China Medical shares plunge on fraud allegations
Mon, Nov 21 2011
Tue Dec 6, 2011 11:10am EST
(Reuters) - Shares of China Medical Technologies (CMED.O) lost over a quarter of their value on Tuesday to hit a life low, after an online research firm alleged that the Chinese company had defrauded investors.
In a report on its website, research firm Glaucus Research Group alleged that China Medical's CEO "orchestrated an acquisition to embezzle roughly $20-$23 million from the public company."
The firm disclosed that it held a short position in China Medical shares and stood to gain from a decline in the stock's price.
The company was not immediately available for comment.
Glaucus' report is the latest in a string of fraud allegations against Chinese companies listed in the North America, and are often made by investors who are simultaneously shorting the stocks they comment on.
In 2007, China Medical acquired Beijing Bio-Ekon Biotechnology Co Ltd for $28.8 million.
Glaucus said it believes that the medical device maker overpaid for the acquisition from an entity it thinks is secretly related to China Medical's Chief Executive Xiaodong Wu.
The firm also alleged that China Medical sold its biggest revenue generating segment -- high intensity focused ultrasound business that develops products used to treat solid cancers and benign tumors -- to Wu, to conceal that the unit was worthless.
China Medical shares were down 17 percent at $2.81 in morning trade on Nasdaq. They touched a low of $2.46 earlier in the session.
(Reporting by Anand Basu in Bangalore; Editing by Esha Dey)
