I no longer have an interest in Longtop Financial Technologies: my clients have covered.
But Andrew Left, the proprietor of Citron has perversely come out on the side of the scammers and put a buy order on Longtop Financial Technology.
He thinks it might be only "partially a fraud".
He is of course playing the bounce and I think his letter skirts the edge of legal market manipulation - he is not stupid enough to actually believe it... at least I don't think he is that stupid...
Let me be blunt. I did checks on numerous businesses within Longtop Technology. For many I could find no evidence for their existence. None, nada, nothing.
For the residual the margin was stupid.
The company has - according to the auditor resignation letter - undisclosed debt.
This suggests there is little value there.
Moreover the management raised money from the stock market and that money disappeared (or at least the auditor could not find it). So if there is any value there it would not be in keeping with the management to let the shareholders have it.
The idea that private equity is going to buy this from poor sweet, eternally optimistic shareholders is - well - frankly - ludicrous.
So if you own the stock you are being given a gift by Andrew Left and his multitude of followers.
Sell.
If he is going to be stupid you might as well collect what pennies are left.
John
For the record here is the email from Citron:
Dear Reader,
No Report-An Opportunity
This week Longtop Financial has reopened under the symbol LGFTY. It is a long way from $26 when we first reported on it. Citron believes that this is a legitimate take over opportunity at these prices as they do provide essential software solutions to China's largest banks. Our checks show the company is still operational and none of the competition in the recent Q discussed taking customers from Longtop. Look for a private equity shop to take a piece of this
If the company was only "half a fraud" we could see the assets sold between $4-5 in the near term. Seems to be a good risk reward at these prices.
Cautious Investing To All
Cautious Investing To All
7 comments:
if there were no customers that would certainly explain why competitors were unable to poach them.
Is it real, do you think? I've heard of people spoofing the shorts on Yahoo message boards, and I wouldn't put it past some of the seedier IR firms to do something like this with Citron.
Because, yeah, otherwise Left has indeed lost his mind and is in the "cash out and run away" phase of his career.
All right, scratch my earlier comment. It's repeated on the Citron twitter.
Baffling.
(Huh, the word verification for this post is "slymen")
The worst part is that he uses the credibility he has earned to tell people, "Yes, there's fraud, but what's the harm in profiting from it now that we've exposed it?" The dividing line between honesty and corruption has been summed up by this release for all to take note.
I do see potential value in Longtop, but it resembles a call option and you couldn't make this too big a position. They do indeed sell software to large banks in China.
This could be like Parmalat and Satyam, where investors indiscriminately dumped the shares at the first opportunity. Both stocks did very well from the capitulation bottom and did indeed attract partial buyouts... private equity and Lactalis in the former instance, and Tech Mahindra in the latter instance.
I think that is a little harsh. My interpretation of the letter is there is option value and the stock is worth a 'punt'. I wouldn't underestimate the desperation of Chinese private equity wanting to put money to work. Someone behind the scheme may also want to take the company private to clean up the mess (they've made money through the IPO/various related parties transaction and just want to cover the tracks). This is not a value investment in traditional sense, but there is nuisance value.
-CT
Well, maybe his last run in with the SEC was due to more than bad luck after all.
Having worked at a PE fund in Asia let me tell you: if its already blown up the only guys that would play this would be bondholders and last I checked Longtop never did a 144A / Reg S deal. Which leaves a bunch of dumbass Chinese banks that don't sell their loans to the sorts of people that might actually restructure a company.
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