Kevin asked GEO some specific questions on Seeking Alpha, GEO will not respond. Draw your own conclusions. I followed other hit pieces that GEO has done and this is their m/o they won't respond to valid questions.
Geo, needless to say I was shocked when I read your article this morning. As you said, this is probably the most shocking and unthinkable fraud case ever in Chinese small cap sector that fooled all investors including me. While I am indecisive on which side to believe until I hear the company’s response, I still cannot believe the conclusion you made that this company is a complete fraud because several things just don’t make any sense to me with that conclusion. Here are some key questions I have for you that I hope you can provide reasonable answers:
1. Even after reading your article, I am still not completely certain on assertion you made that Longwei could not have had Taiyuan Economic and Trading Company paid all its taxes. Regardless of which subsidiaries paid the tax, as long as the company paid that much tax (and the company provided photo-copies of the tax payment records, which their auditor claimed have fully verified with tax authority I believe), wouldn’t it prove that the company did generate that much revenue during fiscal year 2012? This simple point, if true, overthrows the conclusion that the company does not have any business running.
2. If the company is a complete fraud and just wants to steal shareholders’ money, why would they have spent so much time and money to do things such as completing the tax reconciliation, hiring two IR companies, paying Redchip to shoot an extensive onsite interview video and then subsequently a TV interview over the past one year or so to communicate to investors? Unlike some Chinese companies that were determined frauds, Longwei has not issued significant amount of new shares (except for the relative small amount that were issued for executive and IR compensation). What the CEO has to gain by spending so much time and effort to prove the legitimacy of the company?
3. According to what the company shows on its website, it does have oil wholesaling and distribution license (which you seem to agree from what I can see in its article). Evidences so far suggest that the company’s subsidiaries actually own the three facilities (which you also seem to agree from what I can see in its article). Now, even if they do not have that high level of business activities they claimed to have, shouldn’t they still be able to sell quite significant amount of oil with the licenses, facilities, and money they got when going public? Oil is a commodity that is really easy to sell. Do you really believe that they are that bad of business people that are not able to sell one truckload of oil per day?
4. The two biggest insider shareholders own about 66% of the company. So, every dollar they steal from the company 2/3 belongs to them anyways. In such a case, combining with point 1, 2 and 3, why wouldn’t they run a legitimate business but instead spending so much time, efforts, and money to keep their stock listed and at the same time doing the grand crime to steal money from investors? Even if they are not put into jail for committing such a crime, I don’t believe they can keep on running the three facilities and own the licenses. If I were a client or supplier I wouldn’t do any business with them anymore, and I would imagine that China government agency may withdraw their licenses. So, it looks to me that they would be giving up the business they’ve spent over 17 years to build. That reward/risk ratio for them to commit such a crime just doesn’t look good to me.
5. You said that your team spent about 50 days in Taiyuan and Gujiao facility video-taping the activities, but you only show 3 days of videos for each facility. Are you hand-picking the days that happened to have lower business activities?
I’d appreciate your feedbacks to these questions. Thanks.
Kevin
BTW the more I look into the GEO piece the more I am convinced it is pure rubbish. GEO hires some Chinese nationals to take some videos of Longwei's operations. The cameras are lousy and the angles they chose are wrong. Looking at the original videos you can see by their own diagrams that it would be impossible to capture trucks refuelling from them. GEO proved this themselves in their rebuttal video they have another angle unfortunately most of the video is pitch black. No regulatory body will use this video to initiate prosecution. Does LPH have to prove themselves, yes they do because if someone calls you a murderer in public you have have to defend yourself.
Moving on in digging through Chinese web sites I found the company to be consistent with a thriving operation. They have recommendations from Petroleum associations, the actual licenses that are posted only in words on the english site can be viewed in Chinese. Also their customers are some of the largest coal operations in the world.
Xishan coal electric, and Xishan gujiao base, and Zhang Ze power, and country electric wuxiang power plant, and Shanxi coking factory, and minfeng petrochemical, and Taiyuan Yan Yu petrochemical, and too coal gasification company, and Huozhou coal electric company, and provincial gas station, customer, involves Shanxi of all city, and County.
These are the companies that have relations with Longwei. I hope it can be proven that GEO fabricated their work for personal gain. As I said short interest rose dramatically from 177,000 to 1.23 million in a month and a half and more shorting on the spike where guidance was raised. Some of the other companies like GEO are being discredited and prosecuted right now. Andrew Left , Citron, Muddy Waters and others are no longer in the game. I am hoping that GEO gets hit with a big law suit and at the least forces GEO to defend themselves. I realize that because of the disclaimers they make it is hard prosecute but put them through the mud anyway
AI
