Distressed Debt: CMEDY and Cayman Insolvency

I am short CMEDY stock.

I will be honest: This is one of the weirdest situations I have ever been involved in. But instead of offering opinions or commentary on my thinking behind my position, I want to lay out facts related to the case and hopefully bring a little clarity to the situation.

Fact #1
CMEDY has two convertible notes outstanding: 6.25% of 2016 and 4% of 2013.  CUSIPs are 169483AE4 and 169483AC8 respectively. They are in default due to missed coupons.


Here are two dealer runs from the last few days, the first from Barclays and the second from DB (I've removed my sales coverage information):

As you can see, both converts are trading at distressed levels.


Fact #2
On June 15th, a wind-up petition against China Medical Technologies was filed in the Cayman Islands. I have uploaded the relevant documents. In one of the filings, this is written:

"The Company has failed and refused to communicate with the Petitioner with respect to the events of default or the amounts now due and owing under the Notes. As noted above, the Company failed to respond to the Petitioner’s notices of defaults and of acceleration. The Petitioner sent a copy of the 2 March Notice to the Company's counsel as identified in the 6.25% lndenture, in response to which the Petitioner received a letter advising that such counsel no longer represented the Company in any matters. Additionally, the Company and its counsel did not respond to email communications from counsel to the Petitioner. 

Petitioner is advised that counsel to the 6.25% Notehoìders and the 4% Noteholders (together, the ”Noteholders”) has been unsuccessful in its efforts to engage with the Company regarding the events of default.

Relevant Documents:


Winding-Up Petition - Sealed


and

First Affidavit of Steve Cimalore - Sealed

Fact #3
CMEDY stock has been on a tear in the last week. Here is the YTD chart.

The movement has been driven from from a 13D filed by AER Advisors, Inc ("AER"). which listed that along Peter Deutsch and William Deutsch, wine magnates, they owned 36.95% of the company. That filing was amended today to note that the group now owns 42.01% of the company. I will note that in neither filings was a detailed transaction history listed.

On May 7th, 2012, AER Advisors filed a 13G/A, that did not include the Deutsch's, but did list that they owned 6,833,873 shares. The 13D filed last week (June 12th) noted AER owned 11,923,452 shares.

From May 7th to June 11th (the time in which AER could have acquired shares in the open market between the respective filings), here is the volume trading history of CMEDY:

The total shares traded in this time is 5,767,094. The change in AER/Deutsch ownership is 5,089,579. If there were no insider transactions (i.e. AER/Deutsch buying directly from management), they would have represented 88.2% of the volume of the stock in this period.

Fact #4

AER Advisors, Inc SEC FORM ADV can be found here: AER Advisors, Inc Form ADV. Their adviser brochure can be found here: AER Advisors Brochure. 

On Schedule A of their ADV, a Thomas Joseph Steffanci is listed as a 5%-10% owner of AER (Director/Shareholder) class. His biography can be found here: Thomas Steffanci biography and his LinkedIn page here: Thomas Steffanci LinkedIn

When I do a search on Bloomberg for Tom Steffanci here is what comes up:

Tom Steffanci is also the name of the President of W.J. Deutsch & Sons, Ltd, owned by William and Peter Deutsch, who, if you remember, was party to the AER 13D filed above. 

They are obviously different people. From some sleuthing, I believe they are father and son.

Now, I do not know if this actually means anything. I just wanted to point it out to people that may not have caught it.

Fact #5

CMEDY is party to an class action complain, stemming from claims of fraudulent disclosures. You can find the docket here for those that have Pacer. 

https://ecf.nysd.uscourts.gov/cgi-bin/DktRpt.pl?838114947902028-L_452_0-1