CN Energy Group

Kurta Law is investigating broker recommendations of CN Energy Group for their potential unsuitability for investors. The company’s prospectus discloses significant risks associated with this stock that would make the stock too risky for some investors. Recommendations of excessively risky investments violate FINRA Rule 2111 and Regulation Best Interest.

Rather than filing a civil suit, investors may be required to pursue FINRA arbitration. If you have concerns about your investment in CN Energy Group, contact (877) 600-0098 or email info@kurtalawfirm.com today to speak to a securities attorney for free.

What is CN Energy Group?

According to the prospectus, CN Energy Group (CNEY) is a holding company that, through its subsidiaries, manufactures wood-based activated carbon for use by food and beverage companies as well as businesses involved in pharmaceutical and industrial manufacturing, water and air filtration, and the production of biomass electricity.

The prospectus states that CN Energy Group is incorporated in the British Virgin Islands, but its subsidiaries solely operate in China.

What are the Risks Associated with CN Energy Group?

CN Energy Group discloses many risks associated with its stock in its prospectus. Despite the diverse applications for activated carbon, the company still faces challenges related to its status as a company that operates in China.

For example, the prospectus notes that public companies listed in the U.S. that operate in China may be targets for short-selling. Litigation resulting from allegations of short selling or fraud can be expensive and time-consuming.

Volatility and Liquidity Issues

CN Energy Group describes the trading price of its Class A ordinary shares as “likely to be volatile,” and discloses the following: “From the closing of our initial public offering on February 9, 2021 to January 27, 2023, the closing price of our Class A ordinary shares ranged from $0.61 to $11.58 per share.”

Such a substantial variation in stock price could translate into significant losses for investors. The prospectus also notes that Chinese companies may face volatility following their initial public offerings, and can be especially influenced by investor opinions of Chinese companies and changes in the Chinese economy.

Additionally, the company expresses uncertainty about whether Class A ordinary shares will maintain an active trading market. Investors could see the liquidity of their shares limited by the lack of an active market, which would also limit CN Energy Group’s ability to raise funds through sales of stock.

No Expectation of Dividends

The potential volatility and liquidity issues associated with this stock may exacerbate another risk: whether stockholders will earn income from their shares. CN Energy Group states that it intends to use the majority or the entirety of the funds from this offering for business purposes, and has no expectation of paying cash dividends.

That means that investors would likely only see a return on their investment if their shares appreciate in value.

Insufficient Internal Control Over Financial Reporting

According to the prospectus, CN Energy Group “identified a material weakness in [its] internal control over financial reporting,” in 2022. More specifically, the company identified a lack of accounting personnel with “sufficient knowledge of U.S. GAAP [Generally Accepted Accounting Principles] and SEC reporting rules.”

At the time of the prospectus, the company was “in the process of evaluating the steps necessary to remediate the ineffectiveness” of their control over their reporting.

Failure to reliably and accurately make financial reports to the SEC could have consequences for the company’s share price and prospects and could lead to costly penalties or even litigation.

Potential Nasdaq Delisting

On December 29, 2023, the Listing Qualifications Department of the Nasdaq Capital Market sent CN Energy Group a letter stating that it would be delisted from the exchange on January 9, 2024. Nasdaq stated that the company’s stock had a closing bid price of only $0.10 or less for ten consecutive days leading up to the sending of the letter.

On January 5, 2024, CN Energy Group requested a hearing to appeal this determination and on January 19, CN Energy Group effected a 1-for-30 reverse stock split to raise its stock price.

Aegis Capital Corp. Underwriting  

Investors should know that Aegis Capital Corp. served as the underwriter for this offering. Underwriters take on risk in exchange for a fee, which could motivate certain investment banks to underwrite investments that pose too much risk for the average retail investor. Additionally, brokers may have conflicts of interest when they recommend shares that are underwritten by an affiliate of their brokerage firm. 

What Can I Do If I Suffered Losses?

If you lost money on your investment in CN Energy Group, our experienced securities attorneys may be able to help you get a fair settlement. Kurta Law attorneys regularly handle cases of broker misconduct and unsuitable investment recommendations. Call (877) 600-0098 or email info@kurtalawfirm.com.