Globe and Mail reporters Mark Mackinnon and Andy Hoffman have written a stunning, must read article discussing the corruption between the Chinese government, Chinese law enforcement, Silvercorp (SVM) and SVM‘s thuggish CEO Rui Feng. Read more about SVM in these pieces by Alfred Little, here and here, and read the Globe and Mail piece here.
Chinese Scams
Quick Take – ChinaCast Reopens For Trading (CAST)
After being halted for months, shares of ChinaCast Education (CAST) a filthy Chinese reverse-merger company, finally reopened for trading. The shares promptly lost over 80% of their value.
After the bell, the firm put out an 8k filing, available here, which contained this priceless paragraph:
On June 19, 2012, the Company and several of its subsidiaries filed an application with the High Court of the Hong Kong Special Administrative Region, Court of First Instance (the “Hong Kong Court”), alleging that former chairman and chief executive officer Ron Chan Tze Ngon, former chief financial officer Antonio Sena, former chief accounting officer Jim Ma, and former president-China Jiang Xiangyuan had committed tortious wrongs against the Company and violated their fiduciary duties and service contracts by individually and in conspiracy using their positions at the Company to further their own businesses, dissipating Company assets through unauthorized borrowings and cash pledges, and converting the Company’s cash and assets (including two and possibly all three of the Company’s private colleges). As part of the application, the Company also sought an injunctive order to freeze the assets of these executives that are located in Hong Kong, and filed a lawsuit against them seeking damages and an accounting of the property which the defendants’ have taken away from the Company as well as interest and legal costs. On June 19, 2012, the Hong Kong Court granted the Company’s application with respect to the injunction, restricting the defendants from removing their assets from Hong Kong, up to a value of Rmb800 million. The defendants have not yet responded to the injunctive order and, to date, have not acknowledged service of the proceedings against them. The Hong Kong Court has scheduled a hearing for July 6, 2012, to consider continuing the injunction.
Notwithstanding the fact that today is the 25th of June, and the company could have disclosed this information on the 19th of June, thus letting some of its stupider stuckholders know exactly WHY the shares were about to plunge, it really should be no surprise.
Unless of course, you are a brilliant investors like Ned Sherwood, who waged a proxy fight all last year with the company. Ned was seemingly completely unaware that there was actually nothing to fight over. The assets were plundered, and company management just walked away.
Poor delusional Ned. He reminds your author of an older “Beijing Jesse”. He seems so puzzled by the actions of CAST management, and so willing to believe the short sellers were wrong.
In one of his 13D filings from last fall Ned states:
As a Board member and independent outside director, I have become uncomfortable with many of the recent actions of senior management, the Company’s legal counsel and several members of the Board. Having been on the Board now for two years, I am impressed with CAST’s business model and its future prospects and potential. But I believe that the current corporate and legal governance issues are undermining the Company’s shareholder value.
I have demonstrated my support of and faith in ChinaCast by investing a substantial amount of money in its common shares. In the past year alone, I, on behalf of entities that I control, have purchased more than 3,140,000 of the Company’s common shares at a time when CAST was the subject of unjustified attacks by short sellers. Almost all of these purchases were made at prices that exceed the now current market share price. During this same period of time, CAST senior management has not purchased a single share of ChinaCast common stock.
Ned, allow me to explain what happened. That “business model” you were so impressed with is called “stealing.” You were suffering from cognitive dissonance. Even though you clearly realized that something is not right with the company, with its top management, and with top notch outside counsel from Loeb & Loeb, you still continued to pour your investors’ money into CAST. You scoffed at the warnings of short-sellers. You had drunk the CAST Kool-Aid, and today dawn finally broke. Wake up and smell the coffee…..you have been conned.
If you don’t know who the mark is Ned, it is you.
But don’t worry, you are not alone. Even Dealbook‘s Steven Davidoff, in a piece that reveals some of the shenanigans the company pulled last fall, available here, failed to understand that the most likely, and simplest, explanation was that CAST management and the coterie of advisors around them were (and are) just thugs out to steal whatever they can.
The content contained in this blog represents only the opinions of the author. The author may hold either long or short positions in securities of various companies discussed in the blog. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. This blog is not a solicitation of business: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.
Quick Take – NY Times wakes up, realizes China = Lie.
The slow to wake up New York Times has finally begun to realize what BuyersStrike! readers have long known. Statistics, figures, and “results” coming out of China and Chinese companies are, simply put, lies.
In a front page article in today’s New York Times (23 June), available here, one particular section screams out:
Indeed, officials in some cities and provinces are also overstating economic output, corporate revenue, corporate profits and tax receipts, the corporate executives and economists said. The officials do so by urging businesses to keep separate sets of books, showing improving business results and tax payments that do not exist.
Your author believes that the main point deserves repeating: “The officials do so by urging businesses to keep separate sets of books, showing improving business results and tax payments that do not exist”.
Of course, recent moves by the Chinese government to stifle the ability of foreign investors and journalists to perform proper due dilligence, come as no surprise. The Chinese have cracked down on the ability of even Chinese, let alone Westerners, to access SAIC and land registry information, just as a start. Read more in a piece by Stratfor here.
To believe, as China bulls do, that the set of books reported to Western investors is the true and accurate one is foolishness, and professional irresponsibility, of the highest order. To believe any of the research from bullish analysts, when there is now no way to do any real due diligence work is negligence.
The solution to this problem is simple, we in the West must vote with our wallets and deny the Chinese access to our capital and our capital markets.
Quick Take – Muddy Waters proven correct on Tree-X (TRE CN)
After almost a year, the OSC (Ontario Securities Commission) has finally admitted that Muddy Waters was correct. Sino Forest (TRE CN) aka Tree-X was a massive fraud. Read more in a Financial Post article here.
Congratulations to Muddy Waters for exposing the fraud and not backing down. Respect is due to John Paulson, who recognized the mistake in owning Tree-X, and dumped his stake after the allegations arose.
As for morons like Wellington, Richard Chandler and the rest of stuckholders who against all evidence still believed the lies, for the sake of themselves and their investors, one can only hope they learned their lesson and stopped sending Western dollars into corrupt Chinese pockets.
Quick Take – Fidelity wakes up, sells FSIN and SEED
This morning, in a 13G/A filing, FMR LLC, commonly known as Fidelity, revealed that they have been selling off their once massive stake in Christopher Wenbing Wang‘s Chinese reverse-merger company Fushi Copperweld (FSIN).
Neither C-Wang (see here) nor FSIN (see excellent work here from Muddy Waters) are strangers to controversy. Are some large institutions finally seeing the light and realizing these Chinese companies are merely machines designed to rapidly separate Western investors from their money?
So what has happened?
Quick Take – One more Peter Mak Kin Kwong name halted – Huabao (336 HK)
It took a while, but everyone’s favorite party animal, Peter Mak aka Mak Kin Kwong (or around these parts, “King Kong” for short), is caught up in yet another stock scandal.
Long time readers remember King Kong from back in August 2011, when we examined his role as CFO of now disgraced and delisted Chinese reverse merger, and Chardan Capital client, A-Power Energy Generation (APWR) and listed the many companies where he served as a director. Catch up on it here.
Gene Michael, Richard, Last One to Leave Please Turn Off the Lights! (KUN)
Turning away from SEFE for just a moment, do any readers remember China Shenghuo Pharmaceutical Holdings (KUN)? KUN was one of the many Chinese reverse merger darlings to come out of Richard Rappaport‘s bucket shop Westpark Capital. The one that featured the illustrious and unforgettable Gene Michael Bennett on the Board of Directors. Late last week, in a fit of pique, the company announced that it cannot be fired, because it has already quit! In the press release, the company states that in the opinion of the NYSE Amex:
Quick Take – Goodbye Gareth (CAGC)
In a stunning developement at Chinese reverse-merger wonder China Agritech (CAGC) issued an 8K filing this morning announcing the departure of top shelf CFO Gareth Yau-Sing Tang.
On January 16, 2012, the Company accepted, effective immediately, the resignation of Mr. Yau-Sing Tang as Chief Financial Officer of the Company.
Of course, it appears that superstar director Gene Michael Bennett is still at the company. One must also wonder how CAGC apologist Jesse Glickenhaus feels about losing such an immense talent as that Crazy Gareth.
The content contained in this blog represents only the opinions of the author. The author may hold either long or short positions in securities of various companies discussed in the blog. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. This blog is not a solicitation of business: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.
Quick Take – Dumb Auditors Edition (FEED)
Poor McGladrey, Pullen aka RSM McGladrey, the middle market accounting firm that just happened to be the auditor of now halted Chinese reverse-merger scam AgFeed‘s (FEED) admittedly fraudulent financials. Having the wool pulled over one’s eyes is embarassing enough for an auditing firm, and it makes one wonder how Deloitte and KPMG are even still in business, but at McGladrey it is so much worse. The firm, stupidly, signed off on FEED‘s 10K on 16 March 2011.
On 14 June 2011, apparently unaware that they had already been fooled by the crooks at AgFeed, the PR team at McGladrey decided to rub the Longtop Financial fraud in the face of audit firm Deloitte Touche Tohmatsu, in their biweekly “Insights” newsletter, available here. It stated:
Quick Take – AgFeed Halted, Rats Flee, Film at 11 (FEED)
At 1:30pm today, the 19th of December, another wretched Chinese reverse-merger company, AgFeed Industries (FEED) was halted, after issuing a telling 8k filing. AgFeed, previously discussed here and here, announced that:
The facts learned in the Investigation to date indicate that the Company’s financial accounting staff and management based in China engaged in accounting improprieties during 2009 and 2010 and the first two quarters of 2011 in connection with the Company’s Chinese legacy hog production business that they concealed from the Company’s management in the United States.
The people running the investigation must be real slow learners, since this was obvious, and the local management must be incredibly brazen to have continued the fraud until the middle of 2011, since it was clear in late 2010 that Chinese companies were under the microscope. There was a big management change at FEED in 2011, as well as wholesaling dumping of stock by the Chinese insiders. But foolish investors, with glazed eyes, having drunk the Kool-Aid, enamored with China seem to ignore such giant red flags. The filing continues: