Accounting Scandal Claims AutoChina As Second Big Victim

While it has largely faded from the headlines, the clean-up of US-listed China stocks is preparing to claim its second major victim in the form of AutoChina International (Nasdaq: AUTC), a seller and leaser of vehicles in central China’s Hebei province. After giving a heads-up that it had failed to file its annual report on time earlier this year, the company announced it has been notified by the Nasdaq that its shares will be delisted for what clearly looks like the kind of accounting issues that have created a broader confidence crisis in US-listed Chinese stocks. (company announcement) News of the pending delisting later this month, which AutoChina says it will appeal, sent the company’s shares down 40 percent in the latest New York trading day. After the fall, AutoChina had a market value of just under $300 million, down sharply from as high as $800 million as recently as April. If the company is delisted, it would become the second biggest US-listed China company to fall from grace, following the even more spectacular fall of Longtop Financial earlier this year, which wiped out more than $1 billion in market value. (previous post) Others smaller companies that have recently been delisted include China Agritech (Nasdaq: CAGC) and China Biotics (Nasdaq: CHBT), as part of the US securities regulator’s clean-up of an unruly group of US-listed China companies whose sometimes creative accounting methods have cast a shadow over the entire sector. Even if AutoChina successfully appeals the delisting, which looks unlikely, it would most likely face a raft of shareholder lawsuits that would ultimately force it to leave the US markets. With AutoChina’s fate apparently sealed, I’d look for at least one or two more major similar cases before the crisis is done. CDC Software (Nasdaq: CDCS), which also announced in July it had failed to file its annual report on time, could be the next big victim. (previous post)

Bottom line: AutoChina has become the second big victim in the clean-up of questionable US-listed China stocks, with at least one or two more big victims likely before the clean-up ends.

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