Bloomberg News

Chaoda Slumps in Hong Kong Trading on Misconduct Lawsuit

September 26, 2011

(Updates with investor’s comment in fifth paragraph.)

Sept. 26 (Bloomberg) -- Chaoda Modern Agriculture Holdings Ltd. plunged the most in eight-and-a-half years after the Hong Kong government accused it of market misconduct amid allegations the Chinese food producer overstated its land holdings.

The shares tumbled 27 percent to HK$1.10, the most since March 2003, before trading was suspended pending a price- sensitive statement. Chaoda was the second-biggest decliner on the MSCI AC Asia Pacific Index.

Chaoda’s market value has been cut by HK$11.9 billion ($1.5 billion) since Next Magazine’s May 26 report alleging it exaggerated its farmland, which was denied by the company. Increased scrutiny of Chinese companies including Toronto-listed Sino-Forest Corp., accused of fraud by short-seller Muddy Waters LLC, has driven down the Bloomberg Chinese Reverse Mergers Index down 58 percent this year.

The Hong Kong Financial Secretary’s office on Sept. 23 confirmed the case against Chaoda in the Market Misconduct Tribunal. Securities and Futures Commission spokesman Jonathan Li declined to comment today on whether the regulator had conducted an investigation of the company before the Financial Secretary filed the case.

“What kind of misconduct, no one really knows for now,” Castor Pang, head of research at Core-Pacific Yamaichi International Ltd. in Hong Kong, said about Chaoda. “It’s hard to guess what’s going on, except that it’s probably quite serious.”

Preliminary Hearing

Eric Yip of Christensen, which handles investor relations for the company, said Chaoda’s lawyers are working on a statement to be filed with the Hong Kong stock exchange.

Shirley Wong, a spokeswoman for the Financial Secretary’s office, declined to elaborate on the nature of the allegations against Chaoda and referred inquiries to the Market Misconduct Tribunal. Tribunal secretary William Chow also declined to state the specific allegations or people involved. A preliminary conference in the case was held on Sept. 6 and the next hearing date hasn’t been determined, Chow said.

Hong Kong’s Market Misconduct Tribunal hears civil cases involving stock market manipulation, false trading, insider trading and three other offenses. The tribunal can order the disgorgement of profits gained or loss avoided as a result of misconduct, and can bar individuals from being corporate directors, according to its website.

Sino-Forest shares tumbled 74 percent before the Ontario Securities Commission suspended trading on Aug. 26, saying the company appeared to have misrepresented its sales and timber stocks. Investors including hedge fund manager John Paulson and billionaire Richard Chandler took losses after Carson Block’s Muddy Waters research firm said on June 2 the company had overstated its holdings.

--With assistance from Michelle Yun in Hong Kong. Editors: Rebecca Keenan, Douglas Wong

To contact the reporter on this story: Debra Mao in Hong Kong at dmao5@bloomberg.net

To contact the editor responsible for this story: Douglas Wong at dwong19@bloomberg.net


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