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BrianHunter
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Young investor with 3 years sell-side and 1 year buy-side equity research experience. Coverage focus: Internet, Media, Advertising.
  • Timing is Everything: What do Bear Raids, The Chinese New Year, Reg. SHO, and CCME All Have in Common? 32 comments
    Feb 8, 2011 2:48 PM | about stocks: CCME

    The more I just think about the timing of the CCME short attack the more I am convinced that fraud claims by Muddy Waters, Citron Research, and Bronte Capital are completely unfounded. I have been long CCME since this summer, trading in and out pretty actively. Unfortunately I was long most of last week.

    CCME will report full year earnings and file their 10-k the week of February 28th. I think probably late in the week is a good guess, maybe March 3rd or 4th. I say this because CCME is an accelerated filer, as well as the fact that they will be presenting at two conferences: Rodman conference on March 7-8 in Beijing and the Roth Conference on March 14-16 in Orange County, CA. CCME is not going to present at a conference before their earnings release. So where does that all leave us? CCME's auditor Deloitte Touche Tohmatsu now has approximately 20 days to sign off on their 10-k audit. I think its pretty much crazy to believe that this far along in the second full year audit that DTT would find any sort of fraud? I doubt that. So I asked a CPA friend of mine who worked at Deloitte for 6 years stateside in public accounting. He mentioned that BESIDES the quarterly reviews that are done throughout the year, the audit team will usually start their process in early December for a fiscal 12/31 filer. I assume this process would have been started even earlier for CCME, considering the Chinese New Year holiday in February. He also said that the possibility of faking CCME's reported cash flow and B/S cash would be nearly impossible. Cash trails are thoroughly vetted and scrutinized throughout the audit. I also want to note that on the last conference call, Jacky Lam revealed that DTT worked closely with CCME on all of their quarterly filings, and that DTT had staff within CCME headquarters for most of the period.

    So my conclusion? Mr. short got in over his head with CCME- beginning this summer when the stock touched $8. As the stock steadily climbed to $23, so did the short interest at over 50% of the float. Day 13 of Reg SHO and forced delivery was now fast approaching (Feb 3rd), and Mr. Short remembered vividly what happened last time Reg SHO came around. So Mr. Short realizes there is a foolproof way to bring the share price down. Hire Citron and Muddy Waters to drum up some ammo for a Bear Raid, preying on unsophisticated investors who have done little real due diligence on CCME by claiming that another small cap Chinese reverse merger with financials that seem almost too good to be true- is a fraud! Brilliant. Mr. Short turned a potential $100M loss into a $150M profit in 3 trading days! And it all coincided perfectly with the Chinese New Year, day 13 Reg SHO, 3 weeks before earnings, new 2011 guidance , and a fully audited 10-k by arguably the most reputable accounting firm in the world, Deloitte.

    I almost wish I was smart enough to think of this myself.
    Hedge funds are slicker than deer guts on a door knob. This is their favorite style of trading. Quick and dirty. CCME has a low enough float to easily manipulate, yet market cap is big enough to make a real bet. The stock is also sufficiently liquid, with a very active option chain. If only we could view short sale ownership data (this is being considered in Europe) we could get serious insight to who has been manipulating the stock. MW, Citron, and the many hedge funds that profit from this type of trade may eventually feel the pain, just as many long investors have this past week. However, I think the institutional shorts who orchestrated the Bear Raid have likely already covered and could potentially be on the long side of the trade now.

    I believe there has been WAY too much investigative work and due diligence on CCME to throw in the towel here.
    Every single new short piece gets shot down in a matter of hours, which I believe further vindicates the CCME story. Check out WCTBills truly value add investigative work that refutes MW,Citron, and other bloggers on Seeking Alpha: ccme-info.xanga.com/



    Disclosure: I am long OTCPK:CCME.
    Stocks: CCME
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Comments (32)
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  • Timothy Conway
    , contributor
    Comments (538) | Send Message
     
    Superb overview post, Brian, on what has unfortunately been going on with the unconscionable bear raid on CCME. Our capital markets--especially smallcap and midcap stocks-- cannot be safe if this kind of "financial terrorism" is allowed by the SEC to continue.

     

    Your points about the Deloitte auditing process should be read by everyone, especially the shortsellers (and the folks who believe them) who keep inventing scurrilous lies about how easy it would be to fabricate cash balances, move money around, get loans right before quarterly filings, etc.
    8 Feb 2011, 03:04 PM Reply Like
  • Marty Chilberg
    , contributor
    Comments (549) | Send Message
     
    Nice article Brian! Hope it gets picked up
    8 Feb 2011, 03:11 PM Reply Like
  • Ben grossbaum
    , contributor
    Comments (5) | Send Message
     
    Deloitte knows what it is doing!!! they aren't gonna be fooled and loose their reputation thanks to a chinese small cap!!! Let's be serious here!
    8 Feb 2011, 03:13 PM Reply Like
  • Kharma
    , contributor
    Comments (4) | Send Message
     
    Great report.

     

    Where are the major American trading houses - Goldman Sachs, Morgan Stanley - to right this Made in America fraud from Citron, Muddy Waters. No only would they show China it's not about the money all the time but, in the long run, it would be good for business.
    8 Feb 2011, 03:15 PM Reply Like
  • Koufax
    , contributor
    Comments (4) | Send Message
     
    Great point about those investor conferences. Let's hope they stick to that schedule!
    8 Feb 2011, 03:15 PM Reply Like
  • bogeyDman
    , contributor
    Comments (9) | Send Message
     
    Clear, thoughtful and concise, with verifiable information provided. So refreshing after reading the drivel from the short side....
    8 Feb 2011, 03:15 PM Reply Like
  • dlouis1
    , contributor
    Comments (11) | Send Message
     
    thank god
    8 Feb 2011, 03:16 PM Reply Like
  • kurt10011
    , contributor
    Comments (7) | Send Message
     
    Nice Brian, this is the side of the story that isn't really being spelled out on SA.
    8 Feb 2011, 03:17 PM Reply Like
  • phatchnk
    , contributor
    Comments (4) | Send Message
     
    This stock is a sure double over the next couple months, and deserves to be trading much higher than that. Nice article.
    8 Feb 2011, 03:17 PM Reply Like
  • liberated
    , contributor
    Comments (80) | Send Message
     
    Mr. Sang lied and use forged documents, provide incorrect links, and provided incorrect Chinese translation to cheat. Brian did a good job.
    8 Feb 2011, 03:19 PM Reply Like
  • ambush09
    , contributor
    Comments (4) | Send Message
     
    Great article. Keep putting pressure on these unethical frauds.
    8 Feb 2011, 03:23 PM Reply Like
  • maxthedog1
    , contributor
    Comment (1) | Send Message
     
    Its nice to see some truth on here verses all the short sellers who are allowed to write garbage based on minimal DD
    8 Feb 2011, 03:25 PM Reply Like
  • Blue Chip Trader
    , contributor
    Comments (2) | Send Message
     
    Unbelievable research here. It is amazing how perverse and persistent the shorts are.

     

    I've been adding to my position realizing the lies that have been suggested by the shorts on this.

     

    The SEC needs to get involved instead of watching porn all day.
    8 Feb 2011, 03:25 PM Reply Like
  • rru2s
    , contributor
    Comments (304) | Send Message
     
    Excellent perspective on what is really going on with all of the fabricated articles on MW, Citron, and SeekingAlpha.
    8 Feb 2011, 03:29 PM Reply Like
  • phinance101
    , contributor
    Comments (475) | Send Message
     
    You boys are really working it. Deloitte in China, ain't the same as Deloitte stateside. But my guess is that you already know that. Carry on shillboys. I am sure you are fooling somebody.
    8 Feb 2011, 03:31 PM Reply Like
  • Marty Chilberg
    , contributor
    Comments (549) | Send Message
     
    Time to educate yourself so you eventually understand where you went wrong

     

    I know that many commenters have attempted to discredit the firm Deloitte Touche Tohmatsu as not being part of Deloitte so I might as well address that up front. "Deloitte” is the brand under which tens of thousands of dedicated professionals in independent firms throughout the world collaborate to provide audit, consulting, financial advisory, risk management and tax services to selected clients. These firms are members of Deloitte Touche Tohmatsu Limited (DTTL), a UK private company limited by guarantee. Each member firm provides services in a particular geographic area and is subject to the laws and professional regulations of the particular country or countries in which it operates. DTTL does not itself provide services to clients. DTTL and each DTTL member firm are separate and distinct legal entities, which cannot obligate each other. DTTL and each DTTL member firm are liable only for their own acts or omissions and not those of each other. Each DTTL member firm is structured differently in accordance with national laws, regulations, customary practice, and other factors, and may secure the provision of professional services in its territory through subsidiaries, affiliates, and/or other entities. This description comes from Deloitte's website.

     

    Just like CCME has different subsidiaries that are set up for various legal and tax reasons, so does Deloitte. That doesn't make the audit standards any less strict. For those that don't understand the audit standards of the Big Four or the process that occurs once claims of fraud are heard, it goes something like this. The SEC has undoubtedly been in contact with the Liaison office of Deloitte's US National Office. The national office is now likely overseeing the local office of Deloitte Tohmatsu. This is standard procedure for all the Big 4 audit firms that have clients listed in US. So any fraud being perpetrated would not only have to include the local engagement partner and staff of Deloitte Tohmatsu, but that group would either have to be sophisticated enough to fool professionals trained to deal with fraud at the highest level, or these National Office partners are in on it too. Starts to get pretty so unbelievable that it's not really worth even addressing. If any reader wants to seriously consider that possibility just look at the annual billings of Deloitte and Deloitte Tohmatsu consider what would possibly cause them to take that risk for a company with CCME's billing potential.

     

    seekingalpha.com/insta...
    8 Feb 2011, 03:37 PM Reply Like
  • chensiona
    , contributor
    Comment (1) | Send Message
     
    Deloitte is Deloitte, and their reputation is everything, stick around for the 10k and you'll find out. btw, how much do they pay you to monitor the CCME board?
    8 Feb 2011, 03:46 PM Reply Like
  • phinance101
    , contributor
    Comments (475) | Send Message
     
    Oh Marty, you are a particulalry bad lying little shill. The member firms of Deloitte are completely separate companies and they all very specifically disclaim any responsibility for what any of the others do. But you know that. And you know that the Deloitte company in Timbuktu, that rents the name from the original Deloitte, does not check the work of any other Deloitte. You just made that crap up.

     

    You also know that the Deloitte name renter in China is not inspected by the PCAOB, because the Chicom govt will not permit it.

     

    messages.finance.yahoo...
    8 Feb 2011, 03:59 PM Reply Like
  • insearchofsunrise
    , contributor
    Comments (7) | Send Message
     
    Hopefully Muddy Waters, Citron, et al are behind bars when this is done.
    8 Feb 2011, 03:32 PM Reply Like
  • Drexion
    , contributor
    Comments (71) | Send Message
     
    If only more articles at SeekingAlpha were like this instead of the articles we have seen lately contained fabricated forged information!

     

    -Fernando
    8 Feb 2011, 03:32 PM Reply Like
  • bogus07
    , contributor
    Comments (70) | Send Message
     
    those bloggers who forge documents and photos and spread a lie on the Internet are financial terrorists. Where is the SEC?
    8 Feb 2011, 03:33 PM Reply Like
  • saltydawg
    , contributor
    Comments (34) | Send Message
     
    Superb article and states some known facts versus internet research of the MW/Citron variety. Some specualtion also but with a path of logic and coincidences that have to be looked into. Additionally, none of the forgery associated with another SA piece by one guy named Sang. Still quite perturbed that SA actually let this supposed author post that slanderous and fraudulent story. Even more surprising that it still is allowed to be on SA website.
    8 Feb 2011, 03:34 PM Reply Like
  • shoestringkid
    , contributor
    Comment (1) | Send Message
     
    Thanks Brian and for shedding your insight.
    8 Feb 2011, 03:35 PM Reply Like
  • rjs999
    , contributor
    Comments (21) | Send Message
     
    Thanks for the details ... shorts in this sector are losing a lot of credibility which is indeed very bullish!
    8 Feb 2011, 03:37 PM Reply Like
  • Millstone
    , contributor
    Comments (10) | Send Message
     
    This puts the pieces together well. Short-sellers are clearly colluding to profit. From Sang and Block's using forgeries to Left's shoddy misleading 'research'. All bought and paid for. As a proud American, I am ashamed that the short-sellers are being allowed to try to ruin a solid company. CCME will come back from this, and will reach a true value, no doubt.
    8 Feb 2011, 03:38 PM Reply Like
  • ejmail
    , contributor
    Comments (135) | Send Message
     
    Seeking Alpha needs to improve the level of their article submission acceptance to avoid becoming a tool of the market manipulators or they will lose credibility.
    8 Feb 2011, 03:39 PM Reply Like
  • saltvine
    , contributor
    Comments (17) | Send Message
     
    The citron/mw 'reports' certainly did seem well timed and manipulative. The rest of the seeking alpha articles could just be bandwagon jumping however its getting a bit extreme with apparent 'fake' files being referenced. I am glad there are some authors out there like yourself willing to try think beyond the cloud of doubt that has been created. Thanks
    8 Feb 2011, 03:47 PM Reply Like
  • David Hasselhoff
    , contributor
    Comments (2) | Send Message
     
    Brian, a very credible overview of the recent blatant fraud and decent following the orchestrated and blatant attempts of the shorts to manipulate this company to levels so extreme you can write a movie about it. Shame SA lets posters such a Chimin lodge articles littered with now well proven forged documents. Shame on them
    8 Feb 2011, 03:54 PM Reply Like
  • BullMarket
    , contributor
    Comments (63) | Send Message
     
    Brian Hunter should be commended for his honesty and integrity.

     

    There is no doubt the MW and Citron publications were spun of sheer mist yet calculated to manipulate the CCME price downward after placing bets for a quick profit.

     

    Thank you Brian.

     

    -Andrew
    8 Feb 2011, 04:01 PM Reply Like
  • Peter Byrne
    , contributor
    Comment (1) | Send Message
     
    Great Summary, I hope those breaking the law are held accountable.
    8 Feb 2011, 04:02 PM Reply Like
  • Professional Skeptic
    , contributor
    Comments (6) | Send Message
     
    I am also an auditor for Deloitte out of south florida and can concur with your friend that cash is the easiest account to verify when performing auditing procedures, which is why we usually allow our first year auditors to perform the testing which is then proceeded by three levels of review by the senior auditor, manager, and finally partner. When using our methodology, we not only confirm account balances as of year end, but also perform limited interim testing procedures for additional assurance. Procedures would include but are not limited to:
    1) Confirming year end cash balances with banks.
    2) Trace the bank balance on the reconciliation to the balance per the bank statement (or confirmation received
    3) Test clerical accuracy of reconciliation. Scan the bank reconciliation for significant or unusual reconciling items. Obtain explanations and review supporting documentation for any unusual reconciling items noted.
    4) Scan cash receipts and disbursements for significant or unusual transactions (including any bank transfers) near year end. This is usually done for the last month of the fiscal year and the first month in subsequent fiscal year. In addition, we perform analytical procedures to determine if significant account variations exist when compared to prior period. We obtain explanations and review supporting documentation for any significant differences and unusual transactions found.
    5) Inquire with banks whether there are related guarantees, endorsements, and/or letters of credit, including guarantee arrangements for related parties.

     

    These are a just a few examples of procedures used to test cash at a big four accounting firm. In conclusion, cash accounts not only go through multiple levels of review but are also independently verified with a bank (year end balance). Per PCAOB, public companies are also required to have reviews completed for interim statements which includes analytical testing for any unusual differences when compared to prior quarters. It amazes me some of the conspiracy theories shorts have recently created when the subject of whether the reported cash balance can be relied upon in CCME's financial statements after being audited by a highly reputable firm. These balances did not appear overnight and have been investigated and confirmed by independent auditors year after year.
    8 Feb 2011, 04:19 PM Reply Like
  • chefinvestor
    , contributor
    Comment (1) | Send Message
     
    Awesome!! Looks like short mans complex only gets worse from here! Nice to see ccme becoming a little more transparent for the non believers. cali? very cool! waiting on deloitte any minute? couldnt be better. Mr. Chang should have his mouth duct tapped shut, no wait, then we wouldnt be able to keep seeing him sticking his foot in his mouth! Great reporting! keep it up-
    8 Feb 2011, 04:22 PM Reply Like
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