SinoHub Inc. Hit with Securities Fraud Lawsuit

By Sarah Mirando | December 19, 2012

Category: Stocks & Securities Class Action Lawsuits

By Andrea Gressman

SinoHub SinoHub Inc. (PINK:SIHI, formerly NYSE:SIHI) is a company based in China that specializes in the manufacture and sale of custom private label cell phones in developing countries and recently had a securities lawsuit filed against them. The company was founded by Harry Cochran, a long-time figure in the software industry, and Lei Xia, renowned electronics expert. In 2000, the company has grown to almost $200 million annually in revenue.

One of their investors has filed a securities fraud lawsuit against the company in U.S. District Court, alleging securities violations and false and misleading statements. The investor filed the securities lawsuit on behalf of all owners of common stock between the dates of May 17, 2012 and August 21, 2012. Alleging that officers of the company violated the Securities Exchange Act of 1934, the securities lawsuit was filed on November 20, 2012 in the U.S. District Court for the Southern District of New York.

The securities fraud lawsuit specifically alleges that SinoHub Inc. misrepresented the effectiveness of their internal financial controls. The company and its officers claimed that the financial controls were adequate. Citing communication between the company and the U.S. Securities and Exchange Commission as evidence, the plaintiff alleges that the internal controls were anything but effective. Instead, the allegations state that the company recklessly or knowingly instituted poor financial controls. The existence of these practices was then ignored by the management team of the company.
This negligence resulted in the use of improper accounting procedures. Some of the damages caused by falsified accounting include an overstatement of SinoHub’s financial statements and their future potential for earnings.

In the days leading up to the securities lawsuit, the stock price of SinoHub has certainly taken a tumble. March 30, 2012 saw the release of the company’s 2011 fourth quarter results (unaudited) and fully audited financial documents for the fiscal year of 2011. In Form 10-K for 2011, SinoHub stated that its internal financial controls had been addressed and remedied. The plaintiff alleges that this was a misrepresentation. On the day of the release of the report, the stock tumbled 16%, falling from $0.63 per share to $0.54.

After stating that their financial controls were now effective, the company announced on August 14, 2012, that it would not be able to file the due quarterly report (Form Q-10) for the second quarter of 2012. For the three days following the announcement, stock prices dropped 26%. The company also failed to meet the extension period and announced this failure on August 21, 2012. The shares took another 20% tumble. The company is no longer listed on the New York Stock Exchange and as of November 20, shares were trading at $0.015 in a different stock exchange.

If you believe you have been the victim of securities violations and false and misleading statements by a company, you may be eligible to file a securities lawsuit or securities fraud class action lawsuit. Visit the Securities Fraud, Stock Fraud Investment Class Action Lawsuit Investigation for details.