Quick Take – ChinaCast Reopens For Trading (CAST)

After being halted for months, shares of ChinaCast Education (CAST) a filthy Chinese reverse-merger company, finally reopened for trading. The shares promptly lost over 80% of their value.

After the bell, the firm put out an 8k filing, available here,  which contained this priceless paragraph:

On June 19, 2012, the Company and several of its subsidiaries filed an application with the High Court of the Hong Kong Special Administrative Region, Court of First Instance (the “Hong Kong Court”), alleging that former chairman and chief executive officer Ron Chan Tze Ngon, former chief financial officer Antonio Sena, former chief accounting officer Jim Ma, and former president-China Jiang Xiangyuan had committed tortious wrongs against the Company and violated their fiduciary duties and service contracts by individually and in conspiracy using their positions at the Company to further their own businesses, dissipating Company assets through unauthorized borrowings and cash pledges, and converting the Company’s cash and assets (including two and possibly all three of the Company’s private colleges). As part of the application, the Company also sought an injunctive order to freeze the assets of these executives that are located in Hong Kong, and filed a lawsuit against them seeking damages and an accounting of the property which the defendants’ have taken away from the Company as well as interest and legal costs. On June 19, 2012, the Hong Kong Court granted the Company’s application with respect to the injunction, restricting the defendants from removing their assets from Hong Kong, up to a value of Rmb800 million. The defendants have not yet responded to the injunctive order and, to date, have not acknowledged service of the proceedings against them. The Hong Kong Court has scheduled a hearing for July 6, 2012, to consider continuing the injunction.

Notwithstanding the fact that today is the 25th of June, and the company could have disclosed this information on the 19th of June, thus letting some of its stupider stuckholders know exactly WHY the shares were about to plunge, it really should be no surprise.

Unless of course, you are a brilliant investors like Ned Sherwood, who waged a proxy fight all last year with the company. Ned was seemingly completely unaware that there was actually nothing to fight over. The assets were plundered, and company management just walked away.

Poor delusional Ned. He reminds your author of an older “Beijing Jesse”. He seems so puzzled by the actions of CAST management, and so willing to believe the short sellers were wrong.

In one of his 13D filings from last fall Ned states:

As a Board member and independent outside director, I have become uncomfortable with many of the recent actions of senior management, the Company’s legal counsel and several members of the Board. Having been on the Board now for two years, I am impressed with CAST’s business model and its future prospects and potential. But I believe that the current corporate and legal governance issues are undermining the Company’s shareholder value.

I have demonstrated my support of and faith in ChinaCast by investing a substantial amount of money in its common shares. In the past year alone, I, on behalf of entities that I control, have purchased more than 3,140,000 of the Company’s common shares at a time when CAST was the subject of unjustified attacks by short sellers. Almost all of these purchases were made at prices that exceed the now current market share price. During this same period of time, CAST senior management has not purchased a single share of ChinaCast common stock.

Ned, allow me to explain what happened. That “business model” you were so impressed with is called “stealing.” You were suffering from cognitive dissonance. Even though you clearly realized that something is not right with the company, with its top management, and with top notch outside counsel from Loeb & Loeb, you still continued to pour your investors’ money into CAST. You scoffed at the warnings of short-sellers. You had drunk the CAST Kool-Aid, and today dawn finally broke. Wake up and smell the coffee…..you have been conned.

If you don’t know who the mark is Ned, it is you.

But don’t worry, you are not alone. Even Dealbook‘s Steven Davidoff, in a piece that reveals some of the shenanigans the company pulled last fall, available here, failed to understand that the most likely, and simplest, explanation was that CAST management and the coterie of advisors around them were (and are) just thugs out to steal whatever they can.

The content contained in this blog represents only the opinions of the author. The author may hold either long or short positions in securities of various companies discussed in the blog. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. This blog is not a solicitation of business: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.

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