China Integrated Energy was a Delaware corporation operating in the PRC selling finished oil products, heavy oil products, and biodiesel fuel. It also operated retail gas stations.
CHEB had apparently prepared two sets of financial statements: one presumably accurate set that it filed with Chinese regulators, and another false set that they filed with the SEC. The discrepancy first came to light on 16 March 2011 when Sinclair Upton Research published a report alleging that CBEH’s SEC filings overstated revenues compared with revenues reported in the Chinese filings. The report also asserted that China Integrated Energy had been funnelling money to corporations owned by the son of CEO Xincheng Gao. The next day, analysts at Roth Capital Partners downgraded China Integrated Energy’s shares from a “BUY” status to a “NEUTRAL” status. They also reported that they had independently obtained the Chinese filings referenced in Sinclair Upton Research’s report, and confirmed the prior report’s accuracy. China Integrated Energy issued a letter to shareholders and vigorously denied it had made any misstatements in its financial statements and SEC filings, and denied all other accusations in the Sinclair Upton Research report.
On 28 March 2011 another analyst firm, Alfred Little, issued a detailed report reviewing China Integrated Energy’s Chinese filings and audited financial statements and calling the company a “complete hoax.” In response to the accusations and resultant drop in share price, China Integrated Energy hired law firms and auditors to conduct an internal investigation. Ultimately, these firms and auditors resigned, citing management’s refusal to cooperate in the investigation. On April 26, 2011, the company’s outside auditor, KPMG, resigned and cautioned investors that the SEC filings it assisted in preparing should no longer be relied upon. On April 20, 2011, NASDAQ halted trading in CBEH shares and on 21 November 2011 the shares were delisted.
2010 RoPA was 134% (99th percentile)
Spruce Point: China Integrated Energy’s Biodiesel Business: Cause for Concern, Dec 2010
US District Court: Legal Document, 4 Aug 2014
China Integrated Energy: Annual Report 2011