China Hongxing Sports

(04-10-2017, 03:48 PM)TTTI Wrote: Despite all this charade....
it turned out that they actually DIDN'T have the cash, the company got suspended, CEO and Chairman quit, the auditors were changed etc.
Yet the same guys who started this con job... is now back trying to buy out the company's operating assets at 1/4 their stated value in the balance sheet?!

Did anyone else read this report in TheEdge?

I honestly got a real genuine qn:
WHY IS NOBODY IN JAIL ALREADY OVER THIS?!?!?!?!?!?????

Not only not in jail, still can come back to try to buy out the company on the cheap?!!!!!!!
Surely some laws on fraud and deception were broken, no?

Welcome to the SGX. I gave up on MAS/CAD/SGX a long time ago. IMHO the stock market is very far down their list of priorities. Mainly they seem to be concerned with the banking sector i.e. risk of collapse from NPL, reputational risk from money laundering etc.

When I saw that nothing was done about the Oilpods and gold buyback schemes for many years, I realized that protection of the retail investor was mostly lip service. I therefore crafted my investment strategy accordingly i.e. assume the worst case and do not invest until the fraud hypothesis can be disproven. Never assume the accounts are true and fair, regardless of what the auditors say. Instead, you must use independent research to satisfy yourself beyond all reasonable doubt.

As usual, YMMV.

(04-10-2017, 10:59 PM)d.o.g. Wrote:

(04-10-2017, 03:48 PM)TTTI Wrote: Despite all this charade....
it turned out that they actually DIDN'T have the cash, the company got suspended, CEO and Chairman quit, the auditors were changed etc.
Yet the same guys who started this con job... is now back trying to buy out the company's operating assets at 1/4 their stated value in the balance sheet?!

Did anyone else read this report in TheEdge?

I honestly got a real genuine qn:
WHY IS NOBODY IN JAIL ALREADY OVER THIS?!?!?!?!?!?????

Not only not in jail, still can come back to try to buy out the company on the cheap?!!!!!!!
Surely some laws on fraud and deception were broken, no?

Welcome to the SGX. I gave up on MAS/CAD/SGX a long time ago. IMHO the stock market is very far down their list of priorities. Mainly they seem to be concerned with the banking sector i.e. risk of collapse from NPL, reputational risk from money laundering etc.

When I saw that nothing was done about the Oilpods and gold buyback schemes for many years, I realized that protection of the retail investor was mostly lip service. I therefore crafted my investment strategy accordingly i.e. assume the worst case and do not invest until the fraud hypothesis can be disproven. Never assume the accounts are true and fair, regardless of what the auditors say. Instead, you must use independent research to satisfy yourself beyond all reasonable doubt.

As usual, YMMV.

oh man.
This is depressing.
What use is MAS, if such a damn obvious case of fraud is allowed?

Yes, do your DD, independent research etc.
But in this case, the financials were audited, China Hongxing was given the "Most Transparent Foreign Company" award by SIAS (LOLOLOL!!) and the management printed out bank statements to show analysts and distributed them at AGMs...

I mean, what else could 1 do. If you have to assume every audited FS is bullshit, then there's no basis for any analysis.

I'd also point out that at the point where China Hongxing got suspended, it's shareholder list included institutions like JPM, State Street, pension funds etc

If I had my way, the Wu guys will be sitting in jail for a long time, part of which, should be accompanied by their auditors.

(04-10-2017, 11:52 PM)TTTI Wrote: oh man.
This is depressing.
What use is MAS, if such a damn obvious case of fraud is allowed?

Yes, do your DD, independent research etc.
But in this case, the financials were audited, China Hongxing was given the "Most Transparent Foreign Company" award by SIAS (LOLOLOL!!) and the management printed out bank statements to show analysts and distributed them at AGMs...

I mean, what else could 1 do. If you have to assume every audited FS is bullshit, then there's no basis for any analysis.

I'd also point out that at the point where China Hongxing got suspended, it's shareholder list included institutions like JPM, State Street, pension funds etc

If I had my way, the Wu guys will be sitting in jail for a long time, part of which, should be accompanied by their auditors.

IMHO MAS/CAD/SGX are of no use at all in terms of retail investor protection. They are way behind the curve e.g. it was only in 2015 that MAS proposed to regulate land banking and precious metals buyback schemes, 10+ years after investors first began losing millions of dollars. Fraudsters have now moved on to ICOs. Maybe in 2027 MAS will look at ICOs, and of course by then scammers will have found some other method.

Audited financials don't mean much. Most frauds pass audits until they are discovered.

SIAS awards don't mean anything.

Bank statements are trivial to forge.

To disprove the fraud hypothesis, you can do a peer comparison. Usually there is at least one "known good" peer that can be taken as a reference. You can also check whether the cash outflow passes a financial Turing test - can you tell whether the dividends are paid from operations or from financing? If you can't, you can't disprove the fraud hypothesis.

Institutional investors may or may not do fundamental analysis. Some of them are just product manufacturers who decide they need an Asian fund, a technology fund, a consumer goods fund etc. Once the money is raised they buy whatever companies are in that defined space. Not everyone dives into the financial statements. Some are spoon-fed by brokers, others just buy everything that shows up on a screen.

Given the apparently low priority that commercial crime gets, investors have to be prepared to sue on their own. But because there is no class-action lawsuit framework in Singapore, investors have to sue individually, which is costly for all but the most wealthy - and for the most wealthy it's simpler and cheaper to take the loss and walk away.

Charlie Munger suggests inversion as a philosophy. So let's invert and assume the worst:

1. Prove that the business is not a lousy business that earns low margins, low returns on capital, needs lots of working capital etc.
2. Prove that the valuation is attractive relative to peers, the risk-free rate of return, the current market cycle and on an absolute basis.
3. Prove that the company is not a fraud created by inflating revenues, profits or cash flow.

If all this is too much work, then either find a professional to do it, or accept that every once in a while you will get hit by fraud so you need to diversify appropriately.

As usual, YMMV.

Quote:If all this is too much work, then either find a professional to do it, or accept that every once in a while you will get hit by fraud so you need to diversify appropriately.

There is risk even for finding a professional to do it => "Bernard Madoff".
I am not familiar with the regulation of hedge funds. But, depending on the regulation for peace of mind may not be such a good idea. The following quote came from Madoff's investigation:


While awaiting sentencing, Madoff met with the SEC's Inspector General, H. David Kotz, who conducted an investigation into how regulators had failed to detect the fraud despite numerous red flags.[62] Madoff said he could have been caught in 2003, but that bumbling investigators had acted like "Lt. Colombo" and never asked the right questions:

I was astonished. They never even looked at my stock records. If investigators had checked with The Depository Trust Company, a central securities depository, it would've been easy for them to see. If you're looking at a Ponzi scheme, it's the first thing you do.




After Madoff's arrest, the SEC was criticized for its lack of financial expertise and lack of due diligence, despite having received complaints from Harry Markopolos and others for almost a decade. The SEC's Inspector General, Kotz, found that since 1992, there had been six investigations of Madoff by the SEC, which were botched either through incompetent staff work or by neglecting allegations of financial experts and whistle-blowers. At least some of the SEC investigators doubted whether Madoff was even trading


By the way, I think there are a few fund managers in this forum and I am not hinting anything .

(05-10-2017, 02:45 AM)d.o.g. Wrote:

(04-10-2017, 11:52 PM)TTTI Wrote: oh man.
This is depressing.
What use is MAS, if such a damn obvious case of fraud is allowed?

Yes, do your DD, independent research etc.
But in this case, the financials were audited, China Hongxing was given the "Most Transparent Foreign Company" award by SIAS (LOLOLOL!!) and the management printed out bank statements to show analysts and distributed them at AGMs...

I mean, what else could 1 do. If you have to assume every audited FS is bullshit, then there's no basis for any analysis.

I'd also point out that at the point where China Hongxing got suspended, it's shareholder list included institutions like JPM, State Street, pension funds etc

If I had my way, the Wu guys will be sitting in jail for a long time, part of which, should be accompanied by their auditors.

IMHO MAS/CAD/SGX are of no use at all in terms of retail investor protection. They are way behind the curve e.g. it was only in 2015 that MAS proposed to regulate land banking and precious metals buyback schemes, 10+ years after investors first began losing millions of dollars. Fraudsters have now moved on to ICOs. Maybe in 2027 MAS will look at ICOs, and of course by then scammers will have found some other method.

Audited financials don't mean much. Most frauds pass audits until they are discovered.

SIAS awards don't mean anything.

Bank statements are trivial to forge.

To disprove the fraud hypothesis, you can do a peer comparison. Usually there is at least one "known good" peer that can be taken as a reference. You can also check whether the cash outflow passes a financial Turing test - can you tell whether the dividends are paid from operations or from financing? If you can't, you can't disprove the fraud hypothesis.

Institutional investors may or may not do fundamental analysis. Some of them are just product manufacturers who decide they need an Asian fund, a technology fund, a consumer goods fund etc. Once the money is raised they buy whatever companies are in that defined space. Not everyone dives into the financial statements. Some are spoon-fed by brokers, others just buy everything that shows up on a screen.

Given the apparently low priority that commercial crime gets, investors have to be prepared to sue on their own. But because there is no class-action lawsuit framework in Singapore, investors have to sue individually, which is costly for all but the most wealthy - and for the most wealthy it's simpler and cheaper to take the loss and walk away.

Charlie Munger suggests inversion as a philosophy. So let's invert and assume the worst:

1. Prove that the business is not a lousy business that earns low margins, low returns on capital, needs lots of working capital etc.
2. Prove that the valuation is attractive relative to peers, the risk-free rate of return, the current market cycle and on an absolute basis.
3. Prove that the company is not a fraud created by inflating revenues, profits or cash flow.

If all this is too much work, then either find a professional to do it, or accept that every once in a while you will get hit by fraud so you need to diversify appropriately.

As usual, YMMV.

"To disprove the fraud hypothesis, you can do a peer comparison."


Like Eratat Lifestyle?
China Hongxing's closest SGX listed peer then

http://www.themalaymailonline.com/money/...0xY8FMG.97

Similarly, money in their coffers disappeared/didn't exist, management too showed off bank statements with the cash balances, independent auditors verified the bank statements, company is now delisted etc.
They were indeed "peers".
LOL!
Fraudsters of the same feather flock together.

Personally I'm also amazed by the turn of event in Hongxing. Equally like TTTI I don't even understand how this works

I have a different approach on detecting fraud. What is management track record on what he say vs do; how they have been treating OPMI and how they manage cashflow. Then it is peer comparisons and business model. Then we look at the Asset-Business-Structure. And of course to separate hype vs reality.

The reason why I don't look at business model first is because the fact they have a business means the model has at least been working "in the past". Business model would be primary if you are a VC. I'm especially cautious about business ideas with a lot of hype... maybe because I am wary of salespeople

Most of the time frauds can be detected by seasoned investors, especially when management couldn't execute what they said. It's the slow cooking value traps that kills seasoned investors.

(05-10-2017, 09:47 AM)TTTI Wrote: "To disprove the fraud hypothesis, you can do a peer comparison."


Like Eratat Lifestyle?
China Hongxing's closest SGX listed peer then

http://www.themalaymailonline.com/money/...0xY8FMG.97

Similarly, money in their coffers disappeared/didn't exist, management too showed off bank statements with the cash balances, independent auditors verified the bank statements, company is now delisted etc.
They were indeed "peers".
LOL!
Fraudsters of the same feather flock together.

Eratat was too small to be an appropriate peer. The HK-listed shoe companies (Li Ning, Anta, Xtep, 361 Degrees, Peak Sport and China Dongxiang) would have been much better peers to use for comparison as their sales were/are all within the same magnitude of each other.

(04-10-2017, 10:59 PM)d.o.g. Wrote:

(04-10-2017, 03:48 PM)TTTI Wrote: Despite all this charade....
it turned out that they actually DIDN'T have the cash, the company got suspended, CEO and Chairman quit, the auditors were changed etc.
Yet the same guys who started this con job... is now back trying to buy out the company's operating assets at 1/4 their stated value in the balance sheet?!

Did anyone else read this report in TheEdge?

I honestly got a real genuine qn:
WHY IS NOBODY IN JAIL ALREADY OVER THIS?!?!?!?!?!?????

Not only not in jail, still can come back to try to buy out the company on the cheap?!!!!!!!
Surely some laws on fraud and deception were broken, no?

Welcome to the SGX. I gave up on MAS/CAD/SGX a long time ago. IMHO the stock market is very far down their list of priorities. Mainly they seem to be concerned with the banking sector i.e. risk of collapse from NPL, reputational risk from money laundering etc.

When I saw that nothing was done about the Oilpods and gold buyback schemes for many years, I realized that protection of the retail investor was mostly lip service. I therefore crafted my investment strategy accordingly i.e. assume the worst case and do not invest until the fraud hypothesis can be disproven. Never assume the accounts are true and fair, regardless of what the auditors say. Instead, you must use independent research to satisfy yourself beyond all reasonable doubt.

As usual, YMMV.

One noticeable action was taken by SGX by filing a complaint to the China authorities on the CEO of China Fibretech for "alleged offences under the Chinese Penal Code" earlier this year (issue of "customer claims" happened in 2015 and complaint filed in early 2017) - although enforcement remains to be seen.

https://www.valuebuddies.com/thread-4640...#pid138373

As for China Hongxing, the offences happened in 2011 and so most probably there wouldn't even be a complaint. Just thinking out loud if the Chinese Penal code had been updated in the recent past years to allow an avenue for potential prosecution studies to be carried out?

I remember China Hongxing, together with other S-chips, were listed on SGX at a time when CSRC openly stated that it was "illegal" for Chinese companies to seek overseas listings. Promoters of such companies went around the rules and took advantage of the "loophole" by incorporating wholly owned foreign entities holding such Chinese companies and listing these foreign entities instead. We had no jurisdiction power nor extradition agreement then (I believe we still do not now). I also remember CSRC was pissed but they had their hand full dealing with the massive IPO application at their own end. The people at SGX then was just plain arrogant.

When things went wrong in Singapore, it was foolhardy for Singapore authorities to expect CSRC to assist then. In Singapore, SGX and MAS did what they could ....for example, by insisting the financial controller to be based in Singapore. Unfortunately, the s-chip fraud did not end. When the going got tough, the Chinese owners just took everything and ran.....and Singapore investors were totally helpless. Audit reports, bank statements etc were all meaningless. Everybody got away scot-free...which had the unintended result of making running away with money the smart thing to do with S-chips listed in Singapore!!!!! And today we still see outrageous ways of s-chips' CBT we thought only possible in 1940s gangster movies.

Those were (are?) the dark times for Singapore investors who (before s-chips) truly believed in audited financial reports released by international auditing firms. We all learnt the hard way they simply mean nothing. Not a single audit firm was punished. In this case, the audit firm who resigned before Ernst and Young took over, released a statement saying there was nothing to report in their resignation letter. They were never taken to task.

I can see the present SGX team led by Tan Boon Gin, is determined to make a difference...but I fear the mis-steps/arrogance done by their predecessors, had left too high a barrier for them to overcome.

I don't think financial reports mean nothing. They are a baseline to know what transpired and what went wrong. It is when people think accounting numbers is all that matters without understanding is where trouble starts.

Numbers are reflections of reality. But they are not reality itself