Shareholders of Longwei Petroleum Investment Holdings (NYSE: LPH) Sustain Massive Investment Losses After Company is Accused of Securities Fraud

According to its website, Longwei Petroleum Investment Holdings (NYSE: LPH) (“Longwei”) is an energy company engaged in the storage and wholesale distribution of finished petroleum products in China. Longwei is headquartered in Shanxi Province.

Shares of Longwei collapsed on January 3, 2012, falling from its prior close of $2.30 per share to $0.62 per share (a drop of 73%) after a blog post by Geoinvesting.com on SeekingAlpha.com alleged that Longwei was, among other things, overstating its business operations:

Unfortunately for owners of LPH stock, we have determined that the company’s purported business operations are massively overstated and a brazen fraud, on an order of magnitude unmatched before by any China-based companies we have seen. Furthermore, we have no faith in LPH’s auditor, Anderson Bradshaw. This is because the firm’s head of quality control, Russell Anderson, was the audit partner of YUII while he worked at Child, Van, Wagoner & Bradshaw. Russell failed to detect the massive YUII fraud we uncovered and did not resign until the YUII Chairman admitted fraud 5 days after we exposed them.

Chinese firms with publicly traded securities in the United States have been under particular scrutiny for their accounting practices in recent years.  As previously noted, the SEC has encountered road-blocks in its investigation of such Chinese firms because their accountants have been withholding documents concerning these companies.