China Expert Technology Inc (CXTI US)

The company, based in Shenzhen listed in the US in 2004 using a reverse merger. China Expert’s YE March 2003-2006 financial statements reported that it had 16 contracts to build government computer systems in China, with each of those contracts to be performed on an ongoing basis. The company also claimed to have US$53.5m of accounts receivable in the 2003-6 period. China Expert reported revenue of US$5.7m in 2003, US$26.8m in 2004, US$35.6m in 2005 and US$66.1m in 2006, plus US$13.2m for the first quarter of 2007. However, rather than having over US$132 million in revenues in this period, the contracts were forged and China Expert actually had revenues of less than US$1m.

As a result of the fraud, the company’s CFO and auditor resigned and the share price, which at one-stage reached over US$8, fell to US$0.10 per share by mid-October 2007. Trading in the shares were suspended.

Plaintiffs alleged that auditors (the two PKF units and BDO McCabe) failed to “perform rudimentary auditing procedures” to determine that the contracts actually existed. In fact, a private investigator hired by the plaintiffs discovered that, for the most part, they did not. The auditors later paid fines of US$4.2m in connection with this fraud.

2006 OPM were 32%, RoPA was 2222%

Law360: $132M China Expert Fraud Suit Survives Dismissal Bid, 21 Jul 2011

The Rosen Law Firm: Class Action Complaint, 27 Mar 2009

China Expert Technology: Annual Report 2006

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