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  • China Integrated Energy: Investigators and KPMG Begin Sorting Through Evidence [View article]
    Some questions:

    - Do you think that any institutional long-only investor will touch any US-listed Chinese company, especially a reverse merger company, anytime soon? When faced with the headline risk and potential phone calls resulting from a scandal, do you think that any mutual fund will want to report owning a single share in any of these US-listed companies?

    - How long do you think the Chinese authorities will tolerate the VIE structure and US listing, given the headlines they are producing? Even The Economist wrote about this. I am sure they are fine as long as this just undermines the faith in the US capital markets, but now I think this has become an issue that makes China look bad as well.

    - After being embarrassed by Madoff, do you think SEC (and FBI) will allow these Chinese reverse mergers to remain listed and issue shares via private placements? What do you think they will do to the research firms, underwriters, hedge funds, stock spammers etc. that form the ecosystem that distributes these shares to public?

    - If you were a reputable auditor, how would you price your audit services to these Chinese firms? What's the usual price, $200k-$400k per audit (a pure guess)? Is there any reason why the big-4 auditors would allow their names to be used by these US-listed Chinese companies for anything less than say 10x the current prices? The auditors do have to protect their reputations, so perhaps they'll just refuse to audit these firms.

    I think part of being successful in investing is simply understanding which way the wind blows.
    Apr 10 02:18 PM | 1 Like Like |Link to Comment
  • Great Northern Iron Ore: At Least A 60% Return On The Short Side [View article]
    You'll make a lot money on the long side collecting the 16% dividend yield and, more importantly, the current share-lending rate of about 50% per annum. Just make sure that your prime broker doesn't cheat you out of those lending fees...

    Nov 18 10:25 AM | Likes Like |Link to Comment
  • China Sky One Medical: Impressive Results Are Suspect [View article]
    What's your definition of gross margin?
    May 19 09:36 AM | Likes Like |Link to Comment
  • Evidence Proves SCEI Chairman Fabricated Production Videos [View article]
    mfarm9 --

    I basically agree on the following point: If one makes allegations, one better be right. If one is wrong, the more serious the allegations the greater the potential trouble. If one is wrong and makes money shorting and then covering in the dip caused by false allegations, then one will really end up in hot water. This is how it should be.

    I disagree about whether this and other web sites are appropriate places for making well-founded allegations backed by some evidence. I think they are, mostly because what other venues do the bears have?

    I think there's a very strong built-in bullish bias in the system. The official Wall Street has very strong incentives to be bullish and look the other way if they see red flags. Think about the broker research on the RTO companies that had the auditors resigned, couldn't file audited financials, and were delisted. Was that insightful? Did they work hard to investigate red flags?

    In summary, I think the system will work better if the bears' views and evidence are broadcast more widely. I wouldn't try to block any channel for those minority views when the bulls control the Wall Street system.
    May 11 06:01 AM | Likes Like |Link to Comment
  • Evidence Proves SCEI Chairman Fabricated Production Videos [View article]
    I think that AL is right and this expose of these fraud companies will reduce the number of new frauds backing into shells in the US.

    By the way, the same PRC scam was run in Singapore 2007. If you want to see the future of how this ends, the script is available in the history books.
    May 10 09:34 AM | Likes Like |Link to Comment
  • Evidence Proves SCEI Chairman Fabricated Production Videos [View article]
    Google "go down fighting" by Owen Lamont. That study computes the historical average returns for firms that sue short sellers. I think it's useful for everyone here to know the base rate averages.
    May 10 08:24 AM | Likes Like |Link to Comment
  • Evidence Proves SCEI Chairman Fabricated Production Videos [View article]
    Don't you think that AL has earned quite a bit of credibility with calls such as CBEH? I agree that if he'd post under his own name, he;d be even more credible. However, at some point the track record can't be ignored, if he keeps on nailing it, anonymously or not.
    May 10 08:22 AM | Likes Like |Link to Comment
  • "Bash and Cover" The New "Pump and Dump" [View instapost]
    I think we have to agree to disagree here. Luckily, this is only theoretical for me! ;-)

    I think, again based on just a smart layman's interpretation, that the illegal use of insider information by people who don't work for the company in question is defined in the US based on the "misappropriations theory."

    Quoting your own web page (hitpieceresearch.com/L...):

    "Rule 10b5-2 clarifies how the misappropriation theory applies to certain non-business relationships. This rule provides that a person receiving confidential information under circumstances specified in the rule would owe a duty of trust or confidence and thus could be liable under the misappropriation theory."

    Also check out United States v. O'Hagan from I think 1997.

    Specifically in the case of short sellers and analysts finding fraudulent companies to short, please read: (www.sec.gov/news/speec..., this link is also on your web site):

    "Three years later in Dirks v. SEC,30 the Supreme Court reversed the SEC's censure of a securities analyst who told his clients about the alleged fraud of an issuer he had learned from the inside before he made the facts public. Dirks was significant because it addressed the issue of trading liability of "tippees": those who receive information from the insider tipper. Dirks held that tippees are liable if they knew or had reason to believe that the tipper had breached a fiduciary duty in disclosing the confidential information and the tipper received a direct or indirect personal benefit from the disclosure. Because the original tipper in Dirks disclosed the information for the purpose of exposing a fraud and not for personal gain, his tippee escaped liability."

    To me this makes it seem that if confidential information is revealed to expose fraud, it's not misappropriated.
    May 4 02:47 PM | Likes Like |Link to Comment
  • "Bash and Cover" The New "Pump and Dump" [View instapost]
    You clearly don't understand what insider information is. Most people don't, including myself, and there's a lot of legal clarity on what is insider information.

    It's not the case that trading on any material non-public information is insider trading. I think, and this is just my layman opinion about the law, that in most countries the insider information has to be obtained during the performance of an insider's duties at the traded company. There's the broader definition of insider trading that is based on trading using "misappropriated information," that is, stolen information. I think the US law is probably now consistent with this misappropriation theory.

    My personal opinion is that not only are the short sellers providing a valuable service to society by exposing these Chinese RTO frauds, they haven't misappropriated any information. Just my view.
    May 4 12:24 PM | Likes Like |Link to Comment
  • Shorting China Stocks Part of a Bigger Plan? [View article]
    Have you not revised your view at all over the last year as more information has come out about these companies? It's been really damaging, I think everyone would agree.

    MaloneyBailey, at the last moment before the audits going out this year, decided to institute an additional independent check of the bank account balances. This simple check caught 1/3 of their US-traded Chinese companies:9 out of 25 had counterfeited the bank statements submitted to the auditor. This is an extremely simple check that only catches the crudest kind of fraud, and look at the yield.

    How about 70% of stocks currently halted in the US trading venues being Chinese operations?

    My interpretation of the information out there so far is that the majority of US-listed Chinese small cap stocks are frauds. It's my opinion that the institutional investors will not touch these kinds of stocks again for a long, long time even if some of those stocks survive the coming purge.

    So, isn't it obvious which way the wind blows?
    Apr 10 03:50 PM | Likes Like |Link to Comment
  • Shorting China Stocks Part of a Bigger Plan? [View article]
    I think that it is a useful research technique to follow the networks of actors from one fraud to another. It's a reasonably small cast of characters.

    Has SAM Sustainability Asset Management caught many of these Chinese frauds in their portfolios? Has anyone tracked how they are faring? I am sure they are getting a lot of phone calls if they catch even just on in their portfolios, and 13-F's say they may have caught more than one.

    On DGW: www.muddywatersresearc.../
    Apr 10 03:02 PM | Likes Like |Link to Comment
  • 12 Signs and 158 Reasons Investors Should Avoid Chinese RTO Stocks [View article]
    I have also noted that Rentec owned a lot of Chinese RTO's as of 12/31/10.

    I wouldn't be surprised if the Rentec's trading system does one of the two following things or both:

    1) Assumes that the SEC filed financials are correct with the same probability as in the whole sample

    2) Buys any sort of beaten down stocks for a temporary bounce around the quarter and year ends
    Apr 4 11:49 PM | Likes Like |Link to Comment
  • Analyzing Gradient Analytics (BVF, RACK) [View article]
    Time for Chad Brand to congratulate Donn Vickrey on the RACK call, and admit that at least in this case the market underreacted to the bad news in the financials.
    Sep 8 07:17 PM | Likes Like |Link to Comment
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