Renren Inc was hyped as the Facebook of China, a company that had access to the world's largest Internet market, and a good way to ride the buzz surrounding social media IPOs -- but investors who believed the story are nursing big wounds.

In the two months since its IPO, Renren's stock has lost more than half of its value. The company and its owners sold shares at $14 apiece in early May but since then the stock has sunk to close at just $6.23 on Friday.

Whether the IPO price was too high, or investors are now being unduly cautious, remains an open question. Chinese stocks listed in the U.S. have plunged amid growing concerns about alleged accounting fraud and whether the companies' claims about their businesses stand up to scrutiny.

Renren has been mostly free of that taint, but it still faces concerns about competition, censorship and a sudden resignation by a key board member before the IPO.

It's being caught up in the Chinese stuff. If you look at all of the recent Chinese IPOs they've all traded pretty badly in the past few weeks, said Nick Einhorn, a research analyst at Renaissance Capital, an IPO research and investment house in Connecticut.

There are a lot of investors and portfolio managers that are reducing their exposure to Chinese stocks, especially relatively unproven ones, like IPO companies.

The questionable accounting showing up in some companies could be a sign of a broader slowdown in China, prominent Asia-based investor Marc Faber told Reuters Insider on Friday.

One of the most reliable indicators you are in a bubble stage is the emergence of fraud on a massive scale and that we had in Chinese companies very clearly, said Faber, who is also editor of the Gloom, Boom & Doom Report.

Renren values corporate governance and transparency, a spokeswoman for the company said in an e-mailed statement. Accounting scandals affecting a handful of companies are hurting the stock price not only of Renren but the performance of many other companies, so this is not company specific for Renren, she wrote.

One pre-IPO investor in Renren has indicated it shares the same opinion: the sharp decline in the stock price is due to investor concerns about China and has nothing to do with Renren specifically, or the e-commerce sector, said a person who had been briefed on the matter but spoke on condition of anonymity.

Certainly, the previous world in which investors bought Chinese stocks to chase turbocharged growth has been largely replaced by a perception that everything from China needs to be treated with some suspicion. Any sense of balance has been lost -- the baby is going out with the dirty bath water, bankers say.

There is no question in my mind that there is growth in China, Rodman & Renshaw head of investment banking John Borer said at a conference in Los Angeles last week, but added: Today, tactically, the market of investors, have capitulated. They've thrown in the towel.

Rodman & Renshaw has historically worked on smaller transactions.

Renren is not the only Chinese stock that has fallen sharply since its IPO. Other recent IPO companies that have struggled include NetQin Mobile Inc, Trunkbow International Holdings Ltd and E-Commerce China Dangdang.

CLIENTS NOT LOST

Morgan Stanley, Deutsche Bank and Credit Suisse took lead roles in bringing Renren public. When the IPO finally priced, it did so at the top of a range that had been increased by 30 percent, and traded up as much as 57 percent during its first day. Since then, it has been almost all downhill.

Deutsche Bank and Morgan Stanley declined comment. Credit Suisse was not immediately available for comment.

Even though some bank clients lost money on Renren, it is unlikely that they will stop doing business with the banks who sold them the deal, former equity capital markets banker Bruce Foerster said.

If you've got a hot deal, you don't have to call them. They'll call you, he said.

Indeed, there is not much in the way of angry phone calls coming in to the banks that worked on the IPO, sources familiar with the situation said.

That may be partly because many probably sold the stock at a hefty profit when it soared on the first day -- leaving the mainly retail investors who are thought to have picked it up to lose their shirts.

Who got Renren shares in the IPO is not public information. A partial list of major investors will become public on July 1.

Investors, U.S. investors especially, tend to underestimate the risk in Chinese IPOs because they believe it's the next Baidu Inc -- and that's just not the case, said Josef Schuster, founder of Chicago-based IPO research and investment house IPOX Schuster.

Chinese web search engine Baidu came public on the Nasdaq in 2005 and rose 354 percent on its first day of trading. Its shares remain more than 300 percent above their IPO price.

When people think of Chinese stocks, it's that iconic deal that many reference.

BOTTOMING OUT

In Renren's case there is a long list of issues in regulatory filings that could catch investors' attention -- questions about its internal financial controls and the tight control and censorship of the Chinese government, for example.

And while Renren has not been accused of any accounting shenanigans, it probably isn't helping that the chief of its audit committee, resigned just before the IPO. The official, Derek Palaschuk, was also chief financial officer of Longtop Financial Technologies -- a Chinese IPO company that was hit by the resignation of its auditor and a U.S. Securities and Exchange Commission probe amid allegations of fraud.

Even so, some investors are buying into Renren now, hoping the discounting of Renren's stock has been overdone.

All of my friends say that I am crazy because it is probably just another Chinese fraud, declared Adrian Sciberras, a Malta-based accountant and trader who said he bought about $10,000 worth of call options when it hit $7.50.

You have to have the guts to buy and close your eyes, then in a few months time it's fine, he said. Sciberras says he believes that the company has good growth potential and a lot of cash.

(Reporting by Clare Baldwin, editing by Martin Howell)

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