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Policy

Tianhe Shares Plunge After Trading Resumes

Finance: Investors dump stock of Chinese chemical firm accused of fraud

by Jean-François Tremblay
October 16, 2014 | APPEARED IN VOLUME 92, ISSUE 42

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Credit: AP
Traders on the floor of the Hong Kong Stock Exchange bear witness to a dive in the value of Tianhe stock.
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Credit: AP
Traders on the floor of the Hong Kong Stock Exchange bear witness to a dive in the value of Tianhe stock.

The market value of Tianhe Chemicals—accused of fraud by a shadowy group affiliated with the hackers known as Anonymous—plummeted 40% after its shares resumed trading on Oct 9. Tianhe and the group, Anonymous Analytics, have exchanged a volley of charges and countercharges.

In September, the Stock Exchange of Hong Kong had suspended trading of Tianhe Chemicals stock after Anonymous Analytics, in a 65-page report, accused the firm of being “one of the largest market frauds ever conceived.” The group accuses Tianhe of falsifying sales and profit figures; inventing its main customers; not possessing the technology for making its most profitable product, a touchscreen fluorochemical treatment known as anti-mar; and falsifying tax documents to prove its net income.

Tianhe has repeatedly denied the allegations and even posted a 55-page document on its website, on Oct. 8, in rebuttal. In an open letter to investors that day, Wei Xuan, Tianhe’s CEO and largest shareholder, said Anonymous Analytics is making “malicious and blatantly wrong allegations” in an effort to profit from its “downward manipulation” of Tianhe’s stock. The firm says Anonymous Analytics does not understand the anti-mar market.

Anonymous Analytics claims it is not betting against Tianhe’s shares, but it acknowledges that people and organizations it interacts with may be doing so.

Tianhe’s shares did bounce back by about 10% on Oct. 10, the day after their plunge, when the company says Wei bought $13.6 million worth of stock. But on Monday, Oct. 13, the shares resumed their slide. The stock steadied only on Oct. 15 when Tianhe announced it would buy back up to $150 million of its own shares, representing about 3.25% of its issued share capital.

Tianhe is backed by the investment bank Morgan Stanley, which, through an affiliate, invested $300 million in the company prior to its initial public offering of stock in June.

Anonymous Analytics is one of several groups that in recent years have denounced as frauds Chinese firms listed abroad (C&EN, Oct. 13, page 17). In most cases, the Chinese companies’ stock either collapsed or was hit with a trading suspension.

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