Cogobuy becomes the latest stock to fall victim to short sellers’ push

PUBLISHED : Monday, 22 May, 2017, 6:45pm
UPDATED : Monday, 22 May, 2017, 11:06pm

Cogobuy Group, an e-commerce platform for electronic goods, has become the latest Hong Kong-listed Chinese company to fall victim to short sellers this year, as its shares marked their biggest intraday decline in nearly two years following a report by Blazing Research.

Cogobuy shares plummeted 22 per cent in less than an hour to HK$7.89, before trading was halted.

The e-commerce company’s stock could eventually slide to as low as HK$0.53 each, Blazing said in a report entitled “More Than a Decade of Fraud.”

Cogobuy “is currently seeking professional advice in relation to the report and will update its shareholders and potential investors by way of a clarification announcement of its response to the allegation contained therein, which is expected to be published as soon as practicable,” the Shenzhen-based company said in a statement to the Hong Kong stock exchange. “The company will rebut any false allegations which attempt to undermine confidence in the firm’s management, financial performance and corporate governance as set out in the report.”

Cogobuy wasn’t the sole Chinese company to have been on the target of short sellers, who make profit by selling stocks high before buying them back low. They typically release damning reports or uncover scandalous information to push the prices of their targeted stocks to plunge.

China Huishan Dairy, the operator of the country’s biggest dairy farms, was perhaps the most famous recent victim, following an 85-per cent drop in its stock price in March, amid a debt crisis triggered partly by Muddy Waters’ report four months earlier, claiming the company was “worth close to zero.”

AAC Technologies, a component supplier to Apple Inc., slumped 11 per cent last week after New York-based short seller Gotham City Research accused AAC of “dubious accounting.” AAC denied Gotham City’s claims, calling the allegations “inaccurate and misleading,” AAC’s chairman Koh Boon Hwee said in a filing to the stock exchange.

The company, with a market value of HK$101.43 billion, had been among the best performing stocks in Hong Kong this year, with its shares surging 12-fold over the past decade.

Unlike Muddy Waters or Gotham City, Blazing said it’s not in it for the money. Its “ultimate goal” is to “expose financial crimes,” and that it “does not run any fund and does not accept any investment,” according to the Blazing website.

Its team comprises retired financial professionals, including regulators, fund managers auditors and investment bankers.

Cogobuy had fabricated its financial results since its 2014 initial public offer in Hong Kong, Blazing said in its 58-page report.

The e-commerce company’s online platform had also been down for a week in April with no maintenance, and was therefore receiving minimal online traffic, Blazing said.

The researcher highlighted what it called “a significant discrepancy” between Cogobuy’s reported financial results and those in its filings to the State Administration for Industry & Commerce.

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Founded in 2010 by tech billionaire Kang Jingwei, Cogobuy operates the largest e-commerce platform for integrated circuits and other electronic components in China as measured by gross merchandise volume. The company’s first-quarter net profit jumped 34 per cent to 114 million yuan (US$16.55 million).

The company “reserves its right to take legal action for damages or other relief against such entity and/or associated individual(s) with respect to the report,” Cogobuy said in its denial of Blazing’s allegations.