Dude! Where’s My Auditor?? The Curious Case of Frazer Frost

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As the most recent measure of just how crazy the China reverse/merger Nasdaq stock story has become, check out the drama with one of the space’s most prolific auditing firms:  Frazer Frost.  F/F was the auditing firm of the now notorious RINO, which has been halted since last week … but now the auditing firm does not exist?

This firm was formed just a year ago with the announcement of Moore Stephens Wurth Frazer and Torbet LLP plans to merge with Frost PLLC as of the beginning of the year (2010).

http://www.accountingtoday.com/news/Moore-Stephens-Wurth-Frazer-Merges-Frost-52470-1.html

The article goes on to detail a “relationship stretching back decades”, with each contributing about $30 million in revenues, it seemed like a marriage made in heaven, right ?.

However less than one year in, we learn the marriage must have been just “friends with benefits”.

http://www.arkansasbusiness.com/article.aspx?aID=124632.54928.136774

Guess the “decades long relationship” was only good enough to justify a “trial period” … a fact left out of the original release.   Well, you know things are bad when you get dropped by your auditor but what happens when your auditor drops himself?

If you call Frost today in Arkansas, they answer “Frost & Co” and say they’re no longer associated with Frazer.  Citron spoke to managing partner Dan Peregrin and twice he told us that the two firms have gone their own way. ….but if you call Frazer, they answer “Frazer Frost” and in a brief conversation with Susan Woo, the RINO auditor, she told Citron that Frazer Frost is still an operating entity.

Really?  If you go to the Frazer Frost website, you see a homepage with no content in the about us section.

http://frazerfrost.com/

This is in contrast to a full description of the firm displayed a short time ago, as you can see in their old website which is still cached on Google.

http://frazerfrost.com/index.php?fuseaction=p0008.&mod=25

Why does this matter?

Today we saw an “equity partner” in the purported Harbin takeover (NASDAAQ:HRBN) take a backseat in the deal.  How can anyone rely on any numbers audited by Frazer Frost if they don’t even believe in themselves?  How can anyone take a company private or for that matter be an investor in a China “black box” without confidence in the auditor?

Barrons wrote skeptically about Frazer Frost in its August piece on the China reverse merger space,

http://online.barrons.com/article/SB50001424052970204304404575449812943183940.html#articleTabs_panel_article%3D1

It is the opinion of Citron that if RINO was an isolated incident, it would not cause a whole auditing firm to break up.  Instead, this is just a precursor for more to come, we believe not just in Frazer Frost stocks, but the whole space.

The quality of the work of Frazer/Frost makes it impossible to rely on the financials of HRBN, SCOK, and CVVT .  This small cap China space seems to get stranger every day.   These companies should immediately put out 8-K’s and inform the public as to who their auditor really is.  Either that or it is time to call Scooby Doo and the Mystery Machine for the case of the missing auditor.

Cautious Investing To All