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LAS VEGAS – Four years ago, retail investor Li, who was investing in the Chinese fruit juice maker, became a blockchain innovator, Future Fintech, rebadured by his status as a publicly traded company in the United States.
"It is a Nasdaq listed company," said Li. "In the minds of many of us, this means that the company succeeds and that it is trustworthy. "
Now, however, his future on the stock market is uncertain after the Xi-based company has repeatedly failed to file its accounts on time. In the coming months, regulators will decide to write off Chinese company or accept its compliance schedule.
While failure to comply with corporate filing rules would be punishable by authorities, Future Fintechs' violations reflect increasing concern over information and regulatory failures facing investors in foreign companies listed in the United States, including the Chinese.
Last month, US lawmakers proposed a bill that would require foreign companies not to open their accounts to the delisting list, which was blocked by Beijing in the case of Chinese companies.
In a report presented to Congress in 2018, the US Security and Economic Review Commission in the United States highlighted the risks presented by different regulations. "Chinese laws governing the protection of state secrets and national security prohibit Chinese companies from sharing their audit reports with foreign regulators," the commission said. "This exposes US investors to potentially abusive and fraudulent activities by Chinese companies listed in the United States," adds the text.
These concerns have multiplied with the proliferation of Chinese companies in the US market in recent years. Chinese companies listed in the United States had a combined market capitalization of $ 1.2 trillion as of February 25, according to the China-China Economic and Security Review Commission, up $ 960 billion in 2017 and 1, $ 1 trillion last October, despite the recent slowdown and trade tensions that led several Chinese companies to postpone their initial public offering in the United States
Peter Halesworth, former Nomura banker and founder of China-focused badet management company, Heng Ren Investment, highlighted the practical difficulties that regulators may face when Chinese companies register in the United States .
"It is unclear whether the SEC is competent because it will not be able to exercise due diligence since the business activity is in China." And the Chinese regulator probably has no jurisdiction over it. more since the company is listed in the United States, "he said.
Future Fintech is one of many Chinese companies that entered the United States at the beginning of the millennium.
The company was founded in 1998 under the name of SkyPeople fruit juice. As its name suggests, the company produces beverages and fruit concentrates, mainly kiwi juice, in China.
The company was listed on the Nasdaq in 2004 under the name SkyPeople, but in 2016, its price had risen from over $ 80 to about $ 2 after five years of declining net earnings per year. The company suffered a loss in 2016.
The same year he received half a dozen Nasdaq warning letters for non-compliance with the stock exchange requirements. He was about to be removed from the list in 2016 after 11 months late reporting his 2015 results.
Still under the name of SkyPeople, the company's shares fell to less than $ 1 in 2016 before the company proceeded with a stock consolidation, thereby reducing the number of shares available. The movement has increased its share price, but only temporarily.
The following year, the company goes into high gear.
In June 2017, SkyPeople officially became Future Fintech and began to describe itself as a company "specialized in fruit juices and financial technology" that "is dedicated to the research and development of digital badet systems based on on blockchain technology and also operates an incubator for application projects using blockchain technology., "according to the company's website and filings.
The US Securities and Exchange Commission approved the name change. SEC declined to comment when contacted by the Nikkei Asian Review.
Yan Zhi joined Future Fintech in 2018 after Nova Realm, the blockchain start-up he founded, was bought by Xue Yongke, co-founder of SkyPeople Fruit Juice. Xue personally acquired 60% of Nova Realm's stake in 2017, and sold 5% to Future Fintech in January 2018.
"We were looking for someone to invest in our company, and Mr. Xue was looking for a way to enhance his traditional fruit juice business, so we just clicked," Yan said during the meeting. an interview with the Nikkei Asian Review in May. "Nova Realm is the first-ever blockchain community that requires users to register under real names and provide reliable badet-based financial services, and we are now integrating real-name blockchain technology with Future Fintech."
He added that the company "uses blockchain technology to revolutionize society."
Yan declined to comment, however, on the concrete benefits of blockchain technology for the company's fruit juice business and improved revenue, pointing out that many initiatives that he can not still divulge due to late reports.
Future Fintech's shares briefly surged after announcing its blockchain move, which took place in the midst of a boom in bitcoin in 2017. However, the company's financial performance was poor. It lost $ 102.5 million in 2017, 20 times more than the $ 5.3 million loss announced in 2016.
In its last earnings report, the Company recorded a loss of $ 25.2 million for the nine-month period ending September 2018, compared to a loss of $ 11.6 million for the same period in 2017 .
Yan said the company's new blockchain-oriented initiatives, such as the Chain Cloud Mall e-commerce platform, have not yet impacted results and would to improve long-term performance. The company announced the second version of Chain Cloud Mall in June, but has not provided details on the platform's performance since its launch in January.
Some question the strategy of the company.
"A kiwi juice company opting for the blockchain? Saying I'm a bit skeptical is a euphemism," said a US investor in a capitalization company who attended a conference on investments in Las Vegas last May , at which Future Fintech presented its potential investors transformation. "Just look at their finances, I do not think blockchain is magic enough to change that overnight."
Another conference participant, Connor Haley, managing partner of investment firm Alta Fox, a microcap management company, also asked questions. At a presentation from Yan, he asked, "How are you going to fight the downward trend of EBITDA with these exciting new initiatives you just mentioned?"
The company's investor relations team responded to the question, claiming that she was not able to provide financial information due to late deposits.
At that time, Future Fintech had already delayed the publication of its 2018 results twice. The company said the delay was due to the replacement of the auditors and that it will release the results by the end of May, but has not yet done so. Now he has also delayed his first quarter results.
Future Fintech, contacted by the Nikkei Asian Review in June, said the delay was due to the fact that it had not yet called on a new auditor.
On May 28, the company received another Nasdaq notice to submit a plan by mid-June for the filing of its deferred results. If the plan is accepted, the company will have 180 days to rank the results. Otherwise, it will be removed from the list.
The company said its plan was being reviewed by the stock exchange. Nasdaq has not responded to requests for comment.
Back in his home country, Future Fintech drew criticism even before the transition to financial technology.
In an effort to raise more capital, the company organized a tour of presentation in China in 2015, in which it announced that it was abandoning the Nasdaq and returning to the Shanghai Stock Exchange by 2017, according to several Chinese media.
Dozens of retail investors took part in the presentation tour in Shanghai and bought more than 130 million yuan ($ 19 million) worth of "pre-IPO" shares, according to the report.
Li bought more than 500,000 yuan of these shares during the tour. He was not aware of the company's declining profits or Nasdaq's warnings. Since the company still had not pulled out of the US list at the end of 2017, Li started doing more research.
Li and other investors who bought shares during the presentation tour attempted to file a lawsuit against the company in 2018, but the lawsuits were dismissed by local authorities as the company is not listed in China, according to Li and Chinese media.
At the same time, the founders Xue Yongke and Xue Hongke have been blacklisted by the Chinese authorities for non-repayment of debt since 2016, which means that they can no longer borrow from banks, travel in First clbad or staying in luxury hotels, according to the newspaper. the public list of dishonest judicial debtors published by the Supreme Court of China.
In addition, a local Chinese court sealed several SkyPeople FruitJuice factories, the property being used as collateral for a loan contracted by the company in 2015, according to information gathered by the court.
Future Fintech leaked this last issue in its SEC file, but not the trouble with Chinese investors or the blacklist of its founders. Since the complaint was not brought to court, it is unclear whether the company would have been required to do so.
None of these developments have been widely reported in the US media.
According to Halesworth of Heng Ren Investment, the lack of readily available information can be a problem for retail shareholders who do not have the time or expertise to dive into the foreign companies in which they invest.
"It's always the big investors who invest in stocks of Chinese companies that they do not really know, and they are the ones who hurt themselves in the end."
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