Episode 13: Puda Coal

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…