Cninsure (Nasdaq:CISG) Punished on Profit Concerns

Concerns that Cninsure (Nasdaq:CISG) may be overstating profits surfaced Thursday, as Analyst Adele L. Mao cited uncertainty over the equity incentives at the company.

Adele said, "During 3Q10 earnings call, CISG management denied that the program implemented to incentivize sales agents is an equity incentive plan. Instead, CISG called it a "scorecard" system, indicating that CIRC's recent enforcement initiative on equity incentives should have no restrictions on CISG. As we uncover more facts about CISG's so-called “scorecard”, we are convinced that it is no different from an equity-based compensation plan. The awarded equity incentive shares are part of agents’ total compensation and can be converted into cash (RMB 5 per share at any time) or equity. We also believe the commission paid in the form of equity incentive shares has not been reflected in CISG's financial statements. This leads us to believe that CISG may have understated commission expenses and overstated net income by a meaningful amount. Our findings further revealed that CISG's agents may be holding shares in an entity that does not legally exist. Should any disruption occur among CISG's network of agents, CISG's daily operations and growth prospects will likely suffer."

Cninsure closed Thursday at $18.40, plunging $3.75, or 16.93 percent. volume was about 10 times the normal 3-month average.