Taomee shares drop sharply in NYSE debut

NEW YORK, June 9 (Reuters) – Shares of China-based Taomee Holdings Ltd, which operates a website for children, fell 8 percent in their stock market debut Thursday after pricing at the bottom of its anticipated range.

The company, which disclosed major gaps in its internal financial controls, is coming to market just as U.S.-listed Chinese companies are under more scrutiny following a series of accounting scandals.

A number of Chinese stocks fell on Wednesday after Interactive Brokers Group Inc said it would prohibit clients from borrowing money to take leveraged positions on 160 Chinese securities. Discount brokerage TD Ameritrade also said it was closely monitoring Chinese stocks in the United States.

In its IPO prospectus, Taomee said the company and its auditors had found “significant deficiencies in our internal control over financial reporting” and that it lacked enough expertise to comply with U.S. accounting rules. Among the problems Taomee found were errors in the “algorithm of the software program we used to compile operating data.”[ID:nN0837797]

The company’s shares were at $8.28 — 8 percent below their IPO price — in morning trading on the New York Stock Exchange.

On Wednesday, Taomee sold 7.2 million American depositary shares for $9 each, the low end of the proposed $9 to $11 range.

Major stockholders include Frontier Technology Holdings Ltd and Qiming Venture Partners, but all of the shares sold in the $64.7 million IPO came from the company, which plans to use the proceeds to expand its businesses and for general purposes.

Taomee’s social networking and entertainment site for children features virtual worlds, including one with cuddly moles.

The company also sells children’s books and magazines, licenses its franchise to beverage and apparel sellers in China, and is involved in two animation series.

Underwriters on the Taomee IPO were led by Credit Suisse and Deutsche Bank Securities. (Reporting by Clare Baldwin; Editing by Derek Caney and Lisa Von Ahn)