China Agritech, Inc. Provides Update on Independent Investigation

2011-12-01 20:47 1315

BEIJING, December 1, 2011 /PRNewswire-Asia-FirstCall/ -- China Agritech, Inc. (OTC: CAGC), a leading organic compound fertilizer manufacturer and distributor in China, today provided an update from its independent Special Committee investigation.

As previously reported by China Agritech, Inc. (the "Company" or "CAGC"), on March 13, 2011, a Special Committee (the "Committee") of the Board of Directors of the Company was formed to investigate certain issues raised by Lucas McGee ("LM"), a short seller who held CAGC stock and who issued a report dated February 3, 2011 (the "LM Report"). The Committee also investigated certain issues raised on or about March 8, 2011 by the Company's former independent auditors Ernst & Young Hua Ming ("EY China").

On March 14, 2011, CAGC terminated EY China as its auditor. CAGC stated in a press release that the dismissal was "the result of Ernst & Young (China) Advisory Limited Beijing Branch Office entering into a SOX 404 service agreement including performing the test of the Company's internal controls from 2008 to 2010 and because "the public and the management team have raised doubts about this service agreement's impact on Ernst & Young Hua Ming's independence to act as the Company's auditor." In a previously disclosed April 12, 2011 letter to CAGC, NASDAQ stated that it "believe[d] that E&Y was not terminated solely, if at all, due to independence concerns, but rather because of the serious audit issues it raised, coupled with its insistence upon an independent investigation 'to verify certain transactions and balances recorded on the Company's financial statements and records for the year ended December 31, 2010.'" After EY China's termination, the Committee was also asked to review the decision to terminate EY China.

The Committee engaged the law firm of TroyGould PC ("TG") to advise it in connection with the Committee's independent investigation into the allegations in the LM Report, the issues raised by EY China and the circumstances of EY China's termination. TG hired BDO China Li Xin Da Hua Certified Public Accountants Co., Ltd. ("BDO China") to assist in the forensic investigation. W+H Law Firm ("WH"), a China-based law firm, was also hired to assist as local counsel.

The Committee, with the assistance of its outside advisors, has investigated these matters over the past seven months and has concluded its work. The investigation was subject to certain limitations. For example, EY China did not cooperate with the investigation and neither BDO China nor TG had access to the work papers of personnel of EY China. Nonetheless, the Committee concluded that the investigation appropriately addressed all material issues raised by EY China, the circumstances of EY China's termination, and the allegations in the LM Report. With specific regard to the LM Report, the Committee concluded that the allegations were either factually incorrect or that there were reasonable explanations as to their non-materiality.

Additionally, the Committee has determined that it is not unreasonable to conclude that CAGC's termination of EY China was as a result of: (a) an independence issue that EY China itself first dismissed, then raised; (b) EY China's demand for payment before it was contractually due; and (c) EY China's refusal to communicate with CAGC after receiving this payment, and before issuing an audit report. Further, the allegation that CAGC dismissed EY China for its insistence on an independent investigation regarding the issues that EY China raised is contradicted by the fact that CAGC formed a Special Committee to conduct just such an investigation prior to EY China's termination.

About China Agritech, Inc.

China Agritech, Inc. is engaged in the development, manufacture and distribution of liquid and granular organic compound fertilizers and related products in China. The Company has developed proprietary formulas that provide a continuous supply of high-quality agricultural products while maintaining soil fertility. The Company sells its products to farmers located in 28 provinces of China. For more information about the company, please visit

Safe Harbor Statement

This press release contains certain statements that may be deemed to be "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, that address activities, events or developments that the Company expects, projects, believes or anticipates will or may occur in the future, including, without limitation, statements about its business or growth strategy, general industry conditions, future operating results of the Company, capital expenditures, expansion and growth opportunities, financing activities and other such matters, are forward-looking statements. Although the Company believes that its expectations stated in this press release are based on reasonable assumptions, actual results may differ from those projected in the forward-looking statements. Certain of these risks and uncertainties are or will be described in greater detail in our filings with the SEC. Except as required by law, China Agritech is under no obligation to update or alter its forward-looking statements whether as a result of new information, future events or otherwise.

For more information, please contact:

Eddie Fan

Matt Kreps

Investor Relations Director

Director of Investor Relations

China Agritech, Inc.

Shelton Group

Source: China Agritech, Inc.