* Auditors letter says co didn't sign 2 of 6 contracts
* Co says results from March '08 shouldn't be relied upon
* Trading in Rino shares halted since Wednesday
(Recasts, adds details, updates shares)
By Adveith Nair
BANGALORE, Nov 19 Chinese clean-technology firm
Rino International Corp RINO.O said its auditors had found
problems with its accounting and it authorized the hiring of an
external law firm to conduct an independent investigation.
Rino's auditors said the company's Chief Executive Zou
Dejunas had admitted that Rino did not enter two of the six
contracts it reported revenue from for two years, according to
a filing with U.S. securities regulators.
"Assuming that these statements were reasonably accurate,
it appears that our reports would have been affected if this
information had been known to us at the date of our reports,"
the auditors, Frazer Frost LLP, said.
They said while the effect on Rino's results was not yet
known, financial statements from March 31, 2008 to Sept. 30,
2010 should not be relied upon.
Friday's news comes a week after research firm Muddy Waters
LLC alleged that Rino fabricated customer relationships and
overstated revenue. [ID:nSGE6AA0P2]
"Five of the nine (customers) deny having purchased FGD
systems from Rino," the report said. "It is likely Rino
fabricated a sixth customer relationship as well.
Rino shares, which were in freefall after the Muddy Waters
report last week, took a further beating when another brokerage
Canaccord Genuity said the allegations could be difficult to
dismiss, and when Rino postponed its conference call on its
audit committee's recommendations. [ID:nSGE6AG097]
According to Friday's filing, CEO Zou first said there
might be problems with other contracts, but later said that
apart from two contracts all others were legitimate.
As of August, Zou was by far Rino's single largest
shareholder with 63 percent of its 28.6 million outstanding
shares, Thomson Reuters data shows.
Rino, which provides clean technology products to China's
iron and steel industry, has had three chief financial officers
since October 2007.
RINO IN MUDDY WATERS?
Rino is the latest target for Muddy Waters, a small Hong
Kong-based brokerage. It has previously taken on other small
In late June, the brokerage published a damning report on
Chinese firm Orient Paper Inc (ONP.A) whose shares have slumped
more than 30 percent since then.
Disclosures are especially limited amongst overseas firms,
and accounting irregularities have surfaced at other Chinese
Chinese solar companies in particular, once prized for
their growth prospects, have come under scrutiny by regulators
for alleged accounting irregularities. [ID:nTOE65R04]
The companies' quarterly income statements and balance
sheets are typically less detailed those from U.S. companies.
Cashflow statements are only issued once a year under U.S. SEC
rules for companies deemed incorporated outside the country.
Orient Paper, which like Rino, started an accounting probe
following Muddy Waters' allegations, fell 9 percent Friday
morning. Trading in Rino shares has been halted since
Shares of both companies have had a roller-coaster ride
this year and are down over 60 percent from their year highs.
Both touched year lows following reports from Muddy Waters,
which had a short positions in Rino and Orient Paper stocks.
(Reporting by Adveith Nair; Editing by Gopakumar Warrier)