SPU, LIWA and DEER: Chinese Stocks Fighting Short Sellers Absaroka Capital or the Mysterious Alfred Lim

Chinese stocks have been battered by allegations (usually from short sellers) but SkyPeople Fruit Juice (NASDAQ: SPU), Lihua International (NASDAQ: LIWA) and Deer Consumer Products (NASDAQ: DEER) have taken the unusual step of fighting back against short sellers Absaroka Capital Management LLC and the mysterious Alfred Lim with lawsuits. Specifically, SPU has filed a defamation suit against Absaroka Capital while LIWA is still in the early stages of countering the short seller’s allegations and DEER along with Sino Clean Energy (NASDAQ: SCEI) have filed defamation lawsuits against a blogger who uses the pseudonym "Alfred Little." Together, these companies represent the first concerted effort and willingness by Chinese companies to fight short seller attempts to drag their share prices down for profits. Hence, investors should be taking a closer look at all three as there has to be something more to the story than what the short sellers allege:

SkyPeople Fruit Juice (NASDAQ: SPU) Has Filed a Defamation Suit Against Short Seller Absaroka Capital Management

SkyPeople Fruit Juice produces and sell a variety of fruit juices in China. As I noted on July 25, SkyPeople Fruit Juice was hit with a June 1 article from Absaroka Capital that made a number of allegations against the company. However, Rick Pearson, an investor who says he visited SPU along with its distributors and retailers back in January, wrote a lengthy article for The Street to say that he was puzzled by the allegations and then he wrote that the Absaroka Capital article was the equivalent of “kicking a three-legged dog, just for the fun of it, and not for profit.” Rick went on to detail how many of the allegations made by Absaroka Capital against SkyPeople Fruit Juice can easily be refuted. Nevertheless, the Absaroka Capital article drove SkyPeople Fruit Juice’s share price down 20% and to the $2 level but on July 8, SPU filed a defamation lawsuit against both Absaroka Capital and its analyst, Kevin Barnes. Last Thursday, SkyPeople Fruit Juice rose 0.40% to $2.53 (SPU has a 52 week trading range of $1.95 to $6.59 a share).

Lihua International (NASDAQ: LIWA) is the Latest Chinese Stock to be Attacked by Short Seller Absaroka Capital Management

Lihua International produces copper replacement cable and wire products in China. At the beginning of this week, short seller Absaroka Capital came out with a detailed article making a number of allegations against Lihua International that quickly sent shares plunging from the $7 level to the 46 level. However and on Thursday morning, Lihua International issued a press release summarizing an analysts' call it held with investors to give its side of the story. On the same day, Lihua International rose 8.45% to $6.93 (LIWA has a 52 week trading range of $5.19 to $13.05 a share) – basically back up to the level it was in a vote of confidence for the stock (but perhaps after Absaroka Capital made some quick profits on their short positions). Hence and before investors decide to make any hasty decisions, they may want to take a step back, read Lihua International’s response to the allegations and give the company a chance to further defend itself.

Deer Consumer Products (NASDAQ: DEER) Is Fighting Back Against Mystery Blogger “Alfred Lim”

Deer Consumer Products designs, manufactures and sells small home and kitchen electric appliances targeted towards China’s growing middle class plus the company makes products on the behalf of Black & Decker, Betty Crocker Kitchens and private label programs. As I noted on Monday, a mysterious blogger who writes under the pseudonym "Alfred Little" had alleged back in March that DEER had inflated sales and margins and had also overpaid for property purchases in order to benefit executives. In June, Deer Consumer Products together with Sino Clean Energy (NASDAQ: SCEI) filed defamation lawsuits against “Alfred Lim” as well as against the sites that publish his blog as its unclear who the real Alfred Lim actually is and where he is based. The effort by both Deer and SCEI has been regarded as the most concerted effort by Chinese stocks to fight back against short sellers who make allegations of wrong doing in order to drive stock prices down. Nevertheless and after Alfred’s Lim’s “report” was issued, DEER fell hard by 41% and eventually from the $11 level down to the $6.5 level. On Thursday, Deer Consumer Products fell 5.09% to $5.59 (DEER has a 52 week trading range of $4.88 to $13 a share).

The Bottom Line. Nevertheless and regardless of whether the accusations against against the above companies are true or not, lawsuits against short sellers tend to be rare, are difficult to win and can also backfire on those who file them. Nevertheless and if Chinese stocks SPU, LIWA and DEER are in fact the victims of malicious short sellers, its good that they are at least fighting back.