Chinese steelmaker sued over purchase of antique porcelain

China Gerui Advanced Materials Group, a Chinese speciality steelmaker, was sued by an investor for spending more than US$230 million on antique porcelain and the share price decline that followed.

CEO Mingwang Lu announced the purchase of the collection, which he described as a rare set dating back to the Song Dynasty over 1,000 years ago, as a good investment, saying it would "support our steel operations while the steel industry gains stronger fundamental balance."

An investor who sued the firm in federal court in New York did not see it that way. When the company disclosed it spent US$234 million of unrestricted cash reserves to acquire a collection that it valued at US$905 million, China Gerui did not reveal who it bought the porcelain from or where it is stored, whether it is insured or even whether it has been authenticated, according to the complaint filed by shareholder Aram Pehlivanian.

The purchase was "all the more shocking because, in the years and months leading up to the announcement, CHOP had consistently and unambiguously," told investors "its goals for growth included an expansion and diversification of its product lines, identification of overseas markets, and business combinations with competitors," according to the complaint, referring to the company's Nasdaq ticker.

The announcement caused investors to lose confidence in the company and its share price to plunge after the purchase was disclosed, according to the suit.

Before the purchase, the firm in March touted significant cash reserves, Pehlivanian said. After the firm announced the purchase of the porcelain collection, without details, China Gerui's share price dropped from US$0.61 per share on September 3, to US$0.49, the complaint said.