China Electric Motor Inc (CELM US)

China Electric made small motors for household appliances. It was listed in the US in Jan 2010, but was unable to issue 2010 financial statements due to discrepancies in the bank statements discovered by its auditors.

In a class action suit (which succeeded in 2013) it was claimed that: China Electric filed an accurate set of books with Chinese regulators while filing a second set of books with the U.S. SEC and included in the IPO registration statement “grossly overstated revenue, gross profit, income from operations, net income, and cash and cash equivalents.” “The fabricated SEC numbers were designed to lure U.S. investors,” the plaintiffs said in court papers and, as a result of the alleged securities violations, the value of the stock fell 97 percent from the offering price to 14 cents per share. It is currently trading at 6 cents. The suit also alleged the underwriters failed to conduct reasonable due diligence in connection with the offering.

OPM 18% in 3Q2010 (94th percentile), RoPA was 103% (99th percentile)

Law360: China Electric’s $3.7M Securities Settlement Approved, 3 Jun 2013

China Electric Motor: Annual Report 2010

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