Small Companies, Big Questions: Chinese toll road and shipping companies take North American investors on strange trips

(Part three of a three-part series)

To U.S. investors, buying a piece of a toll road company in one of China’s fastest-growing provinces might have seemed like a pretty safe bet.

But the twists and turns at China Infrastructure Investment Ltd. (Pink Sheets: CIIC) have taken the company from the Nasdaq to the Pink Sheets and wiped out much of its market capitalization, which once topped $400 million.

A Sharesleuth investigation found that certain undisclosed parties profited handsomely  from the reverse merger that brought the company public, by buying 21.9 million shares from the former chief executive of the U.S. shell it combined with.

Securities and Exchange Commission filings show that the ex-CEO, Fred L. Hall, sold the stock for $72,500 just days after the reverse merger, in February 2008.

The sale price translates to less than 0.4 cents a share. At the time, the company’s stock was trading on the open market for more than $4.

Whoever got Hall’s stock appears to have resold much of it during periodic surges in trading volume in 2009 and 2010. Based on China Infrastructure Investment’s share prices in those periods, it’s possible that the seller or sellers could have collected $20 million or more.

Our investigation also found that the holding company that owned a majority stake in China Infrastructure Investment at the time it went public might have ended up with some of Hall’s stock.

SEC filings show that the holding company boosted its stake by more than 13 million shares over a two-year period, without disclosing any changes in its ownership, as required under federal securities law.

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