China Education Alliance (CEU) was a distributor of “online educational resources through the Internet” and became publicly listed via a reverse merger in 2004. KerrisdaleCapital (KC) in November 2010 argued that the company was a fraud:
- The company’s main revenue-generating website does not have a functioning payment system. Products could not be purchased over the phone and could not be found at bookstores.
- The company’s sites feature a multitude of error screens, broken links, faulty HTML, irrelevant content and outdated material.
- The website receives minimal traffic. Data sources show either little volume or suspicious traffic growth, or both. Comparable online education websites in China have properly functioning payment systems, no broken links, and a cleaner and more intuitive layout. CEU’s faulty website with a geographic scope limited to Harbin is generating the same revenue and better margins than functioning websites with a national scope.
- The training facility was empty and unfurnished.
- SAIC financial statements filed in China for the online business (ie. excluding the training center segment) showed revenue of less than $1 million in 2008, 97% below data filed with SEC.
- The company generates suspiciously low interest income off of its ostensibly large cash balance. KC believed that most of the cash did not exist.
- The company had 4 low-quality auditors in the previous 6 years.
- The company raised cash at a discount to its stock price at the time of its equity offering and has done nothing with that cash.
The SEC found flaws in Sherb’s audit for China Education Alliance Inc. The company was delisted in December 2011.
2010 Q3 OPM was 43% (99th percentile); RoPA was 294% (99th percentile)
Protecting Investors through Audit Oversight’s report on the auditor.
 Kerrisdale Capital: China Education Alliance, Nov 2010
 Law 360: SEC Bans NY Accounting Firm Sherb Over Chinese Audits, 7 Nov 2013
China Education Alliance: Annual Report 2010