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In 2009 Puda Coal was a successful company, with a little over $5 million in profit. But the company was about to expand in a major way. The Chinese government had chosen Puda’s subsidiary, Shanxi Coal, to act as a consolidator of small coal mines throughout the Shanxi province of China. To finance the expansion, Puda raised over $100 million from U.S. investors.
But suddenly there was a problem: did Puda actually own Shanxi Coal? Someone claimed Puda’s board chair had secretly transferred the subsidiary to himself. Had Puda’s subsidiary literally been stolen? There was a forged letter and a bogus offer to repurchase shares, but in the end investors learned the ugly truth; they had given millions to a worthless shell company. Where was Puda’s auditor? And how could the investment banks who handled the securities offerings have missed this? Or did they miss it…
