China BAK Battery Inc. (NASDAQ:CBAK) is up over 1 percent today and is racing to all time highs, up almost 90 percent in the past month. This high flying price momentum has two hedge fund investors short the stock with indications the price spike could be another pump and dump case, according to sources.

Activist Shorts GeoInvesting 1
Chart via Activistshorts.com

 

 

China BAK Battery stock surged on rumors of a Chinese government subsidy

On July 1, with the stock trading near $2.51 per share, the China BAK Battery Inc. (NASDAQ:CBAK) suddenly surged on rumors of a Chinese government subsidy for battery producers. The problem, says activist investor Richard Pearson, is the emperor has no clothes.

“BAK is insolvent,” Pearson said in an interview. “All their factories are in the hands of creditors.” Pearson says the company defaulted on a bank loan and creditors have seized all the assets. “Even if BAK is involved in a battery deal, it won’t benefit the creditors will.”

China BAK Battery
China BAK Battery

Adam Kommel, operator of the web site ActivistShorts.com, which tracks the short activities of hedge funds, considers China BAK Battery Inc. (NASDAQ:CBAK)’s light trade volume and said “any ability to short the stock would come with low availability and a high borrow cost.” Nonetheless Kommel’s web site instituted a research alert on the stock, citing a research note from GeoInvesting.

Chart via Activistshorts.com
Chart via Activistshorts.com

China BAK Battery lost its primary operating asset to foreclosure

GeoInvesting said today China BAK Battery Inc. (NASDAQ:CBAK) had lost its primary operating asset to foreclosure, putting the company’s ability to generate meaningful revenue or raise more cash in jeopardy. GeoInvesting said China BAK was now a “development stage company” with its major asset gone and another asset still under construction. Without the company raising “substantial capital,” GeoInvesting questioned the company’s ability to continue as an operating entity.

GeoInvesting has issued 37 total short reports on stocks and has an average return to targeted companies during the length of GeoInvesting’s campaigns are -50%, according to the ActivistShorts.com website. The site has issued short notices on several Chinese companies, including China Recycling Energy Corp. (NASDAQ:CREG), China Mobile Games & Entnmnt Grp Ltd (NASDAQ:CMGE), ZHONGPIN INC. (NASDAQ:HOGS), and Sino Clean Energy Inc (OTCMKTS:SCEI), China Redstone Group Inc (OTCMKTS:CGPI).

This is the second major price surge in the stock. On March 3, 2012 the stock surged as a headline hit the tape on a potential new deal, which didn’t prove accurate. “Anyone who understands the fundamentals of this stock isn’t buying,” Pearson said.