Monday, May 23, 2011

Longtop makes an announcement

Longtop Financial Technologies - the subject of several posts on this blog - has made a statement.

Here is the release:
HONG KONG, May 23, 2011 /PRNewswire-Asia/ -- Longtop Financial Technologies Limited ("Longtop" or the "Company") (NYSE:LFT - News) announced today that the Company's registered independent accounting firm, Deloitte Touche Tohmatsu CPA Ltd. ("DTT"), has resigned as auditor of the Company by letter dated May 22, 2011.  The Company also announced that Derek Palaschuk, the Company's Chief Financial Officer, tendered his resignation by letter, dated May 19, 2011, and the Board has taken his resignation under advisement.   
In its letter, DTT stated that it was resigning as the result of, among other things (1) the recently identified falsity of the Company's financial records in relation to cash at bank and loan balances (and possibly in sales revenue); (2) the deliberate interference by certain members of Longtop management in DTT's audit process; and (3) the unlawful detention of DTT's audit files.  DTT further stated that DTT was no longer able to rely on management's representations in relation to prior period financial reports, that continued reliance should no longer be placed on DTT's audit reports on the previous financial statements, and DTT declined to be associated with any of the Company's financial communications in 2010 and 2011. 
Longtop's Audit Committee has retained US legal counsel and authorized the retention of forensic accountants to conduct an independent investigation into the matters raised by DTT's resignation letter.  The Audit Committee has also initiated a search for a new auditor.  Further, Longtop was advised by the United States Securities and Exchange Commission ("SEC") that the SEC was conducting an inquiry regarding related matters.  Longtop intends to cooperate fully with the SEC's inquiry. 
Longtop is unable to determine the full effect of these matters, including whether any restatement of its historical financial statements will be required, until the Audit Committee completes its review.  Longtop cannot predict when it will announce its financial results for Q4 2011, or when it will file its Form 20F for the fiscal year ended March 31, 2011.

Enough said.

27 comments:

  1. No, NOT enough said.

    Massive pats on the back to you and Citron. You guys absolutely nailed it. Great job, and it was a pleasure to hop along for the ride. Thank you. Should you find yourself in Brooklyn, drinks are on me.

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  2. So, when do you think it will start trading again, so the shorts can cover?

    "They" already managed to hose all the May put holders.

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  3. You just have to exercise the puts. The question is will the company fight or not fight delisting. Not fight - trade quickly.

    Fight - 2 months.

    Exercise your puts.

    J

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  4. My understanding was, you can't exercise if your broker can't find a borrow.

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  5. I had no trouble finding a borrow. But if others did that is very bad news.

    I think they should bring back naked short selling - cover when the stock relists.

    My views on naked short selling are however well known.

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  6. John, do the company officers pay a price in term so criminal punishment when one of these Chinese frauds blow apart? Do they sit back in China and enjoy their ill gotten gains, or do they ever get extradited? Does the Chinese government care about this stuff (do they acutually do anything about it)?

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  7. So far no the Chinese management of these companies pay no price. Indeed I think it is sport to rip of wide-eyes.

    Derek - the (now former) CFO of Longtop is however a Canadian.

    Could be interesting for him.

    J

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  8. is Deloitte the new same auditor that was hired on by NOG? I am new to both stories?

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  9. there are no honorable chinamen left, so much for 5,000 years of civilisation, my foot!

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  10. The CFO of this company was Canadian. I would like to avoid the racial stereotypes here.

    John

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  11. John

    why is it taking so long for some of these halted stocks to re-list?

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  12. I don't think all the Chinese companies set out to defraud investors. It's more like early 20th century capitalism meeting 21st century security markets. Private companies in China are starved of capital so they came to where it is easier to access that capital. US play the role of intermediating Chinese savings back into Chinese investments. This is what the US financial service sector is paid for. So don't blame all the Chinese entrepreneurs, many of which have little understanding of what US securities laws require. The auditors/underwriters/brokers are the ones that really failed the investors.
    Many of the RTO companies were issuing equities at below 10x P/E while promising above 20% growth. It is like buying CCC rated paper yielding over 20%. You can't expect all the cheap CCC bonds to pay good, can you? Investors knew what they were getting into.

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  13. John,

    WTF?!, u're defending crooks now?

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  14. Congratulations from the wild west of oz.

    Good to see that the hard work and research is paying off.

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  15. @ Anonymous, your analogy to CCC rated debt is completely inappropriate.

    Longtop, Universal Travel, Media Express and Agritech are NOT hard working groups of people who had a good product and just lost money because they were in the wrong business or because they made an understandable mistake. They were frauds.

    If you buy CCC rated debt you know there is a good chance you will get restructured. But you are entitled to expect that the numbers you are presented have been audited and not "stir-fried" with the help of corrupt bank officers. Unfortunately that condition didn't obtain in the case of the stocks mentioned above.

    Try another analogy. I'd start with Bernie Madoff.

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  16. John,

    w.r.t. CCC bonds: Sure there are outright frauds like you said. Are there no frauds among CCC bond issuers?
    w.r.t. auditors failing I completely agree. Actually in the cases I came by I have not seen many company founders profitting (okay other than that the companies got capital) from dumping stocks. The promoters (private placement participants prior to the RTOs) made out really well through low priced warrants and convertible preferreds. Founders typically have pretty stringent lock-up requirements. If you follow the money I'd say promoters are the ones that should be punished. So should the auditors. At least US law enforcement can reach these people. So I disagree -- the Chinese weren't the Madoffs. They couldn't even find their way around the Wall Street.
    LFT was an IPO right? In that case the underwriters should be on the hook if there was fraud. I believe the legal liability is pretty cut and dry in IPOs. The RTO cases are murkier.

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  17. Bronte Capital: 1
    Maverick Capital: 0

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  18. Chinaman is a racial slur? Then I guess Englishman is as well.

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  19. Me Chinese, me make joke, me fake filings til you're broke

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  20. First anon, this is what Webster has to say: http://www.merriam-webster.com/dictionary/chinaman

    I am an investor and I am after ROI. So if the second anon feels that childish display of racist attitude is going to help your investment go right ahead and be my guest.

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  21. Chinaman is a racial slur? Is it any different than Frenchman, Dutchman, Englishman, et cetera?

    We're becoming a world of thin-skinned ninnies.

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  22. Chink in the armorMay 25, 2011 at 8:33 PM

    Back at ya
    http://www.merriam-webster.com/dictionary/chinaman

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  23. I'd not heard that 'Chinaman' was offensive. Since when - and who decides ?

    "Indeed I think it is sport to rip off wide-eyes"

    Isn't that racial stereotyping ?

    On a more general note, I'd thought that Chinese businessmen, especially outside China, were generally renowned for hard but straight dealing, their word is their bond etc - which was part of what made them such successful 'market-dominant minorities', to use Thomas Sowell's phrase.

    Is this no longer the case ?

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  24. John,

    Off topic question, but have you read this week's Economist survey on Australia? Any thoughts/comments on it?

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  25. Honorable ChinamanMay 27, 2011 at 8:56 PM

    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.”

    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.

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  26. Laban,
    I didn't realize this is an Australian board. In the US it is well-known that the word is offensive, for historical reasons. To those who say it is just like Englishman or Irishman, no actually it isn't. The corresponding grammatical construction would be Chineseman. Chinaman was a purposefully non-grammatical construction, hence its offensiveness. At least that is my understanding.
    To your other question, most of the RTO companies are the ones that could not access capital market inside China because they could not meet Chinese listing standards. That is not to say that there aren't a whole lot of accounting frauds inside China. Corruption is an endemic problem in China so you will be hard pressed to find any company that is squeaky clean.

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