As audit season moves to New York, we have our first victim. ChinaCast Education (NASDAQ:CAST) filed a Form NT 10K on March 16 indicating it would not be filing its Form 10K for 2011 on time. On March 27 NASDAQ wrote the company telling the company to give them a plan to get back in compliance by April 10 or face delisting. ChinaCast has been having some problems. A proxy fight in January led to the board removing the Chairman, Ron Chan. At the same time the company was dealing with SEC inquiries that led to restatement of its financial statements for 2010. The auditor is Deloitte.
Today. the company reports that it is unable to resume normal operations because Chan has taken the chops, business licenses, and accounting records of its Chinese subsidiaries. The company says Chan showed up at the office trying to assert control. We have seen this movie before – Gigamedia. ChinaCast also has a VIE, which is owned by three employees not including Chan. Will Chan be able to seize control of the VIE as well? ChinaCast’s VIE had 24% of its revenue in 2010.
The stock has been suspended from trading today. Few have come back from these kinds of problems. While there is no evidence that there is a fraud, there certainly is a lot of smoke. Yesterday Renaissance Investor issued its Lesson 14 as a tutorial on how to avoid investing in fraudulent companies using ChinaCast as a case study. ChinaCast had a market capitalization of $208 million when trading was suspended.
Read this fascinating letter from the board that was issued after this post went live.
Ron Chan issues his own fascinating letter.