The chop is a device used to affix the corporate seal on a document. All business transactions in China require this. It's like a notary seal.
So far, no word from Mr. Fan concerning the status of the appeal. I have a sinking feeling that it will not be granted and the stock will be delisted on Monday. I tried to impress upon him that the only recourse given the short deadline he is under is to bring Mr. Cheng back as an officer in the company. If he loses the NASDAQ listing, Tri-Tech Holding essentially folds and it will make it much more difficult for the company to expand internationallly.
I am trying to understand why the corporate seal being in Mr. Cheng's possession is an issue anyway, unless it has to do with the VIE agreement. Perhaps, Tri-Tech Beijing holds the seal, even though it belongs to BSST, as a kind of collateral to ensure that BSST will abide by the VIE agreement. That must be how they maintain control over these subsidiaries.
well, I certainly made a stupid buy on this one, and hear I thought investing in a water resource company in China was a smooth move.
I emailed the guy...for all the good that does. What the heck is a "chop' anyway ?
You're right. An SEC investigation won't do much, but Mr. Fan would dare not travel to the US if there is a judgment against him. Mr. Fan wrote me back to say that he appreciated my suggestion and that he was working to the best of his capacity on this issue. I tried to impress upon him that a Chinese court remedy would not save that company, that the best option is to re-instate Mr. Cheng as a company officer immediately.
Tell me how the SEC wants to collect this? Are there any assets in the US or under US jurisdiction. With respect to Chinese companies with operations in China only the SEC is a "toothless tiger". In the case of TRIT the assets of the US subsidiary could be seized but I doubt they are worth much.
As usual US investors are going to get pennies on the dollar and the lawyers 35 % of the cake.
It is a loss for them in that they won't be able to raise capital through the US markets nor will they be able to profit from their TRIT shares. Their executives, such as Mr. Fan, will be subject to an SEC investigation.
They do not loose as they still have the company. Only US investors lost again. There should be no more small cap Chinese companies allowed to kist in the US.
It is extremely important that you write Phil Fan (email@example.com) and insist that he resolve this situation with Mr. Cheng immediately! Even if it takes bringing him back at CEO. Believe me, I have gone through this with Rino International and it will not be pretty! The SEC will get involved, lawsuits will be filed, and even if he succeeds in getting the stock to trade on the pink sheets, it will become virtually worthless. The lawsuits will get you pennies on the dollar and that assumes the court can collect. We must do all we can. Remember China is 13 hours ahead of EDT, so we have already lost a couple of days. The company must resolve this by Friday!
So bottom line is these subsidiaries surrendered their voting rights (the voting rights of their companies) over to Tri Tech Beijing for 25 years, which is 100% owned by Tri-Tech Holding (Tri-Tech Beijing is the wholly owned foreign entity which does consulting to the subsidiary in exchange for 90% of their profits). The shares of the subsidiaries also are pledged as collateral for cash flow payments. The subsidiary shareholders agree to allow Tri-Tech Beijing to appoint some of their board members, and give them the right to purchase their shares should it be allowed in the future. In exchange, they received shares in Tri-Tech Holding. So what would happen if Tri-Tech Holding (TRIT) shares collapsed. The shareholders of these subsidiaries would be out the money they had in TRIT, but what about their company shares? Technically, they still own them, but Tri-Tech Beijing controls them for 25 years. So their hands are tied. They can't sell their interest in their subsidiaries as far as I can tell. That includes Gavin Cheng.
Concurrently, on November 28, 2008, the shareholders of Yanyu and Tranhold (other than the SOE Shareholder of Yanyu) entered into and caused Yanyu and Tranhold, as applicable, to enter into a series of control agreements described below with TTB in return for ownership interests in TRIT. Through the formation of TRIT and TTII as holding companies, the Yanyu and Tranhold investment entities now own, respectively, approximately 24.73% and 21.99% of the ordinary shares of TRIT. In addition, other shareholders affiliated with Tranhold or Yanyu hold, in the aggregate, approximately 9.47% of our ordinary shares. The remaining approximately 43.81% of TRIT’s ordinary shares belong to other investors. TRIT, in turn owns 100% of the equity of TTII, and TTII owns 100% of the equity of TTB.
I see no Form 4's filed with the SEC. This is the form used for insiders to buy and sell stock. I did see this in an amended S1, prior to the IPO:
"Assuming the sale of the maximum offering, entities controlled by our employees, officers and/or directors will, in the aggregate, beneficially own approximately 59.54% of our outstanding shares. Assuming the sale of the minimum offering, entities controlled by our employees, officers and/or directors will, in the aggregate, beneficially own approximately 66.26% of our outstanding ordinary shares. As a result, our employees, officers and directors will possess substantial ability to impact our management and affairs and the outcome of matters submitted to shareholders for approval. "
I believe these shares were given in consideration of the Chinese-based subsidiaries to relinquish operational control to the holding company. So Cheng should have received some shares for BSST, as founder of that subsidiary. But none of the SEC filings contain just how many shares he owns. At any rate, he's shooting himself in the foot by doing this.
I believe Tri-Tech Holding is a VIE, which is not legally recognized in China. So Cheng can keep the chop with impunity. As far as the Chinese government is concerned, he still owns the company. Therein lies the problem. The only way to get it back is to talk some sense into him. I'm trying to find out if he owns any Tri-Tech shares. If he insists on keeping the chop, the company will get delisted, and the share price will plumment. Money talks.
...insightful analysis...thanks...I suppose I would be naive to think that there was some sort of Chinese legal or administrative proceedings to get the chop back (local Chinese "sheriff" and writ of attachment/subpoena?) or have it declared lost/stolen/ineffective....but then again, if in China it does work anything at all like our civil legal process, it can be slow as molasses...GL
Possibly if management was on top of things. But OTC is a wild, wild west. No market makers involved. Difficult to trade, especially low float stocks.
Problem is Fan can't make Cheng return the chop, so how can they ever do a financial statement that is believable. They are only doing themselves in with this spat. Some 44% of shares are held by insiders. If the price collapses, they lose. Get Cheng back on board, for crying out loud, and end this nightmare!
...al, do you think TRIT will move over to OTC?...my understanding is that even OTC stocks have certain minimum requirements, which TRIT may or may not meet, I suppose...any thoughts?....
Well, you got your update. The stock will be delisted March 10th unless Tri-Tech wins an appeal, which I do not believe they have grounds for.
They would subject themselves to lawsuits and would attract the ire of the SEC. The SEC just rendered a final verdict on CCME to the tune of $17M plus $1.5M in fines. Mr. Fan would never be able to show his face in the US again.
It's sad that the company issued a PR on the resignation of 2 board members, 1 an American on the audit committee. I agree something smells rotten.
They might still be listed but they are not profitable. I do not think that management planned to defraud investors but now that their stock is down so much they may just abandon US investors as other companies have already done
I did as well. The response from Brian McClellan:
"Tri-Tech Holding and its subsidiaries are still conducting business as usual. Mr. Fan is working to resolve the issues related to NASDAQ"