Kandi Technologies: When is an electric car not an electric car?

Last year, Sharesleuth.com published a story questioning whether Kandi Technologies Corp. (NASDAQ: KNDI) had truly sold more than 3,700 of its electric cars, as it reported in Securities and Exchange Commission filings.

Among other things, we wondered how Kandi managed to sell 1,618 of those vehicles in 2010, given that the United States was its main market, and that the federal government and some state governments had significantly reduced tax credits for buyers.

Kandi, a Chinese company that also makes go karts and all-terrain vehicles, said in a letter to shareholders after our story appeared that it stood by its sales numbers.

But the company’s latest annual filing with the SEC raises further questions. In a footnote to a chart detailing unit sales by product, Kandi said that 960 of the 1,618 mini-cars it reported selling in 2010 were, in fact, gas-powered rather than electric.

The distinction is notable because Kandi says its electric cars are one of the main drivers of its growth, and the breakdown in its latest annual report shows that sales of those vehicles actually plunged in 2010.

The company reported selling 1,892 electric vehicles in 2009, including nearly 1,000 in the final quarter of that year.

Kandi did not mention in its 2010 earning releases or quarterly SEC filings that the majority of the vehicles it was selling that year were conventional gas-powered models.

In announcing Kandi’s earnings for the first three months of 2010, Chairman Xiaoming Hu said that sales in the quarter had risen for its “COCO EV,’’ a clear reference to the company’s electric vehicles.

Kinda reported selling 372 Cocos in that quarter, up from 169 a year earlier. The Coco is a golf-cart like vehicle, approved for street use, with a top speed of around 35 miles an hour.

The release for the second quarter of 2010 said this: “The company reported that the top contributor to the revenue gains in the period was its all electric COCO LSV, with sales of 1,005 units, primarily in the U.S., generating $4,131,674 in revenues.’’

Kandi said in the release that it sold 1,377 mini cars in the first half of 2010, compared with 474 a year earlier. It said that revenue for the period was up 80 percent, and that profits were up 435 percent.

Given that Kandi reported selling just 241 mini cars in the second half of 2010, it is clear that most of the gas-powered units would have been sold in the first half of that year — at the time that the company was reporting higher electric vehicle sales.

And given that the company said in its latest annual filing that it sold only 658 electric mini-cars for all of 2010, it would have been impossible for the company to have sold 1,005 in the second quarter, as the earnings release for that period asserted.

Houston American Energy Corp. announces SEC investigation

Houston American Energy Corp. (AMEX: HUSA) has disclosed that it is the subject of formal investigation by the Securities and Exchange Commission.

Houston America, which was the subject of an earlier Sharesleuth investigation, said it had received three subpoenas from the SEC since February. The subpoenas called for testimony by the company’s chief executive officer, John F. Terwilliger and its chief financial officer, John J. Jacobs, as well as the delivery of certain documents.

Houston America said the SEC’s probe began as an informal inquiry in October 2010. The company said it was disclosing the investigation after determining that certain third parties had become aware of it.

Houston American also announced that the company and its partners were abandoning their initial well on a new Colombian oil prospect known as CPO-4. It had previously said that although the well, the Tamandua No.1, showed possible signs of oil or natural gas, the formation had become damaged during the drilling process.

Houston American said the partners in the well had reached the conclusion that continued investment in testing and completion of the well was inadvisable. It said the drilling rig would be moved to the next exploration site at CPO-4, with a start date for that well scheduled for May or June.

Houston American has a 37.5 percent interest in CPO-4, which is controlled by a Korean energy company called SK Innovation. Houston American has claimed in SEC filings that the prospect in Colombia’s Llanos Basin is estimated to hold anywhere from 1 billion to 4 billion barrels of “recoverable reserves.’’

Houston American’s stock fell by more than 40 percent after it announced the news about the unsuccessful well and the SEC investigation.

(Disclaimer: Mark Cuban, the majority owner of Sharesleuth.com LLC, has a short position in Houston American’s shares. Chris Carey, the editor of Sharesleuth, does not invest in individual stocks and has no position in Houston American’s shares. )

Houston American said it was uncertain of the scope of the SEC’s probe.

“The Company has cooperated fully, and is committed to continuing to cooperate fully, with the SEC in this matter,’’ it said in its release. “It is now possible at this time to preduct the timing our outcome of the SEC investigation, including whether or when any proceedings might be initiated, when these matters might be resolved or what, if any, penalties or other remedies would have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.”

Houston American said the SEC began a nonpublic informal inquiry into activities involving the company in October 2010. It said the SEC ordered nonpublic formal investigation in March 2011.
Houston American said it received a copy of that order for a formal investigation in February of this year, in connection with the first subpoena from the agency.

SEC charges Heart Tronics Inc., formerly Signalife Inc., alleging “brazen series of frauds”

The Securities and Exchange Commission has brought fraud chargesagainst Heart Tronics Inc. (Pink Sheets: HRTT.PK), its co-chief executives and the husband of its majority shareholder, alleging that the company falsified sales, issued misleading press releases and committed numerous other violations.

The company, previously known as Signalife Inc. and Recom Management Systems Inc., was featured in a Sharesleuth investigation in 2008. That story presented evidence suggesting that Mitchell J. Stein, a California attorney, secretly controlled the company, and that it had engaged in market manipulation with the help of consultants who got millions of dollars in stock.
The SEC said in its complaint that Stein did indeed control the company, even though he was not listed as an officer or director. The agency also alleged that he used a collection of trusts to sell at least $5.8 million in stock owned by his wife, Tracey Hampton-Stein, without publicly disclosing those sales.
The company’s shares formerly traded on the American Stock Exchange.
Another of the defendants in the SEC case is Willie Gault, a former professional football player and Olympic gold medalist. Gault was co-chief executive of Heart Tronics, which purported to make heart-monitoring devices that could detect irregularities and help prevent heart attacks.
The Justice Department, meanwhile, announced that Stein was arrested at Los Angeles International Airport over the weekend in connection with what it described as a “multi-million dollar market manipulation fraud scheme.” Those charges include mail fraud, wire fraud, securities fraud, money laundering and conspiracy to obstruct justice.
The SEC’s complaint alleged that Stein and an associate, Martin B. Carter, engaged in an elaborate scheme to fool investors — and even the company’s executives — into believing that it had legitimate orders for millions of dollars worth of the heart monitoring devices.
Those schemes included creating fictitious companies, with fax numbers that went to Carter’s house, and even sending Carter to Japan to mail a letter from one of the companies so it would appear that the company was actually based in that country, as Stein had claimed.
The SEC also alleged that Stein caused the company to pay $600,000 in cash and $1.47 million in stock to Carter under a sham consulting contract. According to the complaint, Carter kicked back most of that cash and most of the proceeds from the sale of those shares to Stein.
Earlier this year, the California Attorney General’s office filed a complaint against Stein, allegeing that he and others participated in an unrelated scheme to deceive desperate homeowners into paying thousands of dollars each to join dubious class-action suits against mortgage lenders.
According to the complaint, the lawyers and telemarketers involved in the scheme led the homeowners to believe that the suits would halt foreclosures on their homes, reduce their loan balances, bring them financial settlements and possibly eliminate their mortgages entirely.

Canadian judge forces DeepCapture.com to pull content

A Canadian judge has ordered DeepCapture.com, a U.S.-based “anti-naked shorting” web site, off the Internet after a penny stock promoter accused the site of defamation.
Altaf Nazerali, a stock promoter in Victoria, British Columbia, claimed in a lawsuit that the site, edited by former Columbia Journalism Review columnist Mark Mitchell, falsely portrayed him as “a criminal, arms dealer, drug dealer, terrorist, Baud artist, gangster, mobster, member of the mafia, dishonest, dangerous and not to be trusted.” 
The defendants in the case also included Patrick Byrne, the chief executive of Overstock.com (Nasdaq: OSTK), and High Plains Investments LLC, a fund that Byrne controls. Nazerali alleged in his suit that Byrne owns Deep Capture LLC, the company behind DeepCapture.com.
Nazerali filed suit in Canada on Oct. 19 and an injunction was issued the same day, according to The Province. Nazerali also named Google Inc., as a defendant, for indexing and linking to the site, as well as GoDaddy.com, the site’s registrar.
Deepcapture.com’s content has been offline since the injunction was issued.
While DeepCapture.com is registered to a proxy, on an archived version of the site Byrne lists himself as a Deep Capture reporter and the source of its funding. The site described itself as “a new approach to journalism” and claimed that “that powerful actors have been able to influence or take control of not just the regulators, but also law enforcement, elected officials, national media, and the intellectual establishment. It is our mission to expose this ‘deep capture.’”
Since 2005, Byrne has been complaining that a hidden cabal of hedge funds, brokerages and other financial firms have been systematically seeking to undermine companies — including Overstock — through illegal “naked shorting” of their shares. Byrne contends that journalists, regulators and others have been co-opted by the group. 
It’s unclear if an injunction also was issued against Google, named in the suit because it indexed and linked deepcapture.com. Searches on Google.com for “Altaf Nazerali” and “Ali Nazerali” still returns links to Deep Capture’s story.
On an investor’s forum, a post attributed to Byrne said: “Gosh, I go off-line for a few days of R&R and look what happens. It looks like Ali Nazerali wants to go a few rounds. Happy to oblige.” 
Nazerali is no stranger to controversy. He or his investment funds have been involved in a number of public companies that have drawn scrutiny from news organizations and regulators.

California attorney general alleges that lawyers and telemarketers defrauded desperate homeowners

The California Attorney General’s office has
filed a complaint against Mitchell J. Stein — who was featured in a Sharesleuth
in 2008 — alleging that he and others participated in a scheme to deceive desperate homeowners into paying thousands of dollars each to join dubious lawsuits against their mortgage lenders.

According to the complaint, the lawyers and telemarketers involved in the scheme led the homeowners to believe that the suits would halt foreclosures on their homes, reduce their loan balances, bring them financial settlements, and possibly eliminate their mortgages entirely.

Authorities say the ring solicited homeowners in 17 states and persuaded at least 2,500 of them to pay as much as $10,000 each to join suits, some of which were never filed.

Stein, a Californa-based lawyer, was involved in the creation and development of Recom Managed Systems Inc., a medical device company that went public through a reverse merger. It later changed its name to Signalife Inc., and is currently known as Heart Tronics Inc. (Pink Sheets: HRTT.PK).

The attorney general’s office said in a press release that all of defendants had their assets seized and were enjoined from continuing their activities.

Research report alleges that Sino-Forest Corp. overstated assets, revenues

Muddy Waters LLC said in a research report that Sino-Forest Corp., a Canadian company with extensive timber holdings in China, has substantially overstated the amount of forest land it controls, as well as the amount of wood it has been harvesting.

Trading in the Mississauga, Ontario-based companys stock (TSX: TRE.TO) was halted by the Toronto Stock Exchange after the shares plunged 20 percent in less than 30 minutes. 

Muddy Waters said in its 33-page report that the land purchases that Sino-Forest has reported in China did not square with government records, and appear to be overstated by as much as $900 million. The report also included photographs of apartment buildings and other nondescript structures at the addresses listed for some of Sino-Forest’s major customers and financial partners.

Unlike other Chinese businesses that trade on North American exchanges, Sino-Forest has attracted some large, savvy investors, includging Paulson & Co., which has more than $30 billion in assets under management.


Kandi Technologies responds to Sharesleuth story

Kandi Technologies Corp. said in a letter to shareholders that it stands by the revenue figures in its Securities and Exchange Commission filings. However, the Chinese maker of electric cars, go-karts and other vehicles acknowledged discrepancies in charts in those SEC filings that compared 2009 and 2010 unit sales for all of its product lines. It attributed the errors to “new accounting employees.”

Kandi did not directly address the question of how and where it sold the roughly 3,700 electric cars that it reported selling over the past two years. Sharesleuth’s investigation found that dealers in the United States — the company’s primary market — sold well under 1,000 of the vehicles..

Kandi said in its letter that it sells its vehicles to Chinese export agents, distributors and other middlemen, and that it had no knoweldge of — or relationship with — the dealers that market those vehicles to retail customers.

“To the best of our knowledge, these distributors through their dealer networks distribute our vehicles throughout the world,” the company said.


Two more Chinese reverse-merger stocks get trading halts

The AMEX has halted trading in the shares of NIVS IntelliMedia Technology Group Inc (AMEX: NIV) and China Intelligent Lighting & Electronics Inc. (AMEX: CIL).

NYSE Regulation Inc., which operates the exchange, said it was seeking additional information from both companies.

“NYSE Regulation is evaluationg both the need for certain public disclosure, as well as the overall suitability for the continued listing of the Company’s common stock. In this regard, NYSE Regulation is in the process of requesting additional information from the Company in connection with such assessment,” the organization said in each of the halt orders.

According to Securities and Exchange Commission filings, the chief executive of NIVS IntelliMedia, Tianfu Li, is the brother of the chief executive of China Intelligent Lighting, Xuemei Li.


Hedge fund issues second report on China Shen Zhou Mining

Absaroka Capital Management LLC issued a follow up report on China Shen Zhou Mining & Resources Inc. (AMEX: SHZ), pointing out what it said were material misstatements or errors in the company’s Securities and Exchange Commission fiilings. The report, written as a letter to shareholders, also said that an analysis of the company’s financial statements using a forensic auditing tool raised additional concerns.

China Shen Zhou Mining issued a rebuttal March 10 to the original report. It disclosed in a subsequent SEC filing that its chief financial officer had resigned, making him the fourth CFO to leave that position in three years. Despite the negative reports, China Shen Zhou Mining’s shares have been rallying, along with shares of other Chinese minerals producers.

New Oriental Energy delisted from Nasdaq

Three days after the Nasdaq exchange halted trading in its shares, New Oriental Energy & Chemical Corp has been delisted. The company’s stock now is traded on the Pink Sheets under the symbol NOEC.PK. New Oriental Energy was one of the Chinese companies covered in a recent Sharesleuth report about the undisclosed role that certain promoters and financiers played in a series of reverse mergers.