After the announcement by Puda Coal that its Chairman Mr. Ming Zhao proposed to acquire Puda Coal Inc. in a going private transaction at up to $12 per share in cash an investigation on behalf of investors of Puda Coal, Inc (NYSE:PUDA) over possible breaches of fiduciary duty was announced.

The investigation by a law firm concerns whether certain directors and officers, at Puda Coal, Inc, including Chairman, Mr. Ming Zhao or others breached their fiduciary duties in connection the proposed buyout.

On Friday, April 29, 2011, Puda Coal, Inc. (NYSE AMEX: PUDA) announced that it received a preliminary non-binding proposal from its Chairman, Mr. Ming Zhao to acquire 100% of the outstanding shares of common stock of Puda Coal in a going private transaction at up to $12 per share in cash. Mr. Zhao proposed to finance the proposed acquisition with a combination of existing cash on hand and external financing sources.
Puda Coal said that in response to the receipt of the proposal, its Audit Committee composed solely of independent directors will review and evaluate the proposal and, if appropriate, negotiate its terms, and take any other action in connection therewith. The Audit Committee has requested detailed information and documentation from Mr. Zhao relating to the proposal, including information pertaining to matters that are subject to the Audit Committee's previously reported on-going investigation, necessary for the Audit Committee to evaluate the proposal and provide a recommendation to shareholders.
Puda Coal also said that the Audit Committee continues to investigate the allegations raised in a recent article alleging various unauthorized transactions in the shares of a subsidiary company, Shanxi Coal, by Mr. Zhao and intends to provide further information when the investigation is complete.

PUDA shares fell from over $12 at the end of March 2011 to $6 per share on April 8 when a report surfaced on an investor website the same day alleging that Puda Coal Chairman secretly sold half the Company and pledges the other half to Chinese PE investors. According to the report certain company transfers were hidden from its U.S. investors that were not reported in its SEC filings or offering documents. The report said that beginning in Fall 2009 Puda Coal Chairman Ming Zhao allegedly transferred Shaxi Coal, Pudas sole Chinese operating subsidiary, to himself through a series of transactions. The report states that in July 2010, Zhao sold 49% of his interest in Shanxi Coal to a private equity firm for RMB245 million ($37.1 million) and pocketed the proceeds. Zhaos remaining 51% interest was pledged as security so the Company could obtain a three year loan from the private equity firm for RMB 2.5 billion ($379 million). The report states that Zhao attempted to secretly return a portion of Shanxi Coal to its rightful owner by transferring his remaining interest to subsidiaries controlled by the Company. As a result of these transactions, the report concludes the Companys audited financial statements for 2009 and 2010 are false and misleading and that Puda Coal is alleged to have been an empty shell.

In that regards an investor already also filed a lawsuit in the United States District Court for the Southern District of New York against Puda Coal Inc and certain of its officers and executives alleging violations of Federal Securities Laws. According to the complaint the plaintiff alleges on behalf of purchasers of the common stock of Puda Coal, Inc. (AMEX:PUDA) between November 13, 2009 and April 11, 2011, that Puda and certain of its officers and executives violated the Securities Exchange Act of 1934 by failing to disclose material adverse facts about its true financial condition, business and prospects.

Puda Coals stock has been halted by the New York Stock Exchange since April 11, 2011.