An investor in China Education Alliance filed a lawsuit on behalf of purchasers of China Education Alliance, Inc. common stock during the period from March 31, 2009 to November 29, 2010, against China Education Alliance, Inc over alleged violations of Federal Securities Laws. Meanwhile an investigation on behalf of current long term investors in China Education Alliance, Inc. (NYSE:CEU) shares over possible breaches of fiduciary duty by certain directors and officers at China Education Alliance was announced.

The investigation by a law firm on behalf of current long term investors in stock of China Education Alliance, Inc. (NYSE:CEU) concerns whether certain current and/or former officers and members of China Education Alliances board of directors and executive officers can be held liable in connection with the alleged Securities Laws violations in the lawsuit by investors who purchased CEU stock between March 31, 2009 to November 29, 2010. According to the complaint filed in the U.S. District Court for the Central District of California the plaintiff alleges that China Education Alliance violated the Securities Exchange Act of 1934 by misrepresenting between March 31, 2009 and November 29, 2010 China Education Alliance's financial performance. China Education Alliance 12 month Total Revenue went from $8.32million in 2006 to $36.97million in 2009. Its Net Income went from $2.63million in 2006 to $15.21million in 2009. For the first 9 months in 2010 China Education Alliance reported a combined nine months Total Revenue of $33.85million with a combined 9months Net Income of $13.18million. The plaintiff alleges that the amounts of revenue that China Education Alliance in reported in its annual reports for 2008 and 2009 filed with the U.S. Securities and Exchange Commission were materially false and misleading.
Shares of China Education Alliance, Inc. (NYSE: CEU) traded during January 2010 as high as over $ 7 per share but lost value during mid 2010 and traded in July as low as $3.70 per share. Then CEU shares climbed to over $5.50 in October and November. Then on November 29 a report by Kerrisdale Capital Management LLC was made public in which Kerrisdale Capital Management LLC repsented evidence that China Education Alliance (CEU) is allegedly fabricating its SEC financial statements. Kerrisdale Capital Management LLC said that believe that the companys revenue and profit are highly overstated in its SEC filings and that the company is mostly a hoax. Kerrisdale Capital Management LLC said their evidence includes that the companys websites do not work, that the companys websites receive a fraction of the visitor traffic generated by comparable sites, that they hired an investigator to visit the companys training center in Harbin and found it to be barren of desks and teaching equipment, that they provide a video where they present a slideshow of the empty building, that the companys local filings to the Chinese government show that the online business generated less than $1 million in revenue in 2008, that the companys financials are not believable when compared to publicly traded comparable companies, and that China Education Alliance has had four low quality, non-reputable auditors since going public in 2004.
China Education Alliance Inc. (CEU) said it 'categorically denies' all allegations made in the report by Kerrisdale Capital Management.
Shares of China Education Alliance, Inc. (NYSE: CEU) fell on November 29 from $4.38 to as low as $2.45 per share. Then on Dec. 2 China Education Alliance, Inc. announced that on November 5, 2010 the Company's auditor, Sherb & Co., LLP also performed confirmation procedures on most of the Company's bank balances in the People's Republic of China, but Sahm Adrangi from Kerrisdale Capital Management LLC said in a statement that such confirmation procedures in no way vindicate the company of fraud and that they believe that many companies in China can find a way to show inflated bank balances to their auditors, and satisfy confirmation procedures. Sahm Adrangi said that China Education Alliance does not have business assets that can generate the revenue and net income that it reports in its SEC filings and that they stand by their report that China Education Alliance is defrauding investors and has fabricated its SEC financial statements. CEU shares closed last weeks trading at $2.52 per share.