A Sign of the Times, Perhaps, Buried in the WSJ?

Buried at the bottom of an article in this past Tuesday’s WSJ about due diligence firms sprouting up to investigate Chinese companies for hedge funds and other Western investors was a little tidbit it seems everyone either didn’t read, or felt comfortable ignoring regardless. The WSJ – investigating Deloitte’s resignation as Longtop Financial’s auditor – seems to have encountered a not-unsubstantial speed bump which I’m afraid may be indicative of far larger and more troubling problems:

A spokeswoman for Deloitte’s global network referred questions to its Chinese affiliate. Efforts to reach the Chinese firm were unsuccessful.

There are two largely distinct possibilities here: First, the WSJ reporters are not very good/diligent investigators/researchers, or second, Deloitte’s Chinese JV is in more trouble than we thought, in the wake of its involvement in frauds like CCME and Longtop.  Ordinarily, I’d simply put a call into Deloitte’s offices in Shanghai myself (it took me about 90 seconds to find a phone number), but its now ~3am local time, and I have no desire to leave a voicemail and wait for a callback that very well may never come.  Giving the reporters at the WSJ the benefit of the doubt that they – having been given the contact information for Deloitte’s China office by Deloitte global – would be able to figure out how to get at least a “no comment” out of someone there, leads me to believe there may be something amiss.*  Seeing as I have no other information upon which to base this concern, I’m not putting too much credence in it, but it is something upon which I’ll be keeping an eye going forward.  Nothing really surprises me in China anymore.


*Of course it is entirely possible “efforts to reach the Chinese firm were unsuccessful” means the reporters gave up, or otherwise mangled the effort.

Those Who Fail to Learn From History, Part 729,842: YOKU

Another Chinese “advertising” company with U.S.-listed shares.  Gee, where have we seen this movie before…

Remember China MediaExpress Holdings?  CCME?  I’ve written at great, great length about the firm and the many, many red flags present in its regulatory filings going back to 2009, but one of the most telling, most glaringly obvious signs of possible trouble was the corporate structure, which I wrote about (among other places) here:

Compare this to YOKU’s, from Page 5 (FIVE!!!!) of their F-1 ADR registration statement:

In both cases, the PRC “operating” companies are controlled entirely by corporate insiders (and their families).  The only recourse the holding-company (and thereby shareholders) has (have) over the operating companies, their assets, and cash flows are spelled-out in “contractual obligations,” spelled-out in very-little detail on pages 5 and 6 of Yoku’s F-1  If corporate insiders and their families loot the bank accounts of the PRC entities, U.S. shareholders will very-likely end up with little, if anything, to show for their “investment.”

The filing does go into a bit more detail on these “contractual arrangments” and the risks thereof, specifically, on pages 30/31 (emphasis mine):

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Hold The Presses: China MediaExpress Holdings Gets Coveted AAA Rating!!!!!

Who cares if a firm’s auditor resigns when said firm is awarded a magic AAA credit rating!!?!?!  All you CCME longs who’ve been waiting for some news, any news, let alone good news may finally have your day (h/t @jcom67):

Who is Beijing ZhongKeJingXie Credit Assessment Center Co., Ltd., you ask?  I have absolutely no idea.  All I do know is that (via google translate), their website looks semi-shady, and on its contact page, includes an email address not @zxxp.net (matching their website) but “yongfeng82000@126.com”. I’m not sure how things work in China, but in the U.S., Europe, and most of the rest of the developed World, this doesn’t exactly support the credibility of said “AAA” rating.

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Muddy Waters' Founder Carson Block On Investing In Chinese Reverse Mergers: CNBC Interview

Herb Greenberg got the chance to sit down with Carson Block, Founder of research firm Muddy Waters today to talk about investing in Chinese stocks, especially RTO (reverse-merger) situations.


I think he brought up a term seldom heard in the financial media – Potemkin Factory – and went on to explain some very basic tenants of due diligence apparently ignored by many investors Who Should Know Better.

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The China MediaExpress Holdings Saga Continues

Bronte Capital (h/t Dutch Book) posted the lawsuit against CCME (and the CEO/CFO) by Hank Greenberg’s CV Starr (& affiliate) funds.  Effectively, Starr admits the extent of the diligence behind their 1.5 million+ share (with warrants/etc) investment in CCME was based solely upon information provided by management, either directly and/or through regulatory filings.  All-in, if memory serves correctly, Starr’s investment represented >10% of the company, valuing its holdings therein at over $60 million at the peak.  One would think it’d be worth spending a few thousand dollars up-front to hire a 3rd party to conduct due diligence (see Roddy Boyd’s great investigative piece for an example) that could, or in this case likely would, have saved Starr tens of millions of dollars, no?

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China MediaExpress Holdings: Excuse My Continued Lack of Shock

When you – in this case, CV Starr and affiliated funds – buy a large chunk of a Chinese Reverse Merger company, like, oh, I dunno, China MediaExpress Holdings, and you get a board seat, perhaps you should insist your “man on the ground” is on the Audit, not Compensation committee.  And perhaps you should do a little more independent due diligence, instead of meeting management and reviewing documents they supply.    Just sayin…

Otherwise, don’t be surprised when your Auditor and CFO resign, and your board member steps down citing “in particular, irregularities in the bank account balances of CCME’s PRC subsidiaries.

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Goodnight & Good-luck: China MediaExpress Holdings

While there’s no SEC filings nor announcements on the firm’s website, apparently their auditor, Deloitte, and their CFO have quit.  Don’t say I didn’t warn you here, here, here, and I think best, here back on February 3rd, the most popular (by pageviews) day on this site.  I do not wish ill-will upon anyone, but Glenn Bradford, hopefully he’s ok, should learn alot (i.e. what I mentioned) from this experience.  It doesn’t mean his career is over, but it means he should, hopefully, learn, admit his mistakes (many they be), and move on, even though that’s easier said than done.

FD: No position now or ever (regrettably).

China MediaExpress Holdings Update

I just spoke to a Director in the Listings & Qualifications Department at NASDAQ about CCME, and to pu it simply, right now the stock is still halted under a “T1″ halt ie “news pending.”  Per my conversation, there is no automatic switch to another halt status, it’s discretionary, but the next step if CCME stays quiet is to move to a T-12 halt.  The NASDAQ General Council would not comment further, besides to say they, too, are awaiting news from CCME.

I can not imagine any way this ends well for those long CCME.  Glen Bradford, welcome to Wall Street.

The Final Nail in the China MediaExpress Holdings Coffin

In what I think is one of the best investigative works I’ve ever read, Roddy Boyd went to China to meet with the CFO of CCME, but his meeting was cancelled. He and his experienced Chinese investor friend decided to visit CCME’s main office without notice, anyway.  What Roddy saw I can only describe as worse than even I suspected.  It appears the company is 100% absolutely positively a complete and utter fraud, top to bottom, inside & out.

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