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Chimin Sang
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Chimin, aka Stanley, collected a Ph.D in Engineering from SUNY Buffalo and an MBA from Chicago Booth Business School. My full time job is reading, supported by my managing money for family and friends. I don't typically talk about my long positions but I do talk about the stocks that I either... More
  • Red Flags At China MediaExpress: Significantly Mismatched Filings In China, U.S. 14 comments
    Feb 11, 2011 4:24 AM | about stocks: CCME

    My last article on China MediaExpress (OTCPK:CCME) discussed why the "official document" provided by the company lacked the reference number needed and thus was without administrative power. I also presented evidence that the company faked national level science awards for its patent.


    The rumor has it that the company’s SAIC (State Administration for Industry and Commerce of China) filings mismatched its SEC numbers, and in this article I will present to the readers the original documents.
     
    “Fa Piao” Is How the Chinese Government Fights Fraud

    Before I delve into the evidences, I would like to comment on the significance of SAIC report. Many Chinese small-cap investors have been convincing themselves that the mismatch does not matter. In order to dodge tax, companies in China are under-reporting their revenues and thus such mismatches are common. If we were to believe that the SEC numbers are truer than the SAIC numbers, we would have to believe that the Chinese government is losing a lot of tax.
     
    While tax dodging is rampant, the Chinese government is no patsy. What it came up is “Fa Piao” (invoice) system. While companies in the U.S. can issue their own invoices, companies in China have to issue invoices using anti-forgery invoices purchased from the government. A good description is here.
     
    For the advertising business, the government charges 3-5% of revenue as business tax for the service rendered. The government knows the revenue of a company from the invoices. If a company is able to under-report its revenue number, it will have to issue less amount of “Fa Piao” than it rendered service to its customers. However, if the customer receives no “Fa Piao” for the service it purchased, it will not be able to count the amount in its cost, and thus will have to pay 25% corporate income tax for the under-stated cost. The economic loss for not receiving “Fa Piao” motivates the business customers to ask for “Fa Piao”; thus the government would know the true revenue.
     
    The point here is that it is not easy for a company to significantly under-report its revenue to the Chinese government. It is as difficult (if not more so) for a U.S. company to under-report its revenue to the IRS.
     
    SAIC and SAT Numbers Do Not Match SEC Filings

    Below are the SAIC and SAT (State Administration of Taxation) filings I can gather for China MediaExpress. The original copy is available here and a translated copy here. The SAIC filing covers 2008 and 2009, including the balance sheet and the income statement. I purchased the SAIC filings from Qingdao Inter-Credit. The SAT filing covers 2008-10, which was obtained from within the SAT system. The SAIC and SAT filings match very well, but they represent only a fraction of the
    SEC numbers. 


    While China MediaExpress claimed $63m revenue to the SEC for 2008, it only reported $0.3m to the Chinese authorities. The difference is 210-fold. While it claimed $96m revenue to the SEC for 2009, it only reported $0.8m to the Chinese authorities. The difference this time is 120-fold. While it is estimated to reach $214m revenue to the SEC for 2010, it only reported $0.6m to the Chinese tax authority; that difference is 356-fold.
     
    China MediaExpress told the SEC that it paid $8.9m to the Chinese tax authority; the China source check showed $200. The difference is 44,500-fold. It reported it paid $15m to the Chinese tax authority in 2009, but the Chinese document shows that it did not pay any. No ratio can be calculated due to the denominator being zero. For 2010, Global Hunter estimated that it would report $35.6m in tax, but the SAT number we have shows zero.
     
    What China MediaExpress Has to Say About the Mismatch

    When I found the disagreement between the SAIC numbers and SEC numbers, it was a shock. I emailed Jacky Lam, the CFO, on why the difference existed. Lam gave me a one-line answer:
    However, the quick answer to your question is that Fenzhong is not the only sub. in our group.
    I later pushed Lam several times for further explanation on what other subs exist in the group, but my questions fell upon deaf ears.
     
    The latest 10-K for the company clearly indicates that Fujian Fenzhong is the only sub of China MediaExpress. The organization graph can be found here.
    Stocks: CCME
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Comments (14)
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  • haozi0481
    , contributor
    Comments (3) | Send Message
     
    Hi man, I'm Chinese. I'm suspecting whether you're Chinese too. I just read your tax documents provided in Chinese. I have one concern. Why the tax form for the year 2008 was filled up on Jan 7th, 2011? You mean they reported their tax 2 years later? This really confuse me. Are you sure you got the original documents or your forged these documents? This mistake is really ridiculous.
    11 Feb 2011, 04:50 AM Reply Like
  • haozi0481
    , contributor
    Comments (3) | Send Message
     
    I also noticed that there is no red chop in the tax forms. All Chinese know that forms without any official chop do not have any official power and equals zero. Did you know that?
    11 Feb 2011, 04:58 AM Reply Like
  • DairyLand
    , contributor
    Comments (20) | Send Message
     
    It is very certain that Mr. Chimin Sang forged data in order to tell lies and mislead investors (ccme-info.xanga.com/74.../). I used to follow his articles. Now he was found to forge data and cheat. I am very disappointed.

     

    I doubt people would continue to trust him after knowing him forging data and cheat.

     

    I am waiting for him to clarify the forged data issues. Otherwise, I consider Mr. Chimin Sang as a fraudster.
    11 Feb 2011, 09:16 AM Reply Like
  • shmiluy
    , contributor
    Comments (27) | Send Message
     
    你个傻逼骗子!操!
    11 Feb 2011, 10:27 AM Reply Like
  • dirkstraun
    , contributor
    Comments (13) | Send Message
     
    Is there something about the feedback you are receiving on your articles that you are having difficulty understanding?

     

    I haven't seen anyone as universally condemned for misrepresentation of the facts as you. Your brand is toast.
    11 Feb 2011, 10:30 AM Reply Like
  • saltydawg
    , contributor
    Comments (34) | Send Message
     
    SA ONLY lets you blog now huh?
    They retracted your obviously deceptive hit piece as it contained forged documents. whether you got swindled or forged them yourself.
    And just where do you rate any answers from the CFO of CCME? Especially after the afoorementioned article you so deceptively tried to use.
    You have yet to answer how you came to be in possession of Tax documents or explain that just like US counterparts, one just does not ask for IRS documents of a company and get them.
    When will you answer this?
    Your reputation is shot and until you PROVE you are not a liar and a cheat, noone will take your BLOGS seriously.

     

    And certianly noone will publish any articles until you PROVE you are worthy of publsihing. What fun, eh?
    11 Feb 2011, 10:34 AM Reply Like
  • JoeNatural
    , contributor
    Comments (1082) | Send Message
     
    I have an idea ..... let's see how many times you can re-post the same "hit piece." That said, I'm thankful for the $12.19's I picked up this morning.
    11 Feb 2011, 10:39 AM Reply Like
  • forzagrifo
    , contributor
    Comments (9) | Send Message
     
    It's so obvious that YOU are the fraud, Chimin. How on earth did you get the SAT filing huh? It's suppose to be non-public information. You just can't pull it out from the tax bureau. The info you present here is very suspect.
    11 Feb 2011, 10:42 AM Reply Like
  • BullMarket
    , contributor
    Comments (63) | Send Message
     
    Chimin:

     

    I bought more CCME today. You are an offshore criminal and a proven fraudster with zero credibility. I sure hope the Chinese authorities catch up with you before the US authorities do.

     

    -Andrew
    11 Feb 2011, 11:37 AM Reply Like
  • Chimin Sang
    , contributor
    Comments (294) | Send Message
     
    Author’s reply » Good luck with your purchase.
    11 Feb 2011, 01:57 PM Reply Like
  • v80alue
    , contributor
    Comments (14) | Send Message
     
    "For 2010, Global Hunter estimated that it would report $35.6m in tax, but the SAT number we have shows zero."

     

    Can you explain how did you get 2010 SAT ? I don't know when it is due but it can't sooner than April or May . Right ?
    11 Feb 2011, 03:30 PM Reply Like
  • Chimin Sang
    , contributor
    Comments (294) | Send Message
     
    Author’s reply » The report was obtained from SAT. I don't know why it came out so early myself, but apparently it is quite efficient there in China.
    11 Feb 2011, 08:04 PM Reply Like
  • DairyLand
    , contributor
    Comments (20) | Send Message
     
    Mr. Chimin, can you tell us how you got the SAT documents?
    12 Feb 2011, 01:58 PM Reply Like
  • Marty Chilberg
    , contributor
    Comments (579) | Send Message
     
    Here is an updated report with independent research for interested readers
    ghsecurities.bluematri...@ghsecurities.com&...
    17 Feb 2011, 09:51 AM Reply Like
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