『对着干』2010中国各省离婚率是多少？# Piebridge - 鹊桥
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To pull off a fraud that humiliates the cream of the global financial elite,
you need to have some friends. And where better to have them than at the
local bank?
The fraud at Longtop Financial Technologies, a Chinese financial software
company, was exposed this week in an amazing letter from its auditors,
Deloitte Touche Tohmatsu. It appears to be a tale of corrupt bankers and
their threats to auditors who had learned of the lies.
Deloitte, which had given clean audit opinions to Longtop for six
consecutive years, apparently was well on its way to providing a seventh,
for the fiscal year that ended March 31. But for some reason — Deloitte did
not say why —the auditor went back to Longtop’s banks last week to again
seek confirmation of cash balances.
It appears Deloitte sought confirmations from bank headquarters, rather than
the local branches that had previously verified that Longtop’s cash really
was on deposit. And that set off panic at the software firm.
“Within hours” of beginning the new round of confirmations on May 17, the
confirmation process was stopped, Deloitte stated in its letter of
resignation, the result of “intervention by the company’s officials
including the chief operating officer, the confirmation process was stopped.”
The company told banks that Deloitte was not really the auditor. It seized
documents, Deloitte wrote, and made “threats to stop our staff leaving the
company premises unless they allowed the company to retain our audit files.”
Despite the company’s efforts, Deloitte learned that Longtop not have the
cash it claimed and that there were “significant bank borrowings” not
reflected in the company’s books.
A few days later, Deloitte said, Longtop’s chairman, Jia Xiao Gong, told a
Deloitte partner that there was “fake cash recorded on the books” because
there had been “fake revenue in the past.”
The stock has not traded since that confrontation. The final trade on the
New York Stock Exchange was for $18.93, a price that valued the company at $
1.1 billion. At its peak in November, it had a market capitalization of $2.4
billion.
It now seems likely that the stock is worthless. It is a real company, but
its revenue and profits probably were a small fraction of the amounts
reported. The existence of the “significant” debt means that whatever
assets are left are likely to be owned by the banks, not the investors.
Deloitte may have decided to check the numbers again because it knew a
growing group of bears on the stock had been challenging the Longtop story
as too good to be true, questioning both its financial statements and the
claims it made for its software. A month earlier, Deloitte resigned as the
auditor of another Chinese company, China MediaExpress, in part because of
questions about bank confirmations.
It is never good for an auditor to have certified a fraud, but Deloitte
seems to have acted properly. It got bank confirmations, and it got them
directly from the banks rather than relying on the company to provide them,
as PricewaterhouseCoopers had done when it failed to notice a huge fraud at
Satyam, an Indian technology company.
But the confirmations were lies.
“This means the Chinese banks were in on the fraud, at least at branch
level,” says John Hempton, the chief investment officer of Bronte Capital,
an Australian hedge fund. He was one of the bears who questioned Longtop’s
claims and now stands to profit from the stock’s collapse.
“This is no longer a story about Longtop, and it is not a story about
Deloitte,” he added. “Given the centrality of Chinese banks to the global
economy, it’s a story much bigger than Deloitte or Longtop.”
The Securities and Exchange Commission has started an investigation, and no
doubt more details will emerge, including the names of the banks involved.
Just what, if anything, Chinese officials choose to do could provide an
indication about whether defrauding foreign investors is deemed to be a
serious crime in China.
Fraud in Chinese stocks is not new. But it had seemed that the worst
problems were in small companies without Wall Street pedigrees. Many of the
fraudulent companies went public in the United States by the reverse-merger
shell route, a course long favored by shady stock promoters. That route
allowed companies to start trading without going though a formal
underwriting process or having its prospectus reviewed by the S.E.C. And
many used tiny audit firms based in the United States that seemingly did
little if any work.
What is stunning about Longtop and some other recent disasters is the list
of smart people who were fooled.
Longtop did not go public through a reverse merger. Its initial public
offering, in 2007, was underwritten by Goldman Sachs and Deutsche Bank.
Morgan Stanley was a lead manager in a 2009 offering of more shares. Major
owners of the stock included hedge funds run by people known as “tiger cubs
” because they got their start at Julian Robertson’s Tiger Fund.
On May 4, only a couple of weeks before the fateful struggle at Longtop
offices, an analyst for Morgan Stanley, Carol Wang, wrote:
“Longtop’s stock price has been very volatile in recent days amid fraud
allegations that management has denied. Our analysis of margins and cash
flow gives us confidence in its accounting methods. We believe market
misconceptions provide a good entry point for long-term investors.”
By then, Longtop officials had begun to scramble. According to its last
audited balance sheet, cash accounted for more than half of Longtop’s $606
million in assets. Bears were asking why the company needed all that cash
and were questioning whether it existed.
In mid-March, just after the fraud at China MediaExpress was exposed,
Longtop announced plans to put some of the cash to use by spending up to $50
million to repurchase its own shares. On April 28, the company tried to
assure analysts that the fraud claims were bogus. Derek Palaschuk, a
Canadian accountant who served as the company’s chief financial officer,
wrapped himself in Deloitte’s prestige, saying that those who questioned
Longtop were “criticizing the integrity of one of the top accounting firms
in the world.”
“For me,” he said, “the most important relations I have other than with
my family, my C.E.O., and then the next on the list is Deloitte as our
auditor, because their trust and support is extremely important.”
Mr. Palaschuk had an explanation for why the company had not repurchased any
shares. It had some very good news that it had not yet released, and “we
were advised by our securities counsel that we should not be in the market
purchasing our own shares in the event that this would be considered insider
trading.”
Longtop is not the only Chinese fraud that caught prominent Americans. Starr
International, an investment company run by Hank Greenberg, the former
chairman of American International Group, invested $43.5 million in China
MediaExpress and had a representative on the company’s board. Starr has
filed suit in Delaware against the company and Deloitte.
Goldman Sachs was not the underwriter of ShengdaTech, a Chinese chemical
company traded on Nasdaq, but its investment arm, Goldman Sachs Investment
Management, had accumulated a 7.6 percent stake in the company before its
auditor, KPMG, refused to sign off on the company’s 2010 annual report and
then resigned in late April. KPMG cited “serious discrepancies” regarding
bank balances and “discrepancies between KPMG’s direct calls to customers
and confirmations returned by mail.” Just as at Longtop, it appeared that
auditors had been given false confirmation letters.
In each of those three cases — Longtop, China MediaExpress and ShengdaTech
— the auditors discovered discrepancies, but only after signing off on
financial statements. That was not the case in this year’s other — and
perhaps most embarrassing — resignation by a Big Four auditing firm.
In December, KPMG was retained by China Integrated Energy, which claimed to
be a leader in the production of biodiesel. Just hiring a Big Four auditor
enabled it to raise $24 million from institutional investors in the United
States. Three months later, KPMG certified the financials.
Six weeks after that, KPMG repudiated the report and resigned. By then,
China Integrated Energy executives had refused to cooperate with a board
investigation into claims that the company was a complete fraud.
The Chinese audit firms, while they are affiliated with major international
audit networks, have never been inspected by the Public Company Accounting
Oversight Board in the United States. The Sarbanes-Oxley Act requires those
inspections for accounting firms that audit companies whose securities trade
in the United States, but China has refused to allow inspections.
In a speech at a Baruch College conference earlier this month, James R. Doty
, chairman of the accounting oversight board, called on the major firms to
“improve preventative global quality controls,” but said that actual
inspections were needed.
Two weeks ago, Chinese and American officials meeting in Washington said
they would try to reach agreement “on the oversight of accounting firms
providing audit services for public companies in the two countries, so as to
enhance mutual trust.”
Frauds and audit failures can, and do, happen in many countries, including
in the United States. But the audacity of these frauds, as well as the
efforts to intimidate auditors, stand out. If investors such as Goldman
Sachs and Hank Greenberg cannot fend for themselves, something more needs to
be done if Chinese companies are to continue to trade in American markets.
you need to have some friends. And where better to have them than at the
local bank?
The fraud at Longtop Financial Technologies, a Chinese financial software
company, was exposed this week in an amazing letter from its auditors,
Deloitte Touche Tohmatsu. It appears to be a tale of corrupt bankers and
their threats to auditors who had learned of the lies.
Deloitte, which had given clean audit opinions to Longtop for six
consecutive years, apparently was well on its way to providing a seventh,
for the fiscal year that ended March 31. But for some reason — Deloitte did
not say why —the auditor went back to Longtop’s banks last week to again
seek confirmation of cash balances.
It appears Deloitte sought confirmations from bank headquarters, rather than
the local branches that had previously verified that Longtop’s cash really
was on deposit. And that set off panic at the software firm.
“Within hours” of beginning the new round of confirmations on May 17, the
confirmation process was stopped, Deloitte stated in its letter of
resignation, the result of “intervention by the company’s officials
including the chief operating officer, the confirmation process was stopped.”
The company told banks that Deloitte was not really the auditor. It seized
documents, Deloitte wrote, and made “threats to stop our staff leaving the
company premises unless they allowed the company to retain our audit files.”
Despite the company’s efforts, Deloitte learned that Longtop not have the
cash it claimed and that there were “significant bank borrowings” not
reflected in the company’s books.
A few days later, Deloitte said, Longtop’s chairman, Jia Xiao Gong, told a
Deloitte partner that there was “fake cash recorded on the books” because
there had been “fake revenue in the past.”
The stock has not traded since that confrontation. The final trade on the
New York Stock Exchange was for $18.93, a price that valued the company at $
1.1 billion. At its peak in November, it had a market capitalization of $2.4
billion.
It now seems likely that the stock is worthless. It is a real company, but
its revenue and profits probably were a small fraction of the amounts
reported. The existence of the “significant” debt means that whatever
assets are left are likely to be owned by the banks, not the investors.
Deloitte may have decided to check the numbers again because it knew a
growing group of bears on the stock had been challenging the Longtop story
as too good to be true, questioning both its financial statements and the
claims it made for its software. A month earlier, Deloitte resigned as the
auditor of another Chinese company, China MediaExpress, in part because of
questions about bank confirmations.
It is never good for an auditor to have certified a fraud, but Deloitte
seems to have acted properly. It got bank confirmations, and it got them
directly from the banks rather than relying on the company to provide them,
as PricewaterhouseCoopers had done when it failed to notice a huge fraud at
Satyam, an Indian technology company.
But the confirmations were lies.
“This means the Chinese banks were in on the fraud, at least at branch
level,” says John Hempton, the chief investment officer of Bronte Capital,
an Australian hedge fund. He was one of the bears who questioned Longtop’s
claims and now stands to profit from the stock’s collapse.
“This is no longer a story about Longtop, and it is not a story about
Deloitte,” he added. “Given the centrality of Chinese banks to the global
economy, it’s a story much bigger than Deloitte or Longtop.”
The Securities and Exchange Commission has started an investigation, and no
doubt more details will emerge, including the names of the banks involved.
Just what, if anything, Chinese officials choose to do could provide an
indication about whether defrauding foreign investors is deemed to be a
serious crime in China.
Fraud in Chinese stocks is not new. But it had seemed that the worst
problems were in small companies without Wall Street pedigrees. Many of the
fraudulent companies went public in the United States by the reverse-merger
shell route, a course long favored by shady stock promoters. That route
allowed companies to start trading without going though a formal
underwriting process or having its prospectus reviewed by the S.E.C. And
many used tiny audit firms based in the United States that seemingly did
little if any work.
What is stunning about Longtop and some other recent disasters is the list
of smart people who were fooled.
Longtop did not go public through a reverse merger. Its initial public
offering, in 2007, was underwritten by Goldman Sachs and Deutsche Bank.
Morgan Stanley was a lead manager in a 2009 offering of more shares. Major
owners of the stock included hedge funds run by people known as “tiger cubs
” because they got their start at Julian Robertson’s Tiger Fund.
On May 4, only a couple of weeks before the fateful struggle at Longtop
offices, an analyst for Morgan Stanley, Carol Wang, wrote:
“Longtop’s stock price has been very volatile in recent days amid fraud
allegations that management has denied. Our analysis of margins and cash
flow gives us confidence in its accounting methods. We believe market
misconceptions provide a good entry point for long-term investors.”
By then, Longtop officials had begun to scramble. According to its last
audited balance sheet, cash accounted for more than half of Longtop’s $606
million in assets. Bears were asking why the company needed all that cash
and were questioning whether it existed.
In mid-March, just after the fraud at China MediaExpress was exposed,
Longtop announced plans to put some of the cash to use by spending up to $50
million to repurchase its own shares. On April 28, the company tried to
assure analysts that the fraud claims were bogus. Derek Palaschuk, a
Canadian accountant who served as the company’s chief financial officer,
wrapped himself in Deloitte’s prestige, saying that those who questioned
Longtop were “criticizing the integrity of one of the top accounting firms
in the world.”
“For me,” he said, “the most important relations I have other than with
my family, my C.E.O., and then the next on the list is Deloitte as our
auditor, because their trust and support is extremely important.”
Mr. Palaschuk had an explanation for why the company had not repurchased any
shares. It had some very good news that it had not yet released, and “we
were advised by our securities counsel that we should not be in the market
purchasing our own shares in the event that this would be considered insider
trading.”
Longtop is not the only Chinese fraud that caught prominent Americans. Starr
International, an investment company run by Hank Greenberg, the former
chairman of American International Group, invested $43.5 million in China
MediaExpress and had a representative on the company’s board. Starr has
filed suit in Delaware against the company and Deloitte.
Goldman Sachs was not the underwriter of ShengdaTech, a Chinese chemical
company traded on Nasdaq, but its investment arm, Goldman Sachs Investment
Management, had accumulated a 7.6 percent stake in the company before its
auditor, KPMG, refused to sign off on the company’s 2010 annual report and
then resigned in late April. KPMG cited “serious discrepancies” regarding
bank balances and “discrepancies between KPMG’s direct calls to customers
and confirmations returned by mail.” Just as at Longtop, it appeared that
auditors had been given false confirmation letters.
In each of those three cases — Longtop, China MediaExpress and ShengdaTech
— the auditors discovered discrepancies, but only after signing off on
financial statements. That was not the case in this year’s other — and
perhaps most embarrassing — resignation by a Big Four auditing firm.
In December, KPMG was retained by China Integrated Energy, which claimed to
be a leader in the production of biodiesel. Just hiring a Big Four auditor
enabled it to raise $24 million from institutional investors in the United
States. Three months later, KPMG certified the financials.
Six weeks after that, KPMG repudiated the report and resigned. By then,
China Integrated Energy executives had refused to cooperate with a board
investigation into claims that the company was a complete fraud.
The Chinese audit firms, while they are affiliated with major international
audit networks, have never been inspected by the Public Company Accounting
Oversight Board in the United States. The Sarbanes-Oxley Act requires those
inspections for accounting firms that audit companies whose securities trade
in the United States, but China has refused to allow inspections.
In a speech at a Baruch College conference earlier this month, James R. Doty
, chairman of the accounting oversight board, called on the major firms to
“improve preventative global quality controls,” but said that actual
inspections were needed.
Two weeks ago, Chinese and American officials meeting in Washington said
they would try to reach agreement “on the oversight of accounting firms
providing audit services for public companies in the two countries, so as to
enhance mutual trust.”
Frauds and audit failures can, and do, happen in many countries, including
in the United States. But the audacity of these frauds, as well as the
efforts to intimidate auditors, stand out. If investors such as Goldman
Sachs and Hank Greenberg cannot fend for themselves, something more needs to
be done if Chinese companies are to continue to trade in American markets.