Month: February 2011

Update on Fraud Allegations at China MediaExpress Holdings

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UPDATE: In March 2011, CFO Jacky Lam of China Media Express and the auditors (Deloitte) resigned. Deloitte said they could no longer rely on the representations of management, and they suggested an investigation was in order. Ping Luo, the analyst from Global Hunter who gave CCME rave reviews resigned. Maurice Greenberg’s Starr Investments sued CCME for fraudulently inducing it to invest $13.5 million. The stock was delisted from the NASDAQ in May 2011.

Deloitte raised the following issues: questionable authenticity of bank statements, supicioius bank confirmation procedures, existence of advertisers/customers, undisclosed bank accounts and bank loans, financial filings with the State Administration of Industry and Commerce differing from information provided to auditors, questionable authenticity of tax filing documents, cash payments to employees, and double counting of buses.

A couple of weeks ago I posted an article examining some of the allegations against China MediaExpress Holdings (NASDAQ:CCME) alleging that management was committing fraud on the investing public. I also discussed the company’s response, as well as the response of writers who are supporters of CCME.

The allegations that concerned me most were:

Read moreUpdate on Fraud Allegations at China MediaExpress Holdings

Five Myths About Fraud

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We’ve all heard so much in the news about fraud over the last several years. Not a day goes by that we don’t hear about an executive caught with his hand in the cookie jar, a company that failed to follow proper accounting rules, or a compensation structure that led someone to cheat with the numbers.

In some ways, I think people are becoming immune to fraud. The cases don’t seem as significant as they would have been five years ago. They’re not as shocking as they used to be. It is sad that fraud is becoming more commonplace. And the more we hear about fraud, the more I think companies run the risk of not taking it seriously.

Most importantly, I think people are running around with some big misconceptions about employee fraud. If they mistakenly believe their company is not at risk, they are probably not actively preventing fraud. Companies must know the truth about fraud and its perpetrators in order to actively protect themselves.

Read moreFive Myths About Fraud

The Myth of “Reduced Budgets” for Wisconsin Schools

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This week, public workers’ unions in Wisconsin are up in arms because Governor Scott Walker has issued a budget which seeks to strip the unions of many of their bargaining rights. He wants to make the union members pay their fair share for their pensions and health care costs, and the unions aren’t having it! If Walker’s budget passes, public employees’ unions will only be able to negotiate on compensation, not on benefits.

Of course, the first cry from the teachers is that IT’S FOR THE CHILDREN and this budget should not pass. They, along with their private sector supporters, are claiming that teachers are underpaid and that school budgets are being cut.  Neither are true. They further claim that forcing a rollback in the lavish (yes, lavish) benefits of teachers will create a shortage of teachers. I disagree.

Read moreThe Myth of “Reduced Budgets” for Wisconsin Schools

Failing to Find Fraud When Auditing Cash

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UPDATE: In March 2011, CFO Jacky Lam of China Media Express and the auditors (Deloitte) resigned. Deloitte said they could no longer rely on the representations of management, and they suggested an investigation was in order. Ping Luo, the analyst from Global Hunter who gave CCME rave reviews resigned. Maurice Greenberg’s Starr Investments sued CCME for fraudulently inducing it to invest $13.5 million. The stock was delisted from the NASDAQ in May 2011.

Deloitte raised the following issues: questionable authenticity of bank statements, supicioius bank confirmation procedures, existence of advertisers/customers, undisclosed bank accounts and bank loans, financial filings with the State Administration of Industry and Commerce differing from information provided to auditors, questionable authenticity of tax filing documents, cash payments to employees, and double counting of buses.

Earlier this week, I posted an article about China MediaExpress Holdings (CCME) and the allegations of fraud that were leveled recently against the company. I took a look at some of the commentary out there, asked questions and made comments, and ultimately decided that I am concerned about the potential that the company is a fraud.

Supporters of CCME have questioned the reliability and authenticity of the fraud allegations, and have provided evidence of their own about why the critics of CCME should not be trusted. I haven’t looked at all of those counter arguments, but I have looked at some of them, and some appear credible. I do not discount the due diligence that has been done by a number of investors. I am sure that they found plenty of evidence to suggest that the company is completely legitimate and their numbers are reported accurately.

However, I still believe that something is wrong at the company.

Here’s why: Even if most of the fraud allegations are either improper or incorrect, I believe that at least some of them are likely to be true. Even if one or two or three of the fraud allegations are true, the company has a serious problem. In my experience, lying and fraud do not occur in a vacuum. When small lies or frauds are found, very often they are the tip of the iceberg and more dishonesty exists.

Read moreFailing to Find Fraud When Auditing Cash

China MediaExpress: Massive Fraud or Victim of Short Sellers?

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UPDATE: In March 2011, CFO Jacky Lam of China Media Express and the auditors (Deloitte) resigned. Deloitte said they could no longer rely on the representations of management, and they suggested an investigation was in order. Ping Luo, the analyst from Global Hunter who gave CCME rave reviews resigned. Maurice Greenberg’s Starr Investments sued CCME for fraudulently inducing it to invest $13.5 million. The stock was delisted from the NASDAQ in May 2011.

Deloitte raised the following issues: questionable authenticity of bank statements, supicioius bank confirmation procedures, existence of advertisers/customers, undisclosed bank accounts and bank loans, financial filings with the State Administration of Industry and Commerce differing from information provided to auditors, questionable authenticity of tax filing documents, cash payments to employees, and double counting of buses.

As I have found out all too well in the last two years, those who are critical of public companies risk retaliation. Retailing failure Overstock.com (NASDAQ:OSTK) has spent years perfecting their methods of stalking and intimidating anyone who dares to criticize their perpetual losses, their wackadoo CEO Patrick Byrne, the gross incompetence of management, and (most importantly) their fraudulent financial reporting.

I have a particular interest in multi-level marketing (MLM), and in publicly voicing my dislike of this bogus “business model,” have been subjected to retaliation from the companies themselves as well as individuals associated with the companies. The most vicious attack is by Medifast and its MLM division, Take Shape For Life (TSFL). I first became aware of Medifast via a small project for a client, but became interested in the company and how it was achieving extraordinarily good financial results.

Read moreChina MediaExpress: Massive Fraud or Victim of Short Sellers?

New Tax Amnesty Program for Taxpayers With Overseas Accounts

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The IRS is again allowing people with illegal, overseas bank and brokerage accounts to turn themselves in for reduced penalties. In 2009, the IRS did the same thing, giving taxpayers the opportunity to rat on themselves with the Voluntary Disclosure program. They said that 15,000 taxpayeres told on themselves in that round.

Having accounts overseas is perfectly legal. However, if you have one with more than $10,000 in it at any time during the year, you are required to report it to the IRS. Why? Because the IRS wants to tax you on the earnings in foreign accounts, and they want to know if you might be using foreign accounts to launder money or do other dirty financial deeds.

Read moreNew Tax Amnesty Program for Taxpayers With Overseas Accounts