“That’s My Story and I’m Stickin’ To It”


Citron issues further commentary on Harbin Electric (NASDAQ:HRBN)

At the risk of overstating the obvious, Chinese stocks have fallen out of favor fast with US Investors.  And for good reason. 

  What's New?

A lot of things have changed since Harbin’s elusive $24 per share buyout offer was floated eight months ago.  Since we published on HRBN last week, yet another high profile China “blue chip” – Sino-Forest (TRE in Canada, SNOFF in the US) has been decimated by allegations of fraud from Muddy Waters Research.  The stories of Chinese frauds have gone from the back pages of weblogs to front-page news in business journals worldwide.

The SEC has also recently stated its intention to increase scrutiny of US-based auditors within its inquiry into Chinese reverse-merger companies.


One thing for sure hasn’t changed:  Harbin’s auditor still is listed as Frazer Frost, a firm which no longer exists.  Frazer and Frost have dissolved their partnership; Frazer, who remains as Harbin’s auditor, also has RINO and CVVT to its credit, among other notorious stock failures in the China space.


And another thing hasn’t changed in the past eight months.  Harbin Electric still stands by a “phantom bid” by its Chairman to take the company private.  Even though there is no formal offer, no committed financing, and the company’s reported financial performance has eroded materially in that time, investors are sitting on the edge of their seats waiting for the approval of this gesture by a “special committee” formed by Harbin.  Citron expects the next press release from the company to be an “acceptance” of this buyout offer, or at the very least, a special meeting of this special committee.


Before we go into who is on this special committee, lets first address the absurdity of this eight-month wait at the hands of the “special committee”.  Why would it take three men a total of eight months to approve an informal offer to take the company private at a significant premium?  Heck, the US Congress took less time to bail out the entire banking system and the US automakers!


“The Company’s Board of Directors has formed a special committee of independent directors consisting of David Gatton, Boyd Plowman and Ching Chuen Chan (the "Special Committee") to consider this proposal.  The Special Committee intends to retain independent advisors, including an independent financial advisor, to assist it in its work. No decisions have been made by the Special Committee with respect to the Company's response to the proposal. There can be no assurance that any definitive offer will be made, that any agreement will be executed or that this or any other transaction will be approved or consummated. A copy of the press release is filed herewith as Exhibit 99.1 to this current report on Form 8-K and is incorporated herein by reference.”

   Introducing “The Committee”

While Citron eagerly awaits the special news this special committee will be generating soon, we’d like to introduce the players to you now. 

   Introducing committee member #1:

The chairman of the special committee is a gentleman named Boyd Plowman.  Mr. Plowman is the former CFO of Fleetwood Enterprises and is the chairman of the HRBN audit committee as well.  Interestingly enough just two months ago, the trustee of his former employer, now in bankruptcy, sued him.


“Plaintiff alleges on information and belief that Defendant used or benefited from his senior position with the Debtors to cause or to influence the Debtors to use corporate assets to make Benefit Plan payments to himself and other insiders at a time when the Debtors were insolvent.”


Note: Citron does not believe this makes Mr. Plowman a bad person and we do not know the end result of the lawsuit.  It just shows that Mr. Plowman has no problem playing “loose with the rules”.


… and now, Member #2


The next member of the special committee is David Gatton.  The company has no problem publishing the many accolades of Mr. Gatton :



However, Citron notes that Mr. Gatton was also on the board of directors of Bodisen Biotech.  Bodison was one of the first and most notorious of the China reverse merger stock frauds, after being a battleground stock for some years.  Of course, the company blamed its eventual demise on short sellers.




Bodisen was eventually delisted in March of 2007, but Mr. Gatton did not resign until February of 2008.


Again, this does not make Mr. Gatton guilty of any crime.  It just shows that he is not immune to aligning himself with unscrupulous companies whose strategy for “creating value for shareholders” is essentially doing battle with short sellers. 

   …and Member #3

The last person on the special committee is Ching Cheun Chan. Much like Mr. Gatton, the company details many accolades in Mr. Chan's career. 


But we also see he was also a director of a broken penny stock in Singapore called Azeus Systems.


Azeus now trades for .08 cents



Ching Cheun Chan was also on the board of a dubious US penny stock named Rotoblock, which he just resigned from in February 2011.  That stock currently trades by appointment at $1. 

In 2008 it was promoted to a brief high of $10 per share. 


He also has stints on advisory boards of ZAAP and ALTI, which trade for 50c and a $1, respectively. 


Again, this does not make Mr. Chan a bad person; it just seems to Citron that he is a name for hire who does not mind aligning himself with any public company regardless of their credibility.



So as investors mull over this phantom bid, Citron believes it is important to note the pedigree of the three gentlemen who we believe will be at the epicenter of Harbin’s next PR. 


The fact that Harbin has delayed its response for so many months, while expecting investors to be keep paying to keep the stock price up, just takes us back to the good ole country sound “That’s  My Story and I’m Stickin’ To It”. 


( For those of you who have never heard it….you can read these lyrics here:

http://www.lyricsdomain.com/3/collin_raye/thats_my_story.html  )

Citron advises readers not to believe what the company says, only what it does.

That’s our story and we’re stickin’ to it. 

Cautious investing to all.