Replies to post #2489 on AgFeed Industries Inc. (fka FEEDQ)

[brazil_83]

VIE = Variable Interest Equity

It is my understanding that this structure is frequently used when foreigners are precluded from direct ownership of specific sectors in a foreign country...China does not want foreigners owning ag assets.

Here's a recent article on the subject published in SA, but authored by Morningstar.

http://seekingalpha.com/article/868101-buyer-beware-of-variable-interest-entity-structures

Here is a recent post on the subject by Madaniels57. Most of his posts are on the Yahoo board.

-------------

madaniels57
7/20/13

I was hoping you would bring this up on your own and you did...

"While in theory the VIEs are not owned by the shell company domiciled in BVI or Cayman, contractual agreements are in place to ensure that the latter can direct the major business activities of the VIEs and are entitled to most (if not all) economic profits or losses generated by the VIEs, thus satisfying requirements set by the Financial Accounting Standards Board for consolidating the VIEs in the reported financials of listed firms."

In short, this is why our SEC and FINRA and more importantly the PCAOB were satisfied that sufficient shareholder protections existed...so they allowed the use of VIE's and their related WFOE's and even allowed the reverse mergers.

But the reality became apparent when these arrangements failed to protect shareholders time after time after time.

What occurs in these situations varies a little just as the structure of these VIE's vary from firm to firm, but there is a common thread where the US regulatory enforcement people discover that they cannot penetrate the Chinese side of the VIE, and the Chinese authorities responsible for enforcement utterly refuse to get involved, saying that it is a foreign regulatory issue, while another Chinese governing entity responsible for things like national security and sovereignty prohibit the foreign investors from exercising authority in their domains...

Knowing this, the Chinese side simply ignores the entire affair, refusing to respond to inquiries and that is that...So I suspect, although it has yet to happen, that the World Court may be used at some point if they can find a case involving enough damaged people and enough politics to bring the case to the court.

Unfortunately, I see nothing yet, and the authorities on both sides of the argument keep kicking these cans down the road... Less

[brazil_83]

Wall_Street wrote:

"There is a VERY real possibility that the now present insiders of the debtor will try to conduct just this one auction and reorganize around the Oklahoma assets and Chinese assets, or also sell the Oklahoma assets and keep the Chinese assets in more or less a shell company all-the-whilst paying themselves large salaries and burning up what little value may be left for shareholders."

If that happened, wouldn't we be wise to rise up...for once, and vote those so obviously affected by the Peter Principle that they feel that is the only way for them to make money?



------------

on previous post, VIE = variable interest ENTITY