Puda Coal, Inc Investor Files Lawsuit Against Board Of Directors Of Puda Coal
An investor in Puda Coal, Inc (Public, NYSE:PUDA) shares filed a lawsuit against the board of directors of Puda Coal Inc. over alleged breaches of fiduciary duties for not disclosing to investors that the company's chairman sold off its operating unit.
The lawsuit by an investor of Puda Coal, Inc (Public, NYSE:PUDA) against the board of directors of Puda Coal Inc. follows another lawsuit filed on behalf of investors, who purchased their shares of Puda Coal, Inc. (AMEX:PUDA) between November 13, 2009 and April 11, 2011. According to that complaint the plaintiff alleges that Puda violated the Securities Exchange Act of 1934 by failing to disclose material adverse facts about its true financial condition, business and prospects.
Puda Coal’s 12months Total Revenue increased from $165.27million in 2007 to $324.82million in 2010. Its Net Income rose over the same time frame from $10.87million to $23.53million.
Shares of Puda Coal, Inc (Public, NYSE:PUDA) increased from as low as $4.90 during February 2010 to as high as $15.41 during December 2010.
PUDA shares fell from over $12 at the end of March 2011 to $6 per share on April 8 when a report surfaced on an investor website the same day alleging that “Puda Coal Chairman secretly sold half the Company and pledges the other half to Chinese PE investors.”
According to the report certain company transfers were hidden from its U.S. investors that were not reported in its SEC filings or offering documents.
The report said that beginning in Fall 2009 Puda Coal Chairman Ming Zhao allegedly transferred Shaxi Coal, Puda’s sole Chinese operating subsidiary, to himself through a series of transactions. The report states that in July 2010, Zhao sold 49% of his interest in Shanxi Coal to a private equity firm for RMB245 million ($37.1 million) and pocketed the proceeds. Zhao’s remaining 51% interest was pledged as security so the Company could obtain a three year loan from the private equity firm for RMB 2.5 billion ($379 million). The report states that Zhao attempted to secretly return a portion of Shanxi Coal to its rightful owner by transferring his remaining interest to subsidiaries controlled by the Company. As a result of these transactions, the report concludes the Company’s audited financial statements for 2009 and 2010 are false and misleading and that Puda Coal is alleged to have been an empty shell. On April 8, 2011 Puda Coal said it was reviewing them and would provide a formal response as soon as practicable.
On April 11, 2011, Puda Coal issued a further statement that the Audit Committee of its Board of Directors had launched a full investigation into the allegations raised in the recent article. Although the investigation is only in its preliminary stages Puda Coal said that “evidence supports the allegation that there were transfers by Mr. Zhao in subsidiary ownership that were inconsistent with disclosure made by the Company in its public securities filings.” Further the Company said it has retained professionals in the United States and China to assist in the investigation and that Mr. Zhao, the Chairman of Puda Coal, has agreed to a voluntary leave of absence as Chairman of the Board until the investigation is complete.
On April 11, 2011, the New York Stock Exchange has halted trading in Puda Coal’s stock.