dickson Lee, but he still hasn’t shown up to respond to this matter publicly.  As for Dickson Lee’s current location, Ms. Zhang told reporters, “We also don’t know where he is either.”

Article Source: China’s National Business Daily