EXCLUSIVE: GeoInvesting's Dan David Answers L&L Energy Questions (LLEN)
Disclosure: Dan David is short LLEN
Last month Geo wrote an article titled “GeoInvesting Blows The Whistle On L&L Energy,” which lays out the argument for L&L’s lack of legitimacy. Reasons including a coal washing facility the company claimed revenue from, but was closed, and mines the company supposedly owns, but their research suggests the company does not.
KPMG 2011 and 2012 Review
When asked how L&L got KPMG to sign off on their audits, David replied that "It’s not true."
“That’s not the case at all. That’s what people on the internet like to say. KPMG is not signing off on their audit at all. KPMG is doing a review of their US audited financials. If you read the fine print, its a review and not an audit,” David said.
David then explained that a review is a check of documentation, not onsite visits.
Dan David commented on the independent committee L&L hired to review its operations:
“How do the members of a so called independent committee formed by L&L start accepting shares during the investigation in lieu of compensation? Its just mind boggling.” He said. “There are independent directors on this committee, but how is it truly independent if there are related parties being directors on this committee? A truly independent investigation requires the company hiring KPMG or hiring Deloitte. And now they are issuing shares in broad daylight to compensate these people.”
The obvious conflict here is that if this committee finds in favor of LLEN their new found shares are worth much more, but if they find against (as they should) their shares are near worthless.
“This dilution is insane,” stated David. “There are now over 45 million shares outstanding. In the last six weeks or so there have been five million additional shares issued [over 12 percent of the float]. A year and half ago they had 30 million shares outstanding. Now they have 45 million shares outstanding. That is a fifty percent increase without any formal capital raise.”
David explained that there is more to the insider buying, notably Dickson Lee, than one would expect.
“Dickson, in his form 4, shows that he put up shares as collateral, and then went and paid off that collateral and got his shares back. There was no net change in his holdings.”
L&L’s Initial Press Release
After GeoInvesting released its article, L&L quickly responded by stating that the mines were acquired by another entity as disclosed in their 10-K.
David commented on this statement, “Once they named these subsidiaries, we went and pulled the SAIC filings and we saw that L&L is nowhere on these filings. Chinese media did the same, once again validating our findings that L&L is nowhere on these subsidiaries.”
The company responded with a press release the following day, that corrected that the subsidiaries were not mentioned in their 10-K.
Although all of their operations take place in China, L&L’s headquarters are in Seattle, Washington. David was asked how headquarters in the United States increase the possibility of government action against the company.
“In theory it should, but are they really in the United States if they have a small office in Seattle?” he said. “What we believe is that L&L should be delisted; I dont think it’s too difficult with them being in China. I think that the video evidence that I have shown the regulators is backed up by news reports about the closing of the ZoneLin coking facility. There are government official interviews we have for Hong Xing saying that this coal washing facility was closed in 2012.
David went on to explain the reality of the government taking action against L&L.
“I think is very damning evidence, and while it may take time to verify, especially with the SEC’s limitations in China, I don’t really see a way around it.”
Shares of L&L Energy closed at $1.28 Tuesday, down 32.63 percent year to date.
UPDATE: Awaiting Comment From L&L Energy
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