Short Seller Hits China Valves With FCPA Concerns

A post Wednesday on Seeking Alpha asked, Does China Valves comply with the anti-corruption laws?

Contributor Richard X Roe looked deep into the latest quarterly SEC filing by Chinese manufacturer and U.S. issuer, China Valves Technology, Inc. The company, he said, made a merely routine mention of FCPA risks. But because the disclosure hadn’t appeared before, and because China Valves bought another Chinese company already linked to FCPA violations, Roe thinks problems are likely. He also said he’s a short seller of China Valves.

It’s been a terrible year for Chinese companies listed on a U.S. stock exchange. According to Kevin LaCroix at the superblog D&O Diary, there have been 36 securities class action lawsuits in 2011 involving U.S. listed Chinese companies, and a total of 47 since January 1, 2010. Will China Valves be joining the list?

Roe said that in February 2010, China Valves acquired Watts Valve (Changsha) Co., Ltd., a wholly-owned subsidiary of Watts Water Technologies. Last month, Watts Water settled an FCPA-related administrative action with the SEC by paying $3.7 million. The Chinese subsidiary, Watts Valve, the SEC said, made corrupt payments ‘to influence the design institutes to recommend’ [Watts Valve’s] products to state-owned customers.

‘A review of disclosures,’ Roe said in Seeking Alpha, ‘including correspondence between [China Valves] and the SEC made public in late September, indicates that [China Valves] management may have reinstated [Watts Valve’s] practice of paying bribes as soon as the acquisition was complete, while actively trying to conceal it from investors and regulators. The clues come from [China Valves’] flipflopping on the reasons for the acquisition, repeated denials that any violations have occurred, and [Watts Valve’s] sales commissions since the acquisition.’

With the awful track record of U.S.-listed Chinese companies, who will bet that China Valves is clean and compliant?

China Valves Technology, Inc. trades on the Nasdaq Global Select Market under the symbol CVVT.