China Medical Technologies Files for Chapter 15

Readers of the blog will remember a post a few months ago where I alerted readers to my short position in China Medical Technologies. At that time the stock was trading at around $6 share and proceeded to go parabolic eventually topping out ~$12/share before collapsing. The move to the upside was triggered by a number of factors most notably buy-ins across a number of brokerages. Buy-ins were followed by more buy-ins and things got a little crazy. Eventually, as they often do, things came back to reality, the SEC forced a halt on the stock, a Cayman Island liquidation order was put into place, shareholder and bondholder lawsuits abounded, and now the Chapter 15 proceeding. After getting color of the proceedings going on in the Cayman Islands I tried to short more stock last week but was unable to find a borrow. Disappointing to say the least.

I've embedded below the Chapter 15 motion. Some fantastic quotes from the document:

  • "In short, by the early part of 2012, from the standpoint of CMED’s outside directors, auditors, shareholders and creditors, CMED ceased to be a functioning corporate entity and had totally “gone dark.”
  • "Despite extensive searches by the Liquidators (which included inquiries to hundreds of banks in the Cayman Islands, United States, Hong Kong and the PRC as described below), the Liquidators have not yet been able to locate any of the funds purportedly paid by the Transferee Companies or even to establish that any of those funds ever reached CMED. Our investigations are continuing."
  • "The Liquidators’ investigations further indicate that the Transferee Companies are partially owned or controlled by associates of Wu and that Wu and members of Wu’s family may have received a portion of the value fraudulently transferred from CMED and the CMED Operating Companies. With the loss of control of the CMED Operating Companies, by the transfer of control from CMED’s 100% owned subsidiaries, the CMED lost its only source of revenue and was rendered hopelessly insolvent."
  • "CMED’s chief remaining assets, its shares in its single directly owned subsidiary and 100% indirectly owned subsidiaries, are in the Cayman Islands. To date, despite an investigation that has included inquiries to over 300 banks in the Cayman Islands, the United States, Hong Kong and the PRC, the Liquidators have been unable to locate any other CMED assets anywhere in the world outside the Cayman Islands."

As the company's market cap is still ~$60M, it will be interesting if the largest shareholder listed on Bloomberg (AER Advisors and the Deutsche family) will be involved in the proceedings.  We will be following the proceedings.

China Medical Technologies Chapter 15 Proceeding                                                                                            


Anonymous,  9/04/2012  

will be interesting to see what happens with their other pump ZSTN next....

Anonymous,  9/05/2012  

My schadenfreude for AER and the Deutsche family is immense. Here's to hoping they go out of business and face near bankruptcy respectively.


hunter [at] distressed-debt-investing [dot] com

About Me

I have spent the majority of my career as a value investor. For the past 8 years, I have worked on the buy side as a distressed debt and high yield investor.