“Financial Performance” = Numbers on Page (LDK)

Not exactly digital business, but close, and a worthy reminder for anyone who invests or does business in any industry.  Yesterday, a recent market darling called LDK Solar (LDK)–a company that benefits from not one but two red-hot stock-boosting buzzwords (“China” and “Solar”)–was afflicted by reports that its former controller-turned-whistleblower had alleged various “inventory discrepancies.”  In an hour or two, the stock dropped by a quarter.

Yesterday, the company also held a conference call denying the allegations, saying the controller had been fired for cause (he made the same allegations internally before being fired–not clear whether this was the “cause”).  Unfortunately, according to one brokerage firm, this conference call “raised more questions than it answered.”

Today, the company has published a formal denial, but the market is largely ignoring it, and one brokerage firm, CIBC, has downgraded.  Meanwhile, Morgan Stanley, the firm that underwrote the IPO a couple of months ago, has issued this carefully-worded piece–not quite saying that LDK management is full of it, but also not eliminating that possibility…

We have spoken to the company about its former financial controller’s allegations of inventory discrepancies at LDK. The management believes the allegations are incorrect and has ordered an independent audit to review inventory. While more information is needed before we can comment further on this matter, the allegation is nevertheless likely to serve as a share price overhang before the auditing report comes out…

The CFO stated that the former financial controller’s allegations rested largely on a misunderstanding, and that the inventory level was healthy, at 1070MT as of Sep 25. He thought the financial controller might have overlooked raw material in transit and in processing. The CFO also thought that he might have incorrectly classified scrap silicon as unusable raw material, whereas in fact scrap silicon accounts for more than 80% of the raw material needs at LDK.

Who are the LDK investors who took it on the chin?  Lots of the best ones around:

    Holder name        Portfolio Name     Source    Held Outstd  Change Date

  1)TRACER CAP MGMT TRACER CAPITAL MANAG 13F        2,498M 2.389   2,498M 06/07

* 2)FEDERATED INVST FEDERATED INVESTORS  13F        1,517M 1.450   1,517M 06/07

  3)CITADEL INVEST  CITADEL LIMITED PART 13F        1,130M 1.080   1,130M 06/07

  4)CR INTRINSIC    CR INTRINSIC INVESTO 13F        1,100M 1.051   1,100M 06/07

  5)IMPALA ASSET MAN IMPALA ASSET MANAGEM 13F       1,019M 0.975   1,019M 06/07

  6)LEVEL GLOBAL    LEVEL GLOBAL INVESTO 13F      704,000  0.673 704,000  06/07

  7)PARTNER FUND MGM PARTNER FUND MANAGEM 13F     687,386  0.657 687,386  06/07

* 8)ARDSLEY ADV PTNS ARDSLEY ADVISORY PAR 13F     677,500  0.648 677,500  06/07

  9)PRUDENTIAL PLC  PRUDENTIAL PLC       13F      450,000  0.430 450,000  06/07

10)GALLEON MANAGEM GALLEON MANAGEMENT L 13F      334,975  0.320 334,975  06/07

11)SAC CAPITAL ADVI SAC CAPITAL ADVISORS 13F     290,000  0.277 290,000  06/07

12)LOCH CAP MGMT   LOCH CAPITAL MANAGEM 13F      244,500   0.234 244,500  06/07

*13)HELLMAN JORDAN M HELLMAN JORDAN MANAG 13F     219,500  0.210 219,500  06/07

*14)CLOUGH CAPITAL  CLOUGH CAPITAL PARTN 13F      206,600  0.198 206,600  06/07

15)PASSPORT CAPITAL PASSPORT CAPITAL LLC 13F     205,000  0.196 205,000  06/07

*16)OZ MANAGEMENT   OZ MANAGEMENT LLC    13F      200,000  0.191 200,000  06/07

17)SEASON CAPITAL  SEASONS CAPITAL MANA 13F      168,842  0.161 168,842  06/07