If you can’t buy them, bankrupt them; Private Equity Capitalizes on Chinese Firms’ Depressed Shares

JUNE 11, 2013, 9:10 AM

Private Equity Capitalizes on Chinese Firms’ Depressed Shares

By NEIL GOUGH

HONG KONG – If you can’t buy them, bankrupt them.

Three months ago, Ambow Education Holding, a troubled operator of tutoring centers in China that was listed on the New York Stock Exchange, was the target of a $108 million privatization bid by Baring Private Equity Asia.

On Monday, Baring emerged as one of several big shareholders that had succeeded in pushing Ambow into provisional liquidation by a court in the Cayman Islands, where the company is registered, after a dispute with management over an investigation into possible financial misconduct. Read more of this post

Crazy Eddie fraudster says SEC can’t keep up; Corporate audits don’t work, give investors false sense of security

June 7, 2013, 6:01 a.m. EDT

Crazy Eddie fraudster says SEC can’t keep up

Corporate audits don’t work, give investors false sense of security

By Ronald D. Orol, MarketWatch

WASHINGTON (MarketWatch) — Securities regulators are overwhelmed by the volume of fraud and insider-trading violations and don’t have the resources to pursue criminals effectively.

Former Crazy Eddie CFO Sam Antar.

So says Sam Antar, a felon and former chief financial officer of Crazy Eddie Inc., a well-known criminal enterprise from the 1980s that cost many people their life savings and was even featured on “Saturday Night Live.”

Antar, 56, now teaches FBI agents and Justice Department officials about white-collar crime and how to spot it. He spoke to MarketWatch about the economics of white-collar crime; why he thinks “audit” is a fraudulent term; and why short sellers, along with well-compensated whistleblowers, are best at ferreting out fraud.

Here’s what he had to say:

MarketWatch: You were the CFO of Crazy Eddie, a criminal enterprise passing itself off as a New York electronics retailer in the 1980s. Can you tell me about It?

Sam Antar: It was an 18-year fraud with two parts. As a private company we understated income by skimming money to steal the sales tax and evade income taxes. As a public company we did the opposite: We overstated our income to sell stock at inflated prices. The reason you do that is because as a public company you get a bigger bang for the buck by overstating income and overstating your taxes than understating income and understating taxes. That’s because as a private company you are not trading stock. As a public company your stock trades at a multiple of earnings. Let’s say I understate income by a million dollars, I may save $400,000 in taxes. But if I overstate my income by the same million dollars and overpay taxes by $400,000; that $600,000 in overstated net income, if the stock is trading at 30 times earnings, increases the value of the company by $18 million. It is the economics of white-collar crime: Overpaying taxes and overstating income is better as a public company.

MW: As CFO of Crazy Eddie, you were involved in a lot of the accounting fraud. Do you think auditors are equipped to find fraud?

S.A.: I do not believe that most auditors are adequately trained to find fraud and do battle with fraudsters of my former caliber. Documents don’t commit fraud; the people controlling the documents commit fraud. For example, most auditors are not taught fraud psychology — the behavioral dynamics of fraud. Auditors are rarely taught about emotional manipulation and misdirection used by fraudsters to manipulate their behavior during audits and successfully carry out their crimes. They are unprepared for the psychological games played by fraudsters. Read more of this post

The 50 Best Performing S&P 500 Stocks in 2013

The 50 Best Performing S&P 500 Stocks in 2013

FRIDAY, JUNE 7, 2013 AT 02:03PM

As of 2 PM today, the average stock in the S&P 500 is up 16.94% so far in 2013.  And nearly all stocks in the index are up on the year.  Of the 500 members, 453 of them are in the green this year, while just 47 are in the red. Below is a list of the 50 best performing stocks in the S&P 500 year to date.  As shown, two stocks — Netflix (NFLX) and Best Buy (BBY) — are up more than 100%.  Go figure! Micron (MU) ranks third with a YTD gain of 99.13%, followed by Hewlett-Packard (HPQ) at 73.33% and First Solar (FSLR) at 72.35%.  AVP, AMD, EA, BSX and HRB round out the top ten. One stock that’s clearly not on the list of 2013’s best performing stocks is Apple (AAPL).  Apple is actually down 16.98% YTD, ranking it as the 7th WORST stock in the index on the year.

South Korea’s conglomerate STX bankruptcy filing is a reminder of the prolonged slump in the marine-transport business; STX Group has $9 billion in total debt

June 9, 2013, 11:44 a.m. ET

STX Bankruptcy Filing Reflects Global Slump in Shipping

By KYONG-AE CHOI and KANGA KONG

SEOUL—The bankruptcy filing by what once was a major profit driver of one of South Korea’s conglomerates is a reminder of the prolonged slump in the marine-transport business. STX Pan Ocean Co., 028670.SE -14.93% the bulk-transportation unit of STX Group,011810.SE -2.03% the country’s 13th-biggest company by assets, filed for court receivership Friday after failing to find a buyer. STX Group had put up for sale its almost 36% interest in STX Pan Ocean, but no buyers came forward. The company, which is listed in Seoul and Singapore, was valued at $231 million in early April but that fell to $170 million by the end of last week. “A combination of a sharp decline in freight rates, a delayed industry recovery, oversupply of ships due to an increased production at Chinese shipyards and higher fuel costs drove up debt and squeezed margins,” STX Pan Ocean said Friday. The decline in the shipping and shipbuilding industries since the 2008 financial crisis has hit STX Group particularly hard. About 90% of the group’s sales come from those businesses. Its other main business, construction, also has been hit by the global economic downturn. “Even if a company ran one of the three businesses—shipping, shipbuilding and construction—it would be hard to survive today. STX has all of them,” said an executive who left STX late last year. STX Group, with more than 10 trillion won, or $9 billion, in total debt, has sold 1.13 trillion won in assets as part of a 2.5 trillion won asset sale plan announced in May of last year. STX has said it would continue to cut its workforce, wages and benefits. It has already cut the number of executives and annual salaries by around a fifth. Read more of this post

Gazprom’s Demise Could Topple Putin; In May 2008, Gazprom’s market capitalization was $369 billion; $83 billion now.

Gazprom’s Demise Could Topple Putin

No large company in the world has been so spectacularly mismanaged as Russia’s state-dominated natural-gas corporation Gazprom OAO. (GAZP) In the last decade, its management has made every conceivable mistake.

Even so, Russian President Vladimir Putin denies the very existence of a crisis and maintains his support for Alexei Miller, the chief executive officer since 2001. Gazprom’s situation is serious not only because it is Russia’s biggest company by market value, but because Putin is its real chairman. Where Gazprom goes, so does Russia and the Putin government.

In May 2008, Gazprom was one of the world’s most valuable companies with a market capitalization of $369 billion. Miller boasted that it would be the first global company to reach $1 trillion. Today, its market value has plummeted to $83 billion and the decline continues. Although it claimed the largest net income of any global company in 2011 at $44.5 billion and still at $38 billion in 2012, its price-earnings ratio has dropped to a fatally low 2.4 for 2013. It has no credibility with shareholders. Read more of this post

Russian retailing: A Magnit for investors; A retailer doing well in a business-unfriendly country by catering to the needs of price-sensitive shoppers in the country’s regions. That makes him not only the rare Russian oligarch whose wealth has nothing to do with natural resources, but also the only one who does not make his home in Moscow or in one of Europe’s fancier cities but in Krasnodar, a regional capital in south-western Russia

Russian retailing: A Magnit for investors; A retailer doing well in a business-unfriendly country

Jun 8th 2013 | KRASNODAR |From the print edition

STANDING in front of a bank of display screens in Krasnodar, Alexander Barsukov, an executive at the Russian grocery chain Magnit, can see that a hypermarket in Nizhnekamsk, a town of 230,000 people 1,900km (1,200 miles) away, is running low on “Group A” products—ones such as bread and milk that account for 20% of stock but 80% of sales. Mr Barsukov has the store manager notified to restock the shelves; a “control call” will follow up in 40 minutes. The point is to “catch mistakes fast,” he says.

It is this combination of advanced IT systems and efficient logistics that has propelled Magnit to the top of the Russian food-retail industry, a fast-growing, $300-billion-a-year market that is now Europe’s largest. In April, for the first time in its 15-year history, Magnit bested its competitors by posting $4.3 billion in quarterly sales. Long the underdog, Magnit has become an investors’ favourite: its share price has nearly doubled over the past 12 months. Read more of this post

STX Pan Ocean, South Korea’s biggest commodities shipping line, filed for court receivership after a drop in rates left it unable to pay off its debt.

STX Pan Ocean Files for Court Receivership on Debt, Losses

STX Pan Ocean Co. (028670), South Korea’s biggest commodities shipping line, filed for court receivership after a drop in rates left it unable to pay off its debt. “STX Pan Ocean has been in a liquidity crisis as the company can’t raise enough funds after a slump and delayed rebound in bulk-shipping markets,” the company said in an e-mailed statement in Seoul, where it filed for receivership. Shares of the shipping line, now halted for trading, have fallen 46 percent in Seoul this year as parent STX Group tries to sell stakes in businesses including Pan Ocean as rates drop. The Baltic Dry Index, a measure of commodity shipping costs, has plunged 90 percent since touching a record high in 2008, and any delay in recovery could hurt more companies. Read more of this post

Buffett Rail Rally Defies Analysts Seeing End to Gains

Buffett Rail Rally Defies Analysts Seeing End to Gains

Investors are driving railroad stocks to the best start to a year since 2008, looking past downgrades by Wall Street analysts, in a bet that Warren Buffett is right about the carriers’ long-term prospects.

A 22 percent surge for the Standard & Poor’s 500 Railroads Index in 2013 is outpacing the S&P 500’s 13 percent jump. The gains are being extended even with the proportion of buy ratings on Union Pacific Corp. (UNP), the largest U.S. railroad, and Kansas City Southern (KSU), the fastest growing, at the lowest since 2010.

Crude-oil cargo, a homebuilding rebound and the fastest auto-sales pace in six years are buoying earnings, and options market trading data analyzed by Bloomberg show investors expect the rally to continue. The rail index’s return has almost doubled the S&P 500’s advance since Buffett’s Berkshire Hathaway Inc. (BRK/A) agreed to buy Burlington Northern Santa Fe Corp. in 2009. Read more of this post

Singapore-listed STX Pan Ocean, the shipping arm of South Korean conglomerate STX Group, will make a decision on applying for court receivership or restructuring after hearing from its largest creditor

STX Pan Ocean’s receivership request hinges on creditor

SINGAPORE — Singapore-listed STX Pan Ocean, the shipping arm of South Korean conglomerate STX Group, will make a decision on applying for court receivership or restructuring after hearing from its largest creditor, the Korea Development Bank (KDB), on its request for funding.

BY – 6 HOURS 23 MIN AGO

SINGAPORE — Singapore-listed STX Pan Ocean, the shipping arm of South Korean conglomerate STX Group, will make a decision on applying for court receivership or restructuring after hearing from its largest creditor, the Korea Development Bank (KDB), on its request for funding. Read more of this post

This shell that is buying Smithfield has no legal or operational connection to Henan Shuanghui whose Chinese assets are reportedly being used as collateral for the shell company to finance a very highly-leveraged acquisition

Smithfield Foods – Shuanghui International: The Biggest Chinese Acquisition That Isn’t

June 2nd, 20131 comment

Peter Fuhrman is Chairman, Founder & CEO at China First Capital, (中国首创）a leading China-focused specialist international investment bank and advisory firm for private capital markets and M&A transactions.

It is, if voluminous press reports are to be believed, the biggest story, the biggest deal, ever in China-US business history. I’m talking about the announced takeover of America’s largest pork company, Smithfield Foods, by a company called Shuanghui International. The deal, it is said in dozens of media reports, opens the China market to US pork and will transform China’s largest pork producer into a global giant selling Smithfield’s products alongside its own in China, while utilizing the American company’s more advanced methods for pork rearing and slaughtering.

One problem. A Chinese company isn’t buying Smithfield. A shell company based in Cayman Islands is. Instead of a story about “China buying up the world”, this turns out to be a story of a precarious leveraged buyout deal (“LBO”) cooked up by some large global private equity firms looking to borrow their way to a fortune. Read more of this post

The S.E.C. Is ‘Bringin’ Sexy Back’ to Accounting Investigations to crack down on accounting fraud

JUNE 3, 2013, 11:38 AM

The S.E.C. Is ‘Bringin’ Sexy Back’ to Accounting Investigations

By PETER J. HENNING

In April 2003, a New York Times article discussed the push by federal prosecutors to crack down on accounting fraud in which one expert said, “These have become the hot, sexy cases.” What followed were the convictions of chief executives including Jeffrey K. Skilling of Enron, Bernard J. Ebbers of WorldCom and John J. Rigas of Adelphia Communications. The attraction seems to have worn off. The number of corporate accounting cases at the Securities and Exchange Commission has dropped to its lowest level in a decade, with only 79 such cases filed in the most recent fiscal year. In the past, the S.E.C. relied mainly on the market to flag accounting problems at companies that would lead to an investigation. Enron’s demise, for example, began when questions were raised about its complex reporting of various off-balance-sheet transactions amid a rapidly falling stock price, which led to the issuance of subpoenas to the company and its outside auditor, Arthur Andersen.

Today, the S.E.C. wants to be more proactive by using risk modeling to analyze corporate filings to identify companies that might be outliers in reporting their results. In a speech in December, Craig M. Lewis, director of the agency’s division of risk, strategy and financial innovation, talked about a new “accounting quality model” that could help the S.E.C. “assess the degree to which registrants’ financial statements appear anomalous.” Read more of this post

Legal firms biting at the heels of Sinovel Wind Group; prosecutors are asking for compensation for losses resulting from the company’s fraudulent financial statements

Legal firms biting at the heels of Sinovel Wind Group

Staff Reporter 2013-06-03

Sinovel Wind Group announced on May 30 that it has received notice from the China Securities Regulatory Commission of a pending investigation into the company for the alleged violation of the Securities Law. According to NetEase, a Chinese web portal, some legal firms have started soliciting entrustment from investors for suing Sinovel. The prosecutors are asking for compensation for losses resulting from the company’s fraudulent financial statements. On April 13 2013, Sinovel announced that it had received notification from the Beijing Securities Regulatory Bureau, which discovered that some business receipts, related figures, and financial records of the company were off the mark, leading to inflated profits in 2011. According to the Securities Law, investors can file civil suit for compensating their losses caused by false statements which are confirmed and penalized by the China Securities Regulatory Commission. Sinovel listed its shares on the A-share market on Jan. 13, 2011, at an IPO of 90 yuan (US$14.66) per share. The shares closed at 5.76 yuan (US$0.93) on May 29, which translated to a combined 73% decline over the past two years.

The 100% Stock Solution

May 31, 2013, 5:43 p.m. ET

The 100% Stock Solution

By LIAM PLEVEN

Most investors hold a mix of stocks and bonds, hoping for both growth and safety. Then there are people like Daniel White.

The 36-year-old Chicago lawyer keeps all his investments in the stock market. His 401(k) plan is invested in equities, and so is his wife’s. The college-savings accounts for their four young children also are in stocks. His separate brokerage accounts are, too. The total sum at risk is in the high six figures, he says.

“I’m not an adrenaline junkie,” says Mr. White, who sees the stock-market wagers as part of a broader personal portfolio that includes his job, enough cash to cover the family’s living expenses for an extended period and a house that is fully paid for. Read more of this post

Korea’s financial watchdog will launch an audit into Woori Bank because it is suspected of holding hundreds of “borrowed name” accounts for CJ Group, the subject of ongoing investigations into tax evasion and slush fund creation

2013-05-31 16:57

Regulator to look into Woori for CJ accounts

By Kim Tae-jong

The nation’s financial watchdog will launch an audit into Woori Bank because it is suspected of holding hundreds of “borrowed name” accounts for CJ Group, the subject of ongoing investigations into tax evasion and slush fund creation.

The bank is suspected of abetting the group’s wrongdoings, if proven to be true, this will be another setback, coming right after the Board of Audit and Inspection (BAI) blamed it for having poor management practices. Read more of this post

Bumi Says $201 Million Missing After Review of Berau Finances

Bumi Says $201 Million Missing After Review of Berau Finances

Bumi Plc (BUMI), the coal producer at the center of an ownership dispute between its founders, said a review of spending at one of its two Indonesian units found $201 million of outlays with “no clear business purpose.”

In addition to the $152 million determined to be missing from PT Berau Coal Energy’s finances in 2012, $49 million was identified for the 2011, Bumi said in a statement. The Berau Coal review delayed Bumi’s results by more than two months. It today reported a net loss of $2.3 billion for 2012, compared with the year-earlier loss of $337 million after booking charges of $2.2 billion on its Indonesian coal businesses.

Bumi has been at the center of a battle for control between co-founders Nathaniel Rothschild and Indonesia’s Bakrie family since the $3 billion deal that brought them together started to sour in late 2011. Trading in the stock will remain suspended while the company “continues to enhance its internal systems and controls,” it said today.

Bumi took an impairment charge of $815 million on the Berau assets. PT Bumi Resources, in which Bumi Plc holds a 29 percent stake, posted a net loss of $666.2 million for 2012 as lower coal prices hurt sales at Indonesia’s biggest coal producer. Bumi took a non-cash charge of $1.4 billion on the value of its equity stake in Bumi Resources, it said today. Read more of this post