Another black eye for RenRen (RENN) as the head of their audit committee – who is under massive pressure as CFO of Longtop Financial (LFT) resigns just ahead of the IPO pricing tonight, and issued to go live tomorrow. (Ironically Citron Research is involved in this story too) The reasons for resignation publicly were that the gentleman did not want to bring unwarranted attention to RenRen due to the allegation at Longtop, but of course you never want to see such a thing (for any reason).
There are quite a few red flags with this name but I expect the majority of those retail folks who buy into the hype tomorrow and letting institutional buyers “flip” their shares for easy riches, to not care. Again, as I say with Youku.com (YOKU) the valuation here makes NO sense – but we’re in a bubble. (YOKU has been a non stop rocket since IPO) You can play in the pool but you have to understand you are swimming in Kool Aid, not water. These type of companies are trading or being priced at 40, 50, 60x sales… not earnings, but sales!
- Chinese online social-networking company Renren Inc. suffered another embarrassment ahead of its public listing in the U.S., after a member of its board who heads its audit committee said he had resigned following allegations of fraud against a company where he works as a senior executive.
- The move comes after Renren, often called “the Facebook of China,” last week revised a key user number in its listing prospectus after some observers questioned the accuracy of the company’s figures. The revision meant the unique user base at Renren.com rose 19% in the first quarter from the prior quarter, compared with a previously reported rate of 29%, though the company’s most recent number of users remained the same. The episode highlighted the murkiness of data among China’s high-flying Internet companies just as a long string of companies in the sector seek initial public offerings of stock in the U.S.
- Derek Palaschuk, who is chief financial officer of Chinese software company Longtop Financial Technologies Ltd., said he resigned Saturday as audit-committee chairman and an independent director at Renren. The move comes after Citron Research, which researches companies in which it says its principals usually hold a position, last week issued a report alleging financial fraud at Longtop. Mr. Palaschuk said the allegations against Longtop were “without substance.”
- Mr. Palaschuk said he resigned from Renren to avoid bringing unwarranted attention to the company. He added that the move doesn’t reflect any concern about Renren’s financial statements. “I never would have taken the position if I had any concerns,” he said.
- Mr. Palaschuk’s name had been removed from an updated version of Renren’s prospectus filed with the U.S. Securities and Exchange Commission Monday, the fifth amended prospectus Renren has filed.