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Unless the source is confirmed, it's unverified and inauthentic. Here the source is unconfirmed. Extraordinary claims require extraordinary proof. The source needs to be valid. Anything like this would go over the news wire or be released on ccme's website. If and when it does, then I'll give it more credibility.
Moreover it says it's fake at the bottom.
-Andrew
YHOO / Alibaba / - Yahoo shareholders must feel like they received the following letter that just arrived in my inbox:
"ATTENTION BENEFICIARY!!!
On behalf of the Trustees and Executor of the estate of Late Engr.Jürgen Krügger. I once again try to notify you as my earlier letter was returned undelivered.I hereby attempt to reach you again by this same email address on the WILL. I wish to notify you that late Engr. JürgenKrügger made you a beneficiary to his WILL. Heleft the sum Thirty Million, One Hundred Thousand Dollars (USD$30, 100.000.00) to you in the Codicil and last testament to his WILL.
This may sound strange and unbelievable to you, but it is real and true.Being a widely traveled man, he must have been in contact with you in the past or simply you were nominated to him by one of his numerous friends abroad who wished you good.You are advise to contact me with my personal email address: Email: barr.teddychambers03@yahoo.com.hk<mailto:barr.teddychambers03@yahoo.com.hk>
CALL FOR YOUR VERIFICATION
Tel:+44-7031960744
Yours in Service,
BARRISTER TEDDY WILLIAMS ESQ."
Chris: "...if CCME comes through with flying colors and no issues...", there'd be a dividend which would be quite a catalyst.
-Andrew
Made in American Comeback - study shows Chinese manufacturing too expensive, increase of 10-15% in Chinese wages annually, with a decline in dollar relative to Yuan. In 2015 there will be an indifference point at which time corporations that sell goods in the US will opt to pay US workers to manufacture instead of offshore Chinese workers plus shipping costs.
Source: http://finance.yahoo.com/blogs/daily-ticker/made-america-comeback-125318772.html;_ylt=ArCSV.zIbp3mvAOr7KKQulyxcq9_;_ylu=X3oDMTFoaDZlbHA1BHBvcwMxBHNlYwNjb250ZXh0dWFsLWRhaWx5dGlja2VyBHNsawNtYWRlaW5hbWVyaWM-
The guy names no salaries or specific numbers. Might have been more impressive if he did for a claim like this.
TRIT - Rames, hysterical! BTW, when a Chinese company's slogan includes a derivative of the word "harmony", that alone is a yellow flag (unless they manufacture harmonicas).
I almost had to pinch myself to see any article over a newswire offer room for the general plausibility of potential vindication for one or more CGS companies squarely under fire, stating, "Many of those allegations will turn out to be patently false, but some may turn out to be true."
The Motley Fool Article which included the above quote naming such companies as YONG, CCME, and GFRE.
Such articles almost always assure the basket of stocks have only a one way ticket to doomsday, expressed the way a leading question is used to manipulate the jury.
-Andrew
Rick you are most welcome to post comfortably and I'm confident you will find a thoughtful, interested, polite, and receptive audience.
-Andrew
Anyone want to revise anything in light of the YHOO / Alibaba situation?
-Andrew
CGS - I almost had to pinch myself to see any article over a newswire offer room for the general plausibility of potential vindication for one or more CGS companies squarely under fire, stating, "Many of those allegations will turn out to be patently false, but some may turn out to be true."
Here is the Motley Fool Article which included the above quote naming such companies as YONG, CCME, and GFRE.
Such articles almost always assure the basket of stocks have only a one way ticket to doomsday basket, expressed the way a leading question is used to manipulate the jury.
-Andrew
These were on YMB. While I don't speak Chinese, I'm posting them here to consolidate information for your convenience. These would be part of the 'does CCME have an underlying business or not' discussion which sometimes has gone on in addition to the 'is CCME a fraud or partial fraud or something else' discussion.
1) http://djjad.blogbus.com/logs/27662494.html
2) http://www.cnadtop.com/news/vision/2010/8/2/578d5f78-6a1a-4ff3-aa7e-d6bf2fcd55d0_3.htm
3) In addition to the above is the link from the ccme.tv FAQ: http://www.cnadtop.com/news/nationalNews/2011/1/26/16db29c6-5e58-4bed-be1a-0b8daacadb34.htm about which CCME underscores, "We were ranked as one of the "Top 10 Special Channel Media suppliers" on the survey conducted by China Advertising Association (Government Affiliate) published in January 2011."
Source: http://www.ccme.tv/eng/ir/faqs.php
-Andrew
Dipstick55: If CCME is a total fraud, their non-responsiveness correlates with your conclusion.
To answer your question, however, let's assume CCME is just a victim of FUD by the naked shorts and front-running hitpiece manufacturers; let's also assume that these third party unscrupulous acts set forth a chain reaction which resulted in all the Director and Officer departures, in the DTT withdrawal of its 2009 signature, in the DTT withdrawal, and that all this collectively resulted in the delisting notice(s) now being appealed. For CCME to file any suit against anyone who began this chain of events, even CCME still has plenty of time remaining under the applicable statutes of limitation to file such a claim. Meanwhile, to so file, CCME must be ready to make its case, and that requires supporting documentation. The appeal to Nasdaq and the Independent Investigation by the Independent Board of Director Members would, if CCME is legit, result in these keystone documents for the foundation of such a lawsuit.
Really, in at least a slightly more ideal world, CCME would have been prepared the moment allegations were first asserted long before the Citron Report. For example, CCME should have had an FAQ up long ago, updated its website with a far more professional presentation becoming of a company with its profoundly vast assets, provided far more translation of its Chinese expression on its Chinese site's side, and posted its bus videos to the web. There was so much CCME could have done to help hitpiece artists to give CCME some additional benefit of the doubt.
There was a time when the main paid FUDster objection on YMB was that "CCME did not even play videos of commercials". It took a then momentous trip by WCTBILLS (who was graciously open to shareholder documentation suggestions) to take and post video on the very buses he rode to then first show CCME in action to the general public. Even the ride on investor's Day was suspect, but here, most likely, WCTBILLS showed up at random stops and stations. There he found terminals bearing CCME commercials. WCTBILLS even translated them simultaneously with his perfect Americanized English accent. A sound step in the right direction for CCME to establish itself as real. That a third party, rather than CCME had to do this, was proof positive that CCME is run by what I've coined repeatedly as 'the amateur hour'. See for example this thread which may possibly prove to be too optimistic then, while ultimately ahead of its time if CCME is legitimate after all.
In other words, CCME's main problem-- its Achilles heal-- is its cluelessness which besets it poor public relations approach, and perhaps a history of not understanding the ramifications of public opinion on its price regardless of its earnings or growth potential.
Whether fraud, mere victim, or some combination or range of the two, a brewing storm struck CCME at its very core. At least now I'm comfortable saying that CCME's advisors have now woken up to realize that public sentiment really does matter. Hopefully these advisors will instill this sensible outlook into the remaining and future CCME management.
In sum, if CCME is legitimate, they can sue but would have to show audited financials in establishing that claim. These present steps may be the precursors to just that eventuality.
On the other hand, CCME may be a fraud. Like everyone else, I wait patiently for more definitive evidence than a naked short-driven propaganda-laced domino effect.
-Andrew
CCCL - I read that and agree. It was a verbal misdescription. Won't harp on it beyond what I wrote. A year ago one in my position might not be sensitive to this event.
We're all looking (ideally) for polish in isolating the good marble or at least a good tile. Proofreading the financials is a no frills polish, as opposed to Turtle Wax. In this sector, details and polish matter as they can prevent innuendo. The professional prompt correction does reflect quality. Five Turtles there. I'll feel even better about it when they also correct the copyright date at www.cceramics.com...
Am wondering if yesterday's CAPEX resulted in attracting shorts or naked shorts.
-Andrew
CCCL - SEC filing corrections can show honesty and integrity. Prompt correction reflects responsibility.
Taking a moment to think about this, through a tainted CGS lens, how can a fiduciary publish the wrong CAPEX numbers or wrong description, and should this ever happen (even if not quite here in the CCCL example), what then were the wrong numbers doing on a document that got released in the first place? When digit mistakes do happen, I like to hear that digits were inadvertently mistransposed or, another concept like that a 2 looked like a 7, etc. (This is an area where I practice so I am unusually familiar with the implications of when some kinds of numbers get miskeyed).
Looking at this in the light least favorable (since its healthy to examine the downside risk)... This may not be one of my more popular posts...
Mistakes in filings are haunting. Here's one from our friends at CCME:
"Remarks: (1) The original Form 4 erroneously reported that 8,700 shares of common stock of China MediaExpress Holdings, Inc. were sold on August, 19, 2010. This amendment corrects the original Form 4 to report that the number of shares sold on August 19, 2010 was 30,000."
That said, I intend to buy more CCCL on this weakness especially if new lows are tested.
-Andrew
CCME/CGS:
On the short and distort critique of CCME/some CGS short tactics, some historical examples of results:
1) vinik case
2) minkow case
-Andrew
On the short and distort critique of CCME/some CGS short tactics, some historical examples of results:
1) vinik case
2) minkow case
-Andrew
Complaint against Little, Seeking Alpha, Geoinvesting, etc. found here:
https://iapps.courts.state.ny.us/fbem/DocumentDisplayServlet?documentId=tirVQewp3WvzBOnYdc3Bag==&system=prod
It's at least nice to see a document signed by a Loeb attorney, if nothing else... Really wish it had been filed against other folks on behalf of CCME.
Every time they say, " -- in this case SCEI-- " I can almost taste them instead saying " -- in this case CCME--"
-Andrew
SCEI - Complaint against Little, Seeking Alpha, Geoinvesting, etc. found here:
https://iapps.courts.state.ny.us/fbem/DocumentDisplayServlet?documentId=tirVQewp3WvzBOnYdc3Bag==&system=prod
It's at least nice to see a document signed by a Loeb attorney, if nothing else... Really wish it had been filed against other folks on behalf of CCME.
-Andrew
SCEI - Complaint against Little, Seeking Alpha, Geoinvesting, etc. found here:
https://iapps.courts.state.ny.us/fbem/DocumentDisplayServlet?documentId=tirVQewp3WvzBOnYdc3Bag==&system=prod
It's at least nice to see a document signed by a Loeb attorney, if nothing else... Really wish it had been filed against other folks on behalf of CCME.
-Andrew
SCEI - Complaint against Little, Seeking Alpha, Geoinvesting, etc. found here:
https://iapps.courts.state.ny.us/fbem/DocumentDisplayServlet?documentId=tirVQewp3WvzBOnYdc3Bag==&system=prod
It's at least nice to see a document signed by a Loeb attorney, if nothing else... Really wish it had been filed against other folks on behalf of CCME.
Every time they say, " -- in this case SCEI-- " I can almost taste them instead saying " -- in this case CCME--"
Loeb needs to proofread. A few typos in there... Wish not saying CCME was one or them...
-Andrew
Yes, Shaw still holds their position as of 12/31/10 filings.
http://www.nasdaq.com/asp/holdings.asp?symbol=CCME&selected=CCME&FormType=Institutional
CCCL - Just a brief update on the nicely trending favorable Institutional data floating for the 3/31/11 cutoff:
UBS AG 3/31/2011 0 (937) Sold Out $0
OXFORD ASSET MANAGEMENT... 3/31/2011 16,023 2,233 16.19% $82
CLEAR HARBOR ASSET MANAGEMENT... 3/31/2011 693,845 276,038 66.07% $3,552
CENTRAL SQUARE MANAGEMENT... 3/31/2011 75,850 240 0.32% $388
CALIFORNIA PUBLIC EMPLOYEES [CAPLERS!!!]... 3/31/2011 10,700 10,700 New $55
There's still another page that has yet to file their holdings as of 3/31/11. CALPERS should get the 'Henry Clay Award' for this investment... (If you get this reference it should not put you in any kind of compromising position).
-Andrew
CCCL - Just a brief update on the nicely trending favorable Institutional data floating for the 3/31/11 cutoff:
UBS AG 3/31/2011 0 (937) Sold Out $0
OXFORD ASSET MANAGEMENT... 3/31/2011 16,023 2,233 16.19% $82
CLEAR HARBOR ASSET MANAGEMENT... 3/31/2011 693,845 276,038 66.07% $3,552
CENTRAL SQUARE MANAGEMENT... 3/31/2011 75,850 240 0.32% $388
CALIFORNIA PUBLIC EMPLOYEES [CAPLERS!!!]... 3/31/2011 10,700 10,700 New $55
There's still another page that has yet to file their holdings as of 3/31/11. CALPERS should get the 'Henry Clay Award' for this investment... (If you get this reference it should not put you in any kind of compromising position).
-Andrew
CCCL - Just a brief update on the nicely trending favorable Institutional data floating for the 3/31/11 cutoff:
UBS AG 3/31/2011 0 (937) Sold Out $0
OXFORD ASSET MANAGEMENT... 3/31/2011 16,023 2,233 16.19% $82
CLEAR HARBOR ASSET MANAGEMENT... 3/31/2011 693,845 276,038 66.07% $3,552
CENTRAL SQUARE MANAGEMENT... 3/31/2011 75,850 240 0.32% $388
CALIFORNIA PUBLIC EMPLOYEES [CAPLERS!!!]... 3/31/2011 10,700 10,700 New $55
There's still another page that has yet to file their holdings as of 3/31/11. CALPERS should get the 'Henry Clay Award' for this investment... (If you get this reference it should not put you in any kind of compromising position).
-Andrew
New Data:
Still even more institutional data. You can follow this thread back to a previous update or two as the data has floated in for weeks now.
1) We are still waiting to see what TWO SIGNAL and DE SHAW did as they had large holdings.
2) To recap highlighted data from last week:
Big increase:
VANGUARD GROUP INC 12/31/2010 611,905 385,479 170.25% $7,269
QUANTITATIVE INVESTM... 3/31/2011 82,600 82,600 New $981
Sell out:
RIVERSIDE ADVISORS L... 3/31/2011 0 (266,800) Sold Out $0
3) Here is the total data for 3/31/11, which has been filed with the SEC as of May 11, 2011:
WESPAC ADVISORS, LLC 3/31/2011 0 (10,660) Sold Out $0
VIRGINIA RETIREMENT ... 3/31/2011 0 (19,200) Sold Out $0
VANGUARD GROUP INC 3/31/2011 1,598,735 986,830 161.27% $18,993
UBS AG 3/31/2011 300 (9,105) (96.81%) $4
THREE ZERO THREE CAP... 3/31/2011 12,005 (1,290) (9.70%) $143
TECHNICAL FINANCIAL ... 3/31/2011 25,300 25,300 New $301
STERLING INVESTMENT ... 3/31/2011 35,600 35,600 New $423
RIVERSIDE ADVISORS L... 3/31/2011 0 (266,800) Sold Out $0
QUANTITATIVE INVESTM... 3/31/2011 82,600 82,600 New $981
OXFORD ASSET MANAGEM... 3/31/2011 141,422 (251,625) (64.02%) $1,680
NOMURA HOLDINGS INC 3/31/2011 5,300 5,300 New $63
LAIDLAW GROUP, LLC 3/31/2011 50,005 250 0.50% $594
FIRST ALLIED SECURIT... 3/31/2011 0 (1,000) Sold Out $0
CLARIVEST ASSET MANA... 3/31/2011 0 (9,446) Sold Out $0
CALIFORNIA PUBLIC EM... 3/31/2011 174,400 25,600 17.20% $2,072
BBT CAPITAL MANAGEME... 3/31/2011 150,000 150,000 New $1,782
BARCLAYS GLOBAL INVE... 3/31/2011 19,745 (17,950) (47.62%) $235
ARROWSTREET CAPITAL ... 3/31/2011 0 (400) Sold Out $0
ALPHABET MANAGEMENT,... 3/31/2011 122,300 122,300 New $1,453
-Andrew
CCCL - Burp, apparently, yes. And here I though there were no other ways to get 25 million with OBL dead. The world is a promising place...
-Andrew
Fernando: The question really is whether your premise that "Originally the bag holds a certain percentage of white and a certain percentage of black marbles".
To borrow loosely from Muhammud Ali, the certain percentage of "Angel Food" marbles may well be 0 while the percentage of "Devil's Food" marbles may actually be 100. Why? Because this bag is loaded by the corrupted system which enabled clever charlatans to gorge themselves with fast money without consequence when cake shop investors discover Devil's Food cooked-books.
Yeah, there's got to be some good ones in there. I'm just saying life ain't fair and there really may be few or no good ones in this particular bag. In the RTO world, the light does not shine in the darkness and the darkness can be unrelenting. (loosely borrowing from John 1:5).
BIDU is not in the bag. Companies that accessed private financing are not in the bag. Companies listed on the HK or Shanghai exchange are not in the bag. Companies brought public after massive Institutional vetting for public offering are not in the bag.
This is a most unusual bag-- a pudding-proof bag of RTO microcaps possibly all spun of sheer myst. It's the one time when someone says, "you've got it in the bag" and the response in Yiddish is "Oy!" and the response in spanish is "me da asco".
Some of these marbles may be more of a yin and yang than a solid color.
I've now referenced oe'r so gently on enough cultures and will stop there... BTW, I have not studied all 100 and I do own CCCL which to me so far is one of the good ones. There's probably more.
Thankfully with diversification, hopefully no one's portfolio is for all the marbles.
-Andrew
CCCL - http://finance.yahoo.com/news/C-O-R-R-E-C-T-I-prnews-1556680203.html?x=0&.v=2
Capex corrected. Rebound expected.
-Andrew
CCCL Capex correction:
http://finance.yahoo.com/news/C-O-R-R-E-C-T-I-prnews-1556680203.html?x=0&.v=2
-Andrew
CCCL - That's great news. Is it too cynical to suggest that someone (no one here) out there knew this report was mistaken and bought today knowing the new report would come tonight.
-Andrew
Fernando:
You're so thoughtful in your concisely elegant perspectives that rarely am I tempted to take a stab at what you express.
When it comes to, say, probability, the flip of a coin is 50/50 every time. We all know that one and the Twilight Zone Twilight Zone of landing on the side (CCME) does not count for such an exercise. If you ask experienced roulette dealers if they've ever seen the entire board (with say 30 spaces) all light up red or all light up black, many will acknowledge this happens regularly from time to time; streaks just happen. They even say to bet the streak even though each turn has the same odds. Each event is 50/50 (actually a little less than 50/50 given the 0/00 possibility on the wheel).
My point is that as a matter of probability, especially in one part of the world where US courts lack jurisdiction to apply laws and enforce judgements, taking down unrelated fraudulent RTO companies 1-10 does not mean RTO companies 11-20 are any less likely to be frauds. It could mean the frauds are just harder to prove. I'm just making a statement of probabilities, as well as the conditions that encourage the frauds to develop there like hurricanes developing off West Africa, or monsoons to develop off the Himalayas.
It's the laws that protect shareholders from securities fraud. The absence of jurisdiction of US courts over the assets and the encumberances against enforcement of US laws that beckon the proliferation of one RTO fraud after another. The lazy auditors with odd standards also invite unscrupulous behavior. Bribes may get in the way too when a CFO makes only 81K.
This does not take into effect the impact of enforcement on other companies to clean up their acts and be proactive before being caught. Really every company in this sector ought to be ready to be under attack and have outstanding PR capabilities ready when needed.
That said, humans are not all bad and eventually we'll find the companies with good managements with obvious rotten ones gone. As the O'Connor title goes, "A Good Man is Hard to Find."
Show me some takeovers, buyouts, and dividends issued. Then we'll separate the wheat from chafe. And may CCME be the first of the suspect group to issue such a dividend.
-Andrew
CCCL - skier1, Wow! Thanks for posting that information.
-Andrew
Videoone: Thank you for commenting. Please review page 4 of today's filing found here
"The Offering
Common stock offered by selling stockholders
65,650,000 shares. This number represents 9.94% of our current outstanding common stock (1)
Common stock outstanding before the offering
660,968,745 shares.
Common stock outstanding after the offering
660,968,745 shares.
Offering Price
The selling stockholders will determine at what price they may sell the offered shares, and such sales may be made at prevailing market prices or at privately negotiated prices.
Proceeds to us
All of the shares of common stock being offered under this prospectus are being offered and sold by the selling stockholders. Accordingly, we will not receive any proceeds from the resale of the shares by the selling security holders.
Risk Factors
See “Risk Factors” beginning on page 5 of this prospectus and the risk factors set forth in our annual report on Form 10-K for the year ended December 31, 2010, for a discussion of factors you should carefully consider before deciding to invest in our securities.
(1)
Based on 660,968,745 shares of common stock outstanding as of May 6, 2011.
Unless we specifically state otherwise, the share information in this prospectus excludes shares of our common stock issuable upon conversion of outstanding preferred stock and the exercise of warrants or options outstanding as of May 6, 2011."
_______
As you can see above, the number of shares outstanding is identical. Proceeds don't go to company. Unless I'm misunderstanding, this is a filing to let us know that inside shareholders will be selling closely held shares.
-Andrew
Videoone -- I asked the following on a different board today:
CBBD - You On Demand (formerly China Broadband). Company is intending to be a premium content provider in China i.e. pay per view TV and programming to venues like restaurants. So I'm considering whether I'm understanding the action in the last week. Hours before then unannounced S-1/A yesterday, I sold everything based on the up trend without news (amounted to a coincidence). The company basically announced selling by its insider shareholders of just under 10% (9.94%) of their shares. Cash only goes to shareholders, not to the company. This is not a secondary. Should this not be one of those cynical and/or contrarian scenarios where the company does stuff to drive the shares up only to then facilitate officers to functionally sell this portion of their shares without letting the price drop.
There's a 200:1 RS anytime in the next year and a half holding this thing down to a target in the 4 dollar post split range if they intend to uplist. If they did the RS, the studies I saw suggest a likely drop. I've classified this as a special situation because of US management and investment by a McMahon. Maybe he made a mistake. Given the reverse split, I've viewed this by its post split valuation, not as a penny, and appreciate indulgence in this regard. Even CCME does not have even one US based employee, let alone one US officer or CEO.
Even the auditors cast fundamental doubts:
"Our auditors have expressed substantial doubt in their report on our financial statements about our ability to continue as a going concern."
"Our auditors have included an explanatory paragraph in their report dated as of April 15, 2011 on our consolidated financial statements for the year ended December 31, 2010, indicating that there is substantial doubt regarding our ability to continue as a going concern. The financial statements included elsewhere in this prospectus do not include any adjustments to asset values or recorded liability amounts that might be necessary in the event we are unable to continue as a going concern. If we are in fact unable to continue as a going concern, our shareholders may lose their entire investment in our Company. We will therefore need immediate additional substantial capital in order to continue to operate."
Am I missing something here? Why has this not dropped like a stone today? All thoughts welcome.
-Andrew
Law and CGS - You want to be a US security, fine, you and your officers need to agree to submit to US securities laws. End of story.
The law change is as simple as not allowing a listing to be traded on a US based exchange unless the company agrees to submit to the Jurisdiction of the United States in one US venue, i.e. Delaware, Manhattan (SDNY), for the purpose of enforcement of all securities laws and laws related to securities fraud, as well as to the remedy of applying a US based judgment wherever your assets may be found.
This is as plain as the fundamental fairness discussed in the hallmark case of International Shoe v. Washington -- that if you want to benefit continuously and openly from contacts with the United States investors, you therefore must avail yourself to the protections and laws of the situs so contacted.
-Andrew
Loeb owes no duty to shareholders. CCME is Loeb's client. Loeb only owes a duty to CCME. This can include CCME officers. Where there is a conflict of interest between CCME and its officers is Loeb's problem to sort out. That's partly why a different law firm is brought in (DLA Piper) to represent CCME's Independent Directors.
-Andrew
As long as you also know I am not affirming the words or sentiments in the article as my own. Justice will not be served until the fabricators are held accountable no matter how bad this sector and/or CCME are ultimately found to be. My posting the article was just making the information and indeed its context available to everyone. I do find it revolting too.
-Andrew
Tom, regarding the lingering question of defamation, we can also look to other cases where a website that defames can owe serious cash. See for example this verdict. http://www.citmedialaw.org/blog/2009/125-million-jury-verdict-texas-internet-defamation-case
I have not tracked further to see where in the inevitable appeal process the case is.
-Andrew
CCME - Does anyone here remember feverishly yet quickly debunking large chunks of Carson Block's hitpieces. The wrong URL, the wrong bus station, the wrong count, the mistranslation-- all by a guy who wrote a book on how to do business in China. As if he had no idea he'd selected the wrong places to look (for the right places might well have yielded different results that would not cast such a shadow on CCME).
Such trashy fabrications any one of which would get a student expelled from an Ivy League school for breach of academic integrity. The kinds of claims which would not meet peer level scrutiny needed to meet the barest minimum for admission of CB as an expert under daubert standards?
Where does fuzzy research end and a crime or moral turpitude begin? One wonders whether a full investigation will ultimately result in findings that might be used to review the candidacy of an attorney to remain licensed by the Bar(s) of those states to which the attorney is admitted.
(Or will we find CCME is so corrupt that fabricators get a free pass to mislead the investing public without any regard for Rule 10-b5.)
-Andrew
Another one of those stories: http://finance.yahoo.com/news/Special-report-Chinese-stock-rb-3409039897.html?x=0&.v=1
-Andrew
Special report: Chinese stock scams are the latest U.S. import
On Wednesday May 11, 2011, 3:56 pm
By Ryan Vlastelica and Daniel Bases
NEW YORK (Reuters) - It seemed like the perfect China play, a way for investors to cash in on the world's fastest growing economy.
China MediaExpress Holdings Inc (NasdaqGS:CCME - News), which provides advertising on buses that clog the smog-choked streets of the country's largest cities, was on a tear on the Nasdaq stock exchange. After rising 45 percent in 2009, the stock gained another 49 percent in 2010.
That came to a halt in late January. In a research report, Andrew Left, an investor who runs Citron Research from his Los Angeles home, termed the company a "phantom" that was literally "too good to be true." The stock plummeted 14.4 percent after Left's comment, to $17.84 from $20.86 in one day.
Citron's report was followed by similarly damning charges from Carson Block of Muddy Waters Research, who called the stock a "'pump and dump' scheme." Soon after, Roddy Boyd, the editor of thefinancialinvestigator.com in Wilmington, North Carolina, visited the company's offices and posted videos that he said made it "exceptionally clear" the place was bogus.
China MediaExpress' stock hasn't recovered. Shares lost 47 percent in four days, and were trading at $11.88 on March 11 when the stock was halted on the Nasdaq stock exchange. It hasn't traded since.
In March, the company delayed its year-end filings and its finance chief resigned. The Hong Kong-based company said on March 11 its auditor, Deloitte Touche Tohmatsu Hong Kong, a member firm of the "Big Four" accounting company's global network, severed ties to the company.
The story of China MediaExpress has become an increasingly common one as U.S. investors chase the next hot Chinese stock -- only to find themselves victims of scams.
Many of the questionable Chinese companies gain access to U.S. capital markets through a back door. In what's known as a reverse merger, a private company buys enough shares of a public firm to essentially become publicly traded. That allows the company to pay a much lower fee to be listed than it would with an initial public offering - not to mention sidestep the more rigorous filing demands of an IPO.
Of the more than 600 companies that obtained entry to U.S. exchanges this way between January 2007 and March 2010, a total of 159 were from the China region, according to the Public Company Accounting Oversight Board (PCAOB). While many are legitimate, some turn out to be outright pump-and-dump schemes and other scams.
A study by financial web publication TheStreet indicated such schemes involving small-cap Chinese firms may have cost investors at least $34 billion over the past five years.
This has taken U.S. exchanges by surprise. NYSE and Nasdaq have delisted several companies and have a veritable "skid row" of more than a dozen firms that have been halted for weeks or months pending requests for information about accounting problems and late regulatory filings. (For an up-to-date list, see: http://www.nasdaqtrader.com/Trader.aspx?id=Tradehalts)
What are regulators doing about it? Although their stocks are traded on U.S. exchanges, the companies are based in China. That makes it unclear whose jurisdiction they fall under -- creating a regulatory void that companies can easily exploit.
On top of that, Beijing has barred America's PCAOB, established under Sarbanes-Oxley, from reviewing China-based accounting firms - even if they are registered auditors with the accounting agency.
That loophole enables Chinese companies to hire big name and no-name firms locally; as a result, they face no redress from U.S. authorities for bad practices.
"There may be honest firms in China, but you can't monitor or control them," said Hamid Kabani, president of Kabani & Co in Los Angeles, a firm that has audited reverse merger stocks. "I can't see how a U.S. firm can satisfy whether the (Chinese) firm is (is legitimate)."
THE SHORTS
In the absence of stricter regulation on companies and auditors, it is left to independent investors like Andrew Left or Carson Block to ferret out suspicious activity.
They, too, are not without controversy. Left, Block and their peers are short-sellers who profit when a stock collapses - and critics point out that they can in theory benefit even if their research proves faulty.
But it's also true that they face extraordinary business challenges.
"It's no secret we're interfering with scams that could net these chairmen tens of millions of dollars," said Block, who is 35. "Criminals deprived of such amounts will not take a kind stance toward people like me."
On November 10, 2010, his fledgling firm published a strongly critical report on RINO International Corp (Other OTC:RINO.PK - News), charging that many of the company's customers were nonexistent and that its accounting "has serious flaws that are clear signs of cooked books."
Shortly after, Block received threatening letters warning him to retract his allegations and explaining that "severe consequences may result if you do not act appropriately." An email received two days later mentioned his wife, Kathy: "Are you, Kathy and your dad ready for a bullet? Get ready. It could happen at any time now."
Less than a week later, RINO's auditors found accounting flaws. One month after the Muddy Waters report, the clean-tech company was delisted by Nasdaq. Its shares had fallen 96 percent from a 52-week high reached in October.
Block is based in Asia, though he would not say exactly where. He didn't contact the authorities, saying he was "more worried about the people whose threats I haven't received," but he did take additional security measures.
After his report on China MediaExpress, Block said he received more threatening e-mails. One of them was from an Auckland, New Zealand-based investor named Rick Page. He wrote in one email seen by Reuters that Block may meet "somebody's 'contract worker'. Who knows who, when or...where."
Reached by Reuters, Page acknowledged "acrimonious contact" with Block via e-mail but denied that he threatened Block. He says he regrets "having put money into this company and this space" and questions why regulators were not on top of the problem.
LOSE THE BATTLE, LOSE THE WAR
Lately, the U.S. Securities and Exchange Commission has stepped up its interest in reverse-merger stocks. The SEC has an active probe into foreign companies listed on American exchanges, Commissioner Luis Aguilar noted in an April 4 speech.
U.S. exchanges, too, are belatedly tightening rules on reverse mergers.
Nasdaq, for one, is now considering adopting stricter listing requirements for reverse mergers. The proposal would require such companies to be traded for at least six months on the over-the-counter market or another national exchange, as well as maintaining a minimum bid price of $4 per share on at least 30 of the last 60 trading days immediately preceding the filing for the initial listing.
A source at Nasdaq, who could not be quoted on the record about rules under consideration, said the recommendation was expected to be enacted. When asked if it was undertaken due to the scandals, the source added that "we've had some feedback."
Then there is Beijing, whose policies play a crucial, albeit indirect, role in all this.
Paul Gillis, a professor of accounting who focuses on U.S.-listed Chinese companies at Peking University in Beijing, said China needed to make it easier for its firms to list on Chinese exchanges.
"It makes no sense for Chinese companies to have to go halfway around the world to get capital," he said, adding that China was in a better place to regulate them than the SEC or the Public Company Accounting Oversight Board.
A PCAOB report on reverse mergers published in March noted there were 56 initial public offerings from China, representing 13 percent of all IPO's in the United States in the three years from January 2007 to March 2010. IPO's require a greater degree of scrutiny and expense for companies to meet listing and filing requirements. They are an important source of income for such exchanges as NYSE Group (NYSE:NYX - News) and Nasdaq OMX (NasdaqGS:NDAQ - News).
As of the report date, the 159 China-region companies that gained access via reverse mergers had a combined market capitalization of $12.8 billion, less than half the $27.2 billion market capitalization of the China related IPO's.
By the end of the research period, 59 percent of Chinese reverse merger companies reported less than $50 million in revenues or assets as of their most recent fiscal year.
Analysts hastened to say that there was nothing inherently suspicious in a reverse merger, but Gillis said such operations "avoid much of the scrutiny that takes place in a normal IPO. That makes them the preferred route for fraudsters."
Once here, these companies attract retail investors who screen for stocks with high growth rates and low prices, and often run into companies such as this, seemingly diamonds in the rough overlooked by others.
"You see these Chinese companies that have these great numbers, they never miss a quarter of earnings. They are always right on. Their expenses are low. Their growth is tremendous, regardless of the economy. So you go, 'Hmm, this doesn't make sense'," said Left.
James Chanos, founder of the New York-based hedge fund Kynikos Associates LP, says the Chinese scams follow a classic pattern.
"The modus operandi by these stock promoters is to find what the hot area for retail investors is, so 15 years ago it would have been the dot-coms, a bunch of years ago oil and gas and now it is China. You sell the big story," he said.
CHINA NEEDS INVESTORS
Dave Gentry, president and chief executive officer of investor relations at research firm RedChip Companies, points out that 70 percent of China's double-digit economic growth is created by companies with less than 2,000 employees.
While some companies may be overstating their results to entice American investors, Gentry says in their homebase, Chinese firms more frequently under-report revenues to tax authorities - a problem he said was "systemic."
"It comes down to the character of the CEO and the management team in these companies and there is fraud. We cannot be in denial about this," he said in a telephone interview while meeting clients in China.
Investor relations firms play a big role in helping companies navigate through the listing process, either through a reverse merger or an IPO.
Crocker Coulson is the president of CCG Investor Relations and Strategic Communications, a company which handles investor relations for some 35 companies, many of them Chinese.
One Chinese client, Puda Coal Inc. (PUDA.K), which provides coking coal for steel production, saw its stock plunge and halt on the NYSE Amex stock exchange less than a month ago after another investor, Alfred Little, took aim at the company.
His April 8 report alleges the chairman of the company "transferred the ownership of PUDA's sole Chinese operating entity, Shanxi Puda Coal Group Co., Ltd ("Shanxi Coal"), to himself in 2009 without shareholder approval according to official government filings."
Asked how he felt about companies he works for that have had their shares halted, Coulson paused, shifted his feet uncomfortably, and said: "I'm going to say no comment."
As for his client Puda, on April 11 the company said it would investigate the allegations. The chairman, Ming Zhao, agreed to cooperate in the investigation. That's not stopping law firms from sharpening their pencils as a handful have filed for class action status on behalf of investors.
By April 29, with the investigation still underway, the company issued a press release saying the board received a preliminary non-binding proposal from Zhao to buy 100 percent of the company's outstanding shares in a "going private transaction at up to $12 a share." Puda's shares were trading near $13 a week before Little's report but plunged to $6 on April 8. The stock was halted before trading started on April 11. In December 2010 the shares hit a closing high of $16.47.
Another company fighting allegations from Little is Deer Consumer Products (NasdaqGS:DEER - News). It has accused Little of being a "fictitious character," and said in a press release there is evidence of illegal short-selling on the part of hedge funds distributing false information through web sites, including the popular Seeking Alpha, where Little has published articles.
At the Shenzen headquarters of Deer, located in a six-story building in an industrial part of town, officials would not answer questions.
A security guard repeatedly asked a Reuters reporter to leave before eventually finding a representative, who would not provide a business card but gave his name as Jevin He. He said he was "not in a position to answer" questions, and calls to headquarters have not been answered.
LAST LINE OF DEFENSE
Some of the worst breaches may be at the auditing and accounting level.
"It is no secret that we have not been able to inspect all of the non-U.S. firms we are required to," PCAOB chairman James Doty told the Council of Institutional Investors on April 4.
At the same meeting, SEC Governor Aguilar raised the issue of how companies are raising capital, a situation he said he finds himself "increasingly concerned about."
"PCAOB-registered accounting firms based in the United States audited 74 percent of the Chinese reverse merger companies, while China-based registered firms audited 24 percent," the agency said in March.
Top officials from both the United States and China concluded their once-a-year Strategic and Economic Dialogue meeting in Washington on Tuesday, saying they would work toward enhancing "mutual trust and strive to reach agreement on cross-border oversight cooperation."
Efforts to inspect Chinese auditing firms have met resistance from Chinese authorities, but Doty told Reuters this week he expected progress this year, in part because the various problems with Chinese firms had shown authorities in Beijing the importance of credible auditing. "We will make progress in getting access to those audits," he said.
Drew Bernstein, the co-managing partner of Marcum Bernstein & Pinchuk, a New York-based audit and accounting firm, said he sometimes has to go to extremes to get Chinese company officials to understand the ramifications of shoddy auditing and accounting.
Instead of bowing to the intransigent company chairmen or boards, he explains that if they don't cooperate and own up to problems, he will be forced to tell the local authorities of alleged fraud, therefore making it a Chinese problem.
Switching the jurisdiction changes the calculus. Executives have been executed in China for fraud and corruption.
"A lot of the answers, you know, get down to dealing with the Chinese in a Chinese way," he said.
Fears for personal safety are not limited to short-sellers like Carson Block.
George Qin, head of the Chinese audit practice at Houston-based MaloneBailey, says he has to think twice now about future travel within China.
According to documents filed with the SEC, MaloneBailey resigned its auditing duties from four companies that have subsequently been halted for trade on the NYSE Amex and Nasdaq stock exchanges.
The companies are: China Century Dragon Media (AMEX:CDM - News), China Electric Motor (NasdaqGM:CELM - News), China Intelligent Lighting (AMEX:CIL - News), and NIVS IntelliMedia Technology Group (AMEX:NIV - News).
"I'm afraid for my personal safety in some areas of China," Qin said.
He told Reuters that some companies colluded with employees at major Chinese state-owned multinational banks to provide false bank statements, though he would not specify which ones.
In interviews with various actors in the field, there was a lot of finger-pointing about competitors, to which Qin said: "Are they (competitors) all fraud free? We found the fraud by ourselves. If there were more serious firms there would be more fraud discovered. Where there's one roach, there are many roaches."
MEETING RESISTANCE
Short sellers like Left will say he and others on this side of the markets are just following up on information and data to help explain things that "just don't make sense."
"Me? I'm out to make money. I don't consider myself a short seller. I consider myself a market opportunist. Would you be asking me this if I was writing about stocks that I take a long position in? People are so ready to hate short sellers," Left told Reuters.
Many agree the presence of short sellers and the research they provide are useful. As soon as they attest to that, though, they point fingers at unidentified "dishonest" short sellers operating at the behest of hedge funds looking for an edge.
Winston Yen, CFO of Orient Paper (AMEX:ONP - News), which is based in the city of Baoding in China's Hebei province, said his company and investors "feel totally victimized" by the negative research published by Block in 2010, which caused a sharp decline in that company's stock.
Shares in the company closed at $8.33 before Block's first report published on June 28, 2010. They fell precipitously in the next session and have never fully recovered, currently trading at around $4 a share.
Orient's audit firm, Davis Accounting Group, also known as Etania Audit Group P.C., was not correctly licensed, forcing the paper maker to hire new auditors.
Bernstein, the accountant with Marcum Bernstein & Pinchuk, is chairman of Orient Paper's audit committee. He said Orient was by now perhaps the most vetted company in China.
Speaking on the sidelines of a China investment conference in New York, he said he saw the battle between Block and Orient as "a war of credibility."
Bernstein said the Muddy Waters report was full of "enormous allegations" that were untrue and that he is now "highly confident that the financials of the company materially represent what they say." He added that a lawsuit against the research firm is probably justified.
"I don't think they were right on anything, to be honest with you," Bernstein said, explaining that Orient Paper hired 15 to 20 professional services firms to investigate.
Because investors don't have the ability to conduct similar due diligence, they "tend to panic" when negative research appears, Yen said.
"It has not been difficult for the shorts to make wild allegations of fraud and profit handsomely from their pre-established short positions," he said.
Orient Paper defended itself, saying an internal investigation found no evidence of problems.
"When you put a company under an enormous amount of scrutiny, as we did, you find imperfections. We did find areas that we can improve upon, but none that misrepresented the financial statements," Bernstein said.
However on March 23 the company said it would have to re-audit results from 2008 though it maintained that doing so would not impact financial statements for fiscal years 2009 and 2010. The re-audit results are expected at the start of the third quarter of 2011.
Block isn't buying the company's view.
"It is not surprising that a probe conducted by the company on itself, under the umbrella of the attorney-client privilege conferred by having the inquiry managed by one of the most prolific issuer's counsel of Chinese RTO (reverse takeover) companies, enabled the company to issue a press release stating that it determined it wasn't defrauding investors," Block said.
Claiming security concerns, Muddy Waters removed the firm's phone number from its website, along with a phony mailing address that had created controversy about the location of the firm's headquarters. "I felt that the sort of attention I was getting wasn't the kind we wanted," Block said.
Thefinancialinvestigator.com's Boyd, who does not short shares he is writing about, has some reservations himself about shorts.
The reports "were brilliantly reported and laid out, but you can never get past the fact that they're doing this for money," he said. "If something doesn't work out - and I'm not just talking about (Muddy Waters) - these guys could have a situation where they went after a company and made money but couldn't substantiate their claims."
Until the auditing problems are cleaned up and greater responsibilities are shared by U.S. and Chinese regulators, however, folks such as Block and Left will have ample opportunity in their chosen business.
"Just because it is China doesn't mean it is a path to riches," Left said.
(Reporting by Daniel Bases and Ryan Vlastelica in New York; additional reporting by Zhao Bing and James Pomfret in Hong Kong; editing by David Gaffen, Jim Impoco and Claudia Parsons)
CGS - Another one of those stories: http://finance.yahoo.com/news/Special-report-Chinese-stock-rb-3409039897.html?x=0&.v=1
-Andrew
Special report: Chinese stock scams are the latest U.S. import
On Wednesday May 11, 2011, 3:56 pm
By Ryan Vlastelica and Daniel Bases
NEW YORK (Reuters) - It seemed like the perfect China play, a way for investors to cash in on the world's fastest growing economy.
China MediaExpress Holdings Inc (NasdaqGS:CCME - News), which provides advertising on buses that clog the smog-choked streets of the country's largest cities, was on a tear on the Nasdaq stock exchange. After rising 45 percent in 2009, the stock gained another 49 percent in 2010.
That came to a halt in late January. In a research report, Andrew Left, an investor who runs Citron Research from his Los Angeles home, termed the company a "phantom" that was literally "too good to be true." The stock plummeted 14.4 percent after Left's comment, to $17.84 from $20.86 in one day.
Citron's report was followed by similarly damning charges from Carson Block of Muddy Waters Research, who called the stock a "'pump and dump' scheme." Soon after, Roddy Boyd, the editor of thefinancialinvestigator.com in Wilmington, North Carolina, visited the company's offices and posted videos that he said made it "exceptionally clear" the place was bogus.
China MediaExpress' stock hasn't recovered. Shares lost 47 percent in four days, and were trading at $11.88 on March 11 when the stock was halted on the Nasdaq stock exchange. It hasn't traded since.
In March, the company delayed its year-end filings and its finance chief resigned. The Hong Kong-based company said on March 11 its auditor, Deloitte Touche Tohmatsu Hong Kong, a member firm of the "Big Four" accounting company's global network, severed ties to the company.
The story of China MediaExpress has become an increasingly common one as U.S. investors chase the next hot Chinese stock -- only to find themselves victims of scams.
Many of the questionable Chinese companies gain access to U.S. capital markets through a back door. In what's known as a reverse merger, a private company buys enough shares of a public firm to essentially become publicly traded. That allows the company to pay a much lower fee to be listed than it would with an initial public offering - not to mention sidestep the more rigorous filing demands of an IPO.
Of the more than 600 companies that obtained entry to U.S. exchanges this way between January 2007 and March 2010, a total of 159 were from the China region, according to the Public Company Accounting Oversight Board (PCAOB). While many are legitimate, some turn out to be outright pump-and-dump schemes and other scams.
A study by financial web publication TheStreet indicated such schemes involving small-cap Chinese firms may have cost investors at least $34 billion over the past five years.
This has taken U.S. exchanges by surprise. NYSE and Nasdaq have delisted several companies and have a veritable "skid row" of more than a dozen firms that have been halted for weeks or months pending requests for information about accounting problems and late regulatory filings. (For an up-to-date list, see: http://www.nasdaqtrader.com/Trader.aspx?id=Tradehalts)
What are regulators doing about it? Although their stocks are traded on U.S. exchanges, the companies are based in China. That makes it unclear whose jurisdiction they fall under -- creating a regulatory void that companies can easily exploit.
On top of that, Beijing has barred America's PCAOB, established under Sarbanes-Oxley, from reviewing China-based accounting firms - even if they are registered auditors with the accounting agency.
That loophole enables Chinese companies to hire big name and no-name firms locally; as a result, they face no redress from U.S. authorities for bad practices.
"There may be honest firms in China, but you can't monitor or control them," said Hamid Kabani, president of Kabani & Co in Los Angeles, a firm that has audited reverse merger stocks. "I can't see how a U.S. firm can satisfy whether the (Chinese) firm is (is legitimate)."
THE SHORTS
In the absence of stricter regulation on companies and auditors, it is left to independent investors like Andrew Left or Carson Block to ferret out suspicious activity.
They, too, are not without controversy. Left, Block and their peers are short-sellers who profit when a stock collapses - and critics point out that they can in theory benefit even if their research proves faulty.
But it's also true that they face extraordinary business challenges.
"It's no secret we're interfering with scams that could net these chairmen tens of millions of dollars," said Block, who is 35. "Criminals deprived of such amounts will not take a kind stance toward people like me."
On November 10, 2010, his fledgling firm published a strongly critical report on RINO International Corp (Other OTC:RINO.PK - News), charging that many of the company's customers were nonexistent and that its accounting "has serious flaws that are clear signs of cooked books."
Shortly after, Block received threatening letters warning him to retract his allegations and explaining that "severe consequences may result if you do not act appropriately." An email received two days later mentioned his wife, Kathy: "Are you, Kathy and your dad ready for a bullet? Get ready. It could happen at any time now."
Less than a week later, RINO's auditors found accounting flaws. One month after the Muddy Waters report, the clean-tech company was delisted by Nasdaq. Its shares had fallen 96 percent from a 52-week high reached in October.
Block is based in Asia, though he would not say exactly where. He didn't contact the authorities, saying he was "more worried about the people whose threats I haven't received," but he did take additional security measures.
After his report on China MediaExpress, Block said he received more threatening e-mails. One of them was from an Auckland, New Zealand-based investor named Rick Page. He wrote in one email seen by Reuters that Block may meet "somebody's 'contract worker'. Who knows who, when or...where."
Reached by Reuters, Page acknowledged "acrimonious contact" with Block via e-mail but denied that he threatened Block. He says he regrets "having put money into this company and this space" and questions why regulators were not on top of the problem.
LOSE THE BATTLE, LOSE THE WAR
Lately, the U.S. Securities and Exchange Commission has stepped up its interest in reverse-merger stocks. The SEC has an active probe into foreign companies listed on American exchanges, Commissioner Luis Aguilar noted in an April 4 speech.
U.S. exchanges, too, are belatedly tightening rules on reverse mergers.
Nasdaq, for one, is now considering adopting stricter listing requirements for reverse mergers. The proposal would require such companies to be traded for at least six months on the over-the-counter market or another national exchange, as well as maintaining a minimum bid price of $4 per share on at least 30 of the last 60 trading days immediately preceding the filing for the initial listing.
A source at Nasdaq, who could not be quoted on the record about rules under consideration, said the recommendation was expected to be enacted. When asked if it was undertaken due to the scandals, the source added that "we've had some feedback."
Then there is Beijing, whose policies play a crucial, albeit indirect, role in all this.
Paul Gillis, a professor of accounting who focuses on U.S.-listed Chinese companies at Peking University in Beijing, said China needed to make it easier for its firms to list on Chinese exchanges.
"It makes no sense for Chinese companies to have to go halfway around the world to get capital," he said, adding that China was in a better place to regulate them than the SEC or the Public Company Accounting Oversight Board.
A PCAOB report on reverse mergers published in March noted there were 56 initial public offerings from China, representing 13 percent of all IPO's in the United States in the three years from January 2007 to March 2010. IPO's require a greater degree of scrutiny and expense for companies to meet listing and filing requirements. They are an important source of income for such exchanges as NYSE Group (NYSE:NYX - News) and Nasdaq OMX (NasdaqGS:NDAQ - News).
As of the report date, the 159 China-region companies that gained access via reverse mergers had a combined market capitalization of $12.8 billion, less than half the $27.2 billion market capitalization of the China related IPO's.
By the end of the research period, 59 percent of Chinese reverse merger companies reported less than $50 million in revenues or assets as of their most recent fiscal year.
Analysts hastened to say that there was nothing inherently suspicious in a reverse merger, but Gillis said such operations "avoid much of the scrutiny that takes place in a normal IPO. That makes them the preferred route for fraudsters."
Once here, these companies attract retail investors who screen for stocks with high growth rates and low prices, and often run into companies such as this, seemingly diamonds in the rough overlooked by others.
"You see these Chinese companies that have these great numbers, they never miss a quarter of earnings. They are always right on. Their expenses are low. Their growth is tremendous, regardless of the economy. So you go, 'Hmm, this doesn't make sense'," said Left.
James Chanos, founder of the New York-based hedge fund Kynikos Associates LP, says the Chinese scams follow a classic pattern.
"The modus operandi by these stock promoters is to find what the hot area for retail investors is, so 15 years ago it would have been the dot-coms, a bunch of years ago oil and gas and now it is China. You sell the big story," he said.
CHINA NEEDS INVESTORS
Dave Gentry, president and chief executive officer of investor relations at research firm RedChip Companies, points out that 70 percent of China's double-digit economic growth is created by companies with less than 2,000 employees.
While some companies may be overstating their results to entice American investors, Gentry says in their homebase, Chinese firms more frequently under-report revenues to tax authorities - a problem he said was "systemic."
"It comes down to the character of the CEO and the management team in these companies and there is fraud. We cannot be in denial about this," he said in a telephone interview while meeting clients in China.
Investor relations firms play a big role in helping companies navigate through the listing process, either through a reverse merger or an IPO.
Crocker Coulson is the president of CCG Investor Relations and Strategic Communications, a company which handles investor relations for some 35 companies, many of them Chinese.
One Chinese client, Puda Coal Inc. (PUDA.K), which provides coking coal for steel production, saw its stock plunge and halt on the NYSE Amex stock exchange less than a month ago after another investor, Alfred Little, took aim at the company.
His April 8 report alleges the chairman of the company "transferred the ownership of PUDA's sole Chinese operating entity, Shanxi Puda Coal Group Co., Ltd ("Shanxi Coal"), to himself in 2009 without shareholder approval according to official government filings."
Asked how he felt about companies he works for that have had their shares halted, Coulson paused, shifted his feet uncomfortably, and said: "I'm going to say no comment."
As for his client Puda, on April 11 the company said it would investigate the allegations. The chairman, Ming Zhao, agreed to cooperate in the investigation. That's not stopping law firms from sharpening their pencils as a handful have filed for class action status on behalf of investors.
By April 29, with the investigation still underway, the company issued a press release saying the board received a preliminary non-binding proposal from Zhao to buy 100 percent of the company's outstanding shares in a "going private transaction at up to $12 a share." Puda's shares were trading near $13 a week before Little's report but plunged to $6 on April 8. The stock was halted before trading started on April 11. In December 2010 the shares hit a closing high of $16.47.
Another company fighting allegations from Little is Deer Consumer Products (NasdaqGS:DEER - News). It has accused Little of being a "fictitious character," and said in a press release there is evidence of illegal short-selling on the part of hedge funds distributing false information through web sites, including the popular Seeking Alpha, where Little has published articles.
At the Shenzen headquarters of Deer, located in a six-story building in an industrial part of town, officials would not answer questions.
A security guard repeatedly asked a Reuters reporter to leave before eventually finding a representative, who would not provide a business card but gave his name as Jevin He. He said he was "not in a position to answer" questions, and calls to headquarters have not been answered.
LAST LINE OF DEFENSE
Some of the worst breaches may be at the auditing and accounting level.
"It is no secret that we have not been able to inspect all of the non-U.S. firms we are required to," PCAOB chairman James Doty told the Council of Institutional Investors on April 4.
At the same meeting, SEC Governor Aguilar raised the issue of how companies are raising capital, a situation he said he finds himself "increasingly concerned about."
"PCAOB-registered accounting firms based in the United States audited 74 percent of the Chinese reverse merger companies, while China-based registered firms audited 24 percent," the agency said in March.
Top officials from both the United States and China concluded their once-a-year Strategic and Economic Dialogue meeting in Washington on Tuesday, saying they would work toward enhancing "mutual trust and strive to reach agreement on cross-border oversight cooperation."
Efforts to inspect Chinese auditing firms have met resistance from Chinese authorities, but Doty told Reuters this week he expected progress this year, in part because the various problems with Chinese firms had shown authorities in Beijing the importance of credible auditing. "We will make progress in getting access to those audits," he said.
Drew Bernstein, the co-managing partner of Marcum Bernstein & Pinchuk, a New York-based audit and accounting firm, said he sometimes has to go to extremes to get Chinese company officials to understand the ramifications of shoddy auditing and accounting.
Instead of bowing to the intransigent company chairmen or boards, he explains that if they don't cooperate and own up to problems, he will be forced to tell the local authorities of alleged fraud, therefore making it a Chinese problem.
Switching the jurisdiction changes the calculus. Executives have been executed in China for fraud and corruption.
"A lot of the answers, you know, get down to dealing with the Chinese in a Chinese way," he said.
Fears for personal safety are not limited to short-sellers like Carson Block.
George Qin, head of the Chinese audit practice at Houston-based MaloneBailey, says he has to think twice now about future travel within China.
According to documents filed with the SEC, MaloneBailey resigned its auditing duties from four companies that have subsequently been halted for trade on the NYSE Amex and Nasdaq stock exchanges.
The companies are: China Century Dragon Media (AMEX:CDM - News), China Electric Motor (NasdaqGM:CELM - News), China Intelligent Lighting (AMEX:CIL - News), and NIVS IntelliMedia Technology Group (AMEX:NIV - News).
"I'm afraid for my personal safety in some areas of China," Qin said.
He told Reuters that some companies colluded with employees at major Chinese state-owned multinational banks to provide false bank statements, though he would not specify which ones.
In interviews with various actors in the field, there was a lot of finger-pointing about competitors, to which Qin said: "Are they (competitors) all fraud free? We found the fraud by ourselves. If there were more serious firms there would be more fraud discovered. Where there's one roach, there are many roaches."
MEETING RESISTANCE
Short sellers like Left will say he and others on this side of the markets are just following up on information and data to help explain things that "just don't make sense."
"Me? I'm out to make money. I don't consider myself a short seller. I consider myself a market opportunist. Would you be asking me this if I was writing about stocks that I take a long position in? People are so ready to hate short sellers," Left told Reuters.
Many agree the presence of short sellers and the research they provide are useful. As soon as they attest to that, though, they point fingers at unidentified "dishonest" short sellers operating at the behest of hedge funds looking for an edge.
Winston Yen, CFO of Orient Paper (AMEX:ONP - News), which is based in the city of Baoding in China's Hebei province, said his company and investors "feel totally victimized" by the negative research published by Block in 2010, which caused a sharp decline in that company's stock.
Shares in the company closed at $8.33 before Block's first report published on June 28, 2010. They fell precipitously in the next session and have never fully recovered, currently trading at around $4 a share.
Orient's audit firm, Davis Accounting Group, also known as Etania Audit Group P.C., was not correctly licensed, forcing the paper maker to hire new auditors.
Bernstein, the accountant with Marcum Bernstein & Pinchuk, is chairman of Orient Paper's audit committee. He said Orient was by now perhaps the most vetted company in China.
Speaking on the sidelines of a China investment conference in New York, he said he saw the battle between Block and Orient as "a war of credibility."
Bernstein said the Muddy Waters report was full of "enormous allegations" that were untrue and that he is now "highly confident that the financials of the company materially represent what they say." He added that a lawsuit against the research firm is probably justified.
"I don't think they were right on anything, to be honest with you," Bernstein said, explaining that Orient Paper hired 15 to 20 professional services firms to investigate.
Because investors don't have the ability to conduct similar due diligence, they "tend to panic" when negative research appears, Yen said.
"It has not been difficult for the shorts to make wild allegations of fraud and profit handsomely from their pre-established short positions," he said.
Orient Paper defended itself, saying an internal investigation found no evidence of problems.
"When you put a company under an enormous amount of scrutiny, as we did, you find imperfections. We did find areas that we can improve upon, but none that misrepresented the financial statements," Bernstein said.
However on March 23 the company said it would have to re-audit results from 2008 though it maintained that doing so would not impact financial statements for fiscal years 2009 and 2010. The re-audit results are expected at the start of the third quarter of 2011.
Block isn't buying the company's view.
"It is not surprising that a probe conducted by the company on itself, under the umbrella of the attorney-client privilege conferred by having the inquiry managed by one of the most prolific issuer's counsel of Chinese RTO (reverse takeover) companies, enabled the company to issue a press release stating that it determined it wasn't defrauding investors," Block said.
Claiming security concerns, Muddy Waters removed the firm's phone number from its website, along with a phony mailing address that had created controversy about the location of the firm's headquarters. "I felt that the sort of attention I was getting wasn't the kind we wanted," Block said.
Thefinancialinvestigator.com's Boyd, who does not short shares he is writing about, has some reservations himself about shorts.
The reports "were brilliantly reported and laid out, but you can never get past the fact that they're doing this for money," he said. "If something doesn't work out - and I'm not just talking about (Muddy Waters) - these guys could have a situation where they went after a company and made money but couldn't substantiate their claims."
Until the auditing problems are cleaned up and greater responsibilities are shared by U.S. and Chinese regulators, however, folks such as Block and Left will have ample opportunity in their chosen business.
"Just because it is China doesn't mean it is a path to riches," Left said.
(Reporting by Daniel Bases and Ryan Vlastelica in New York; additional reporting by Zhao Bing and James Pomfret in Hong Kong; editing by David Gaffen, Jim Impoco and Claudia Parsons)