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* Editor's Note: This report has been republished with the permission of its author, Manuel Asensio, an accomplished investor with a track record for spotting possible fraud long before the market itself. Click here to read more of Asensio's research on CSKI and other companies.
Last week, Yuhe International (NASDAQ: YUII) announced in a special 8-K filing that Grant Thornton was "resigning as the company's independent registered public accounting firm effective immediately." Yuhe's stock suffered a one-day plunge of 18% on the news.
Yuhe is the product of a reverse merger between a private Chinese company and a U.S. shell company completed in March 2008. Yuhe has been listed on the Nasdaq since October, regulatory filings show, with company leaders tapped to ring Nasdaq's opening bell late last year.
Research published by asensio.com has focused on two other Chinese reverse mergers: China Sky One Medical (Nasdaq: CSKI) and American Oriental Bioengineering (NYSE: AOB). Moreover, asensio.com has also published reports on regulatory deficiencies surrounding U.S. listings of questionable Chinese companies -- particularly those that trade on the Nasdaq exchange.
On March 10, asensio.com published a report questioning whether CSKI's auditor, Moore Stephens, would resign as a result of a lawsuit brought against it for securities fraud related to CSKI's financial statements. Interestingly, Yuhe and CSKI have retained the same party -- Crocker Coulson of CCG Investor Relations -- to manage their investor relations services.
Grant Thornton's resignation as Yuhe's auditor surrounds "certain related-party loans" that "have constituted prohibited transactions under Section 402 of the Sarbanes-Oxley Act of 2002," Yuhe's recent 8-K filing states.
That filing further explains: "Grant Thornton noted during its audit procedures that the company has been unable to eliminate the occurrence of related-party loans ... The company concluded that a material weakness continues to exist with respect to the company's compliance with Section 402 of the Sarbanes-Oxley Act of 2002."
Grant Thornton had only been appointed as Yuhe's auditor on Dec. 8. Yuhe's previous auditor -- Child, Van Wagoner & Bradshaw of Salt Lake City, Utah, and Hong Kong -- has now been reappointed.
* Asensio's firm supplied the following disclaimer: WE HAVE A POLICY AGAINST HAVING ANY DIRECT OR INDIRECT INTEREST AS AN ADVISOR, AGENT OR INVESTOR IN ANY SECURITIES THAT ARE THE SUBJECT OF ANY WWW.ASENSIO.COM REPORT FOR 30 TRADING DAYS BEFORE OR AFTER THEIR PUBLICATION.
