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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A Wolf In Sheep's Clothing

Much has been written about Goldman and the Timberwolf deals since the now infamous “shitty deal” showdown between Senator Levin and GS officials last fall. In reading the majority/minority report issued last week in its entirety, there’s a few things that really stuck out to me. Continue reading

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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On The Goldman Sachs Fraud Charges

I’ve been painfully busy this week so I was only able to get out my thoughts in a few tweets and comments on other blogs, forgive me.  Felix Salmon, Kid Dynamite, Henry Blodget and others have all beat me to the punch, and largely, I share many of their thoughts, especially Dynamite’s most recent take (wherein he quotes Blodget).

I won’t rehash the charges as they’ve already been beaten to death by everyone else, however, I will say after reading the SEC’s complaint, the Abacus pitchbook, and Goldman’s defense, I’ve come to the following conclusions (I’m neither a lawyer or structured finance professional, so keep that in mind):

Not only do I not see how/why GS was under any obligation to disclose the party (parties) on the other side of the Abacus synthetic CDO transaction (see page 8 of the pitchbook), I can’t figure out how it’d matter if they had (more on this below).  I also haven’t seen anything yet that explicitly says whether Paulson & Co. did or did not buy into the equity tranche of the deal.  The SEC complaint seems to imply that they did not, however if that is, in fact, the case, I’m very curious why they danced around saying so clearly…

Also, as KD wrote (emphasis mine):

Note that no one is arguing the merits of GS’s disclosure (or lack thereof) here, but I am absolutely arguing that the disclosure shouldn’t have mattered IF ACA HAD DONE THEIR JOB. The underlying securities in the synthetic CDO are what they are, regardless of who put them on the list, or who takes the other side of the trade.  They need to be evaluated based on risk metrics, cash flows, etc.  The real issue is that ACA didn’t do this work to the level that they needed.

GS may be guilty of insufficient disclosure – let’s just pretend they are.  My point is that even given this failure to disclose, the buyers of the securities in question were grossly negligent in failing to properly assess the values and prospects of the synthetic CDOs, and they are trying to remedy their bad trade by diverting blame.

Again, while I’m not a lawyer, from what we’ve seen so far, it looks like the investors’ shareholders may have merits to file suit against the firm’s management for breach of fiduciary duty, since its seems pretty clear that both ACA and IKB (and/or others) didn’t come anywhere close to conducting the kind of diligence required prior to undertaking such a transaction.  They were given a list of all the underlying RMBS and could have easily done the same research Paulson & Co. apparently did, but it seems that either they did – and simply had a rosier outlook for MBS/over-reliance on Ratings – and/or didn’t, in which case they have no one else to blame but themselves.

At best, Goldman’s role(s) in this Abacus transaction teeter(s) on the edge of what most would call ethical business practices, however, I’m not sure the SEC – especially up against the all-star legal team GS is likely to bring – will be able to prove fraud on any meaningful scale.  Given the emails involving “Fab” Tourre the SEC complaint cites, I wouldn’t be surprised if he gets thrown under the bus here by his squid overlords to save their butts.  If that happens, I also wouldn’t be surprised if he tries to shift the blame onto one or two of his higher-ups, an action which GS senior management may deem necessary to protect the firm as a whole.  Ultimately, my guess at this point is that Goldman ends up paying a $50-$100 million fine -tops – after a year or two of courtroom haggling, while “neither admitting or denying any wrongdoing.”  My friend, The Reformed Broker explains what’ll likely come of this in it far better detail, here.

As far as the bigger picture goes, I’m glad the SEC looks like they may finally be getting their shit together.  Unfortunately, unless they have an ace up their sleeve, I doubt this case is the slam dunk they likely thought it was.