Market Overview

Fruity Things With SkyPeople Fruit Juice

Shares of SkyPeople Fruit Juice (Nasdaq: SPU), the small-cap Chinese fruit juice producer, are higher by almost 2% today despite a report by The Financial Investigator that outlines a legal rift between the company and a Wyoming-based hedge fund.

Last year, Absaroka Capital Management issued a report highlighting an array of issues at SkyPeople that investors should have been concerned about. On June 10, 2011, Kevin Barnes, manager of Absaroka, received a terse email from Neal Marder, the head of Winston & Strawn LLP's Los Angeles litigation group, according to the Financial Investigator.

Barnes and his researchers in China had discovered that SkyPeople didn't own a major Asian kiwi plantation as the company asserted and the pictures of its own fiscal health painted by the company to U.S. and Chinese regulators differed, the Financial Investigator noted.

SkyPeople, another in a long line of Chinese reverse merger companies, was in essence telling Chinese regulators it was about 10% of the size it was leading American regulators to believe it was.

Marder claimed that Barnes didn't read the filings correctly and issued a strongly-worded demand letter as a result, assuming Barnes and his hedge fund would not want to engage in a protracted legal battle that would cost the fund money and investors.

"Barnes, per Winston & Strawn, was playing the game with a listed Nasdaq stock and that is an order of magnitude more serious. Leaving aside the complete immorality of what Barnes was being accused of, it was a dangerous game that likely would prompt an invitation to discuss the matter from lawyers less well-paid, but sharply more powerful, than Neal Marder, the Financial Investigator noted.

Barnes would proceed to hire a lawyer known for defending short-sellers, but on July 8, Absaroka and Barnes were sued by SkyPeople.

"Absaroka, it appeared, had done nothing that couldn't be explained in front of a dozen strangers. Everything Barnes wrote was backed up by veteran investigator accounts, photos, multiple onsite interviews and the company's Chinese filings," the Financial Investigator said in the report.

The Financial Investigator went on to note Barnes faces a long battle given the bias of U.S. courts against short-sellers and that "he has no legal remedy he can pursue in China and even doing research there is now dangerous for him."

Posted-In: Analyst Color Long Ideas News Short Ideas Hedge Funds Small Cap Analysis Small Cap Global

 

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