After the close of trading on the 23rd of June, China-Biotics (CHBT) issued an 8k, available here, which announced the resignation of CFO Travis Cai as well auditors BDO. Attached to this 8k is a startling series of letters from BDO to the company and its Audit Committee. The letters describe, quite vividly, the amazing lengths to which CHBT has gone in perpetrating a fraud, that while not as large as Tree-X, is certainly the most brazen. Read more about China-Biotics, here, at Citron Research.
The letters contain several examples of what is sadly commonplace fraud in Chinese companies. There are cash balances that don’t square with the interest earned on the income statement, the forged “chops” on sales agreements, and completely forged bank statements (“advices”) . It is now common knowledge that Chinese companies often place stooges at local banks to intercept audit firm employees and investigators, and smart auditors have taken to inspecting supporting documents at bank head offices. What is new about this 8k is the revelation that in the case of CHBT the auditors were given a username, password and web address for a bank’s website. A website that was, itself, a complete forgery. This takes the whole fake bank website phishing scam to a whole new level.
Imagine the delicious irony if the fake bank web site was run on Longtop Financial (LFT) software, or built by Longtop employees?