Understanding SAIC and SEC Filing Discrepancies for U.S. Listed China Based Companies – Avoid Being the Victim of Stock Short Sellers

Recently, some investors interested in investing in U.S. listed China based companies have expressed concerns over discrepancies often found in the financial statements between certain Chinese companies’ State Administration for Industry and Commerce (SAIC) filings in China and their U.S. SEC filings. Investors often quickly conclude that a company’s underlying operating entities in China must be fraudulent in inflating sales and earnings, and that their SEC filings in the U.S. may not be relied upon for accuracy.
On the contrary, it is highly unusual and it should cause real concerns to investors if SAIC filings DO match a public company’s SEC filings. Investors may lack basic understanding of China’s corporate registration processes and therefore are comparing very different items. It is important to understand why it would be incorrect and ignorant to allege companies as frauds based on SAIC documents.
Background: Stock short sellers intentionally created the SAIC and other “China concerns” in order to scare investors and put undue pressure on stock exchange regulators who diligently maintain the integrity of the U.S. financial markets
Stock short sellers have originated and are behind such accusations related to China based companies listed on U.S. stock exchanges. One loud mouth on the opposite side of the investing public’s interest is a guy by the name of Manuel P. Asensio and his asensio.com, an admitted short seller. Manuel Asensio is a balding Cuban immigrant, deeply frustrated and hostile towards FINRA and the SEC regulations. He credits himself as the “Godfather” of stock short seller in America. Research shows Asensio lives in a “shadow”. On his website, he provides no contact information and he maintains a long disclaimer page stating that he does not provide any assurance of accurate information on his website and neither could he confirm the publisher of those negative articles and lies is actually him, despite the fact that he is a one man operator. Why should anyone go to such length to hide his identity from the general public? According to public records available at the SEC’s Enforcement Division, stock short seller Manuel Asensio is barred from the U.S. securities industry for life.
A simple search of SEC enforcement cases at the SEC website: www.sec.gov reveals shallow characters of Manuel Asensio. Manuel Asensio is barred for life from the U.S. securities industry. The bar decision was cited by FINRA (Financial Industry Regulatory Authority)’s claim against him as early as in 2003. FINRA charged that as a stock broker and stock promoter, Manuel Asensio published misleading research reports by recommending short selling of public company shares and then refused to cooperate with federal investigations. Asensio’s small brokerage firm was shut down by U.S. securities regulators in 2006.
On June 17, 2010, the SEC issued an order against Manuel Asensio in support of FINRA’s decisions to bar him from the securities industry. The SEC order stated “...Manuel P. Asensio, formerly a registered representative associated with Asensio Brokerage Services, Inc. ("ABSI" or the "Firm"), a former NASD member firm, of a 2006 NASD decision barring him from association with any NASD member (the "2006 Bar Decision") and a 2008 FINRA denial of an application for him to associate with another member firm (the "2008 Eligibility Denial Decision").” SEC and FINRA enforcement actions against Manuel Asensio are available at the SEC’s website: http://www.sec.gov/litigation/opinions/2010/34-62645.pdf http://www.sec.gov/litigation/opinions/2010/34-62315.pdf
Asensio appears to have plenty of enemies. A website (http://www.asensioexposed.com/) has collected plenty of “dirty laundry” on Manuel Asensio. It is enlightening to learn how a short seller manipulates the U.S. public markets.
In the U.S, someone who is barred from association with the securities industry is as “dirty” as it gets. Short seller Manuel Asensio has earned that. Short sellers and other dirt bags such as Manuel Asensio have played the same tricks on the American capital markets by manipulating both public companies and stock exchange officials. Shareholders value is destroyed in the process. Integrity of the U.S. capital markets is jeopardized by these market manipulators. Short sellers have one goal in mind – stealing from the general public and totally discrediting the American system of fairness and disclosure. It is time to learn about the facts.
China’s State Administration for Industry and Commerce (“SAIC”) has no authority in overseeing the financial status of a business in China
It is incorrect to refer to SAIC filings as a Chinese company’s “tax authority” and make accompanying accusations regarding tax evasion or derive judgment on a company’s financial status. The SAIC’s function is like the “Office of the Secretary of State” at the state levels in the U.S., whose primary responsibilities include business registration, issuing permits, and maintaining corporate status of a business. Here is how it works: Chinese companies are required to file annual tax returns with local tax bureaus. A similar set of filing documents are submitted to the local SAIC branch office within the jurisdiction where a business is physically located. That is the very extent of the SAIC’s involvement in a company’s financial records. What does the SAIC office do with the documentation? It gets filed away and there is nothing more beyond that. The SAIC filing is a simple formality to show that a registered business has filed its annual tax returns, which is a requirement for a business to maintain good corporate standing. In addition, SAIC has tens of thousands of branch offices across China that each provides varying lengths of information solely related to a business’s local registration status. There are more than 50 million registered businesses in China and all of them must register with their SAIC local branch offices before they can start doing business.
For a Chinese company, a “Certificate of Tax Completion” is all that is needed to satisfy a company’s financial and tax filing requirements
State Administration of Taxation (“SAT”) is the only Chinese government agency that has the legal authority to collect corporate taxes and receives annual financial reports of a business. SAT has tens of thousands of local branch offices across China. Corporate tax reporting in China is a local event, filed by a business within the jurisdiction of an SAT office where the business is physically located. Once a business makes its tax filings, the local SAT office issues a “Certificate of Tax Completion” to the business which provides evidence that its tax filings are complete and accepted, and that the business has satisfied all of its tax and financial reporting obligations.
Unlike the SEC, the SAT or SAIC does not require a holding company to file consolidated financial statements.
If a SEC reporting parent company owns multiple subsidiaries or factories that are not all located in the same physical location, then each subsidiary has to file its own tax returns separately with a local tax bureau where the subsidiary is located. Each subsidiary makes its own tax filing that is independent from its other related subs. There is no such a thing as a consolidated tax return filed with either the SAT or SAIC at the holding company level. Therefore, for a parent company that owns multiple subsidiaries, pulling a tax return on one subsidiary certainly does not represent the holding company’s financials. In the case of U.S. listed China based companies; all of them have multiple subsidiaries located in China. Until all of a holding company’s subsidiaries are consolidated into one financial statement, simply by adding up the financials of each subsidiary does not equate to the financials filed by the holding company, represented as an entire organization through its SEC filings.
On the other hand, a holding company’s auditor reconciles tax filings, sales receipts, and other public and nonpublic financial evidence to produce SEC and U.S. GAAP required financial statements. Experienced auditors in China are well aware of this issue. Further, adjustments are made for differences between U.S. and Chinese GAAP, related party transactions are also eliminated in the process to avoid double counting. Thus, SEC filings are indeed the accurate and reliable proxy for a U.S. listed company’s financial performance.
A company’s tax filings with a local tax authority cannot be obtained by third parties through legal means.
By law, business tax filings are not publicly accessible. It would be impossible for anyone outside a business itself to have legal access to its SAT tax filings since the data is not publicly available and confidentiality is strictly preserved by the government agency. It is certainly illegal and a criminal act to trade or disperse rumors based on such nonpublic information. Many so-called China “sources”, often backed by stock short sellers, tout their abilities to get purported financial reports filed with the SAT on any U.S. listed China based company. These are illegal claims. We have seen forged documentation and false accounting records “conveniently gathered” by stock short sellers. Also as discussed earlier, no consolidated financial statements exist for a holding company in China. Even if a tax filing of a subsidiary company is illegally obtained, it does not reflect the accurate financial records of the U.S. listed holding company.
SAIC filings are not consolidated financial statements and each subsidiary often includes inter-company transactions
As an example, for a vertically integrated manufacturing business, it is common for subsidiaries to transfer revenues and expenses within the same organization for allocating profits to entities that are legally subject to lower tax rates or for the purpose of simply following a manufacturing production process. To avoid double counting, professional auditors consolidate all of a holding company’s subsidiary financials after inter-company transactions are eliminated. Therefore, financial reports obtained from SAIC or SAT are absolutely not correct reflection of a publicly traded holding company’s financial statements.
SAIC filings have no relevance to the credibility of a company’s public filings filed with the SEC
As long as a holding company structure is involved, the SAIC and SEC numbers cannot possibly match except under an extreme circumstance in which a public company has only one wholly owned operating subsidiary and there are no inter-company transactions of any sort, including expenses, different revenue recognitions under Chinese and U.S.
GAAP accounting etc. at the parent company level. Presently, no such China based company exists on any U.S. stock exchange.
Any concern over SAIC filings is just one example of the many areas that investors are just beginning to learn about Chinese business practices. Be wary of less professional advice from amateur or anonymous sources that often have untold self-interest behind some seemingly legitimate arguments. There are often stock short sellers behind many “sudden discoveries of fraud” at a legitimate publicly traded China based company.
At New York Global Group, our 17 year experience in executing more than 200 China related projects has helped us identify traits that are fundamentally critical for growth oriented companies with strong corporate governance. Due to our stringent client acceptance criteria, we accept only 1% of the hundreds of China based companies that we review each year as clients.
For investors as well as stock exchange regulators, gaining better understanding of China’s complex cultural and business aspects are among the right steps one should take. During the learning process, it is important to be mindful of stock short sellers who are always hiding somewhere in the shadow waiting for opportunities to destroy American shareholders value.

2010年以来超A股IPO超募金额相当于融资计划的150%

2010年以来上市的353只股票募集资金5012.22亿元，而超募资金达到了3080.30亿元，占募集资金的比例为61%。即超募资金相当于IPO计划规模的近150%。由于缺乏合适的投资项目，这些超募资金多数存放在银行，少数购买了房产、转为流动资金等。A股IPO超募的根本原因是高价发行，大股东持有的股票市值膨胀带来的利益远远大于股权被摊薄的损失。2000－2001年，A股 市场也曾经以非常高的估值大量发行了一批股票，这些上市公司在随后的熊市中给投资者带来的巨大的损失，也动摇了中国股市的根基。正常的，有发展前途，多方 共赢的资本市场应当是有发展前途但缺乏资金的企业通过非常顺畅的渠道，以合理的价格融资，原股东和新股东共享企业的成长。但目前A股市场的高估值、大比例超募，基本排除了新股东取得长期回报的可能，迅速暴富的企业家也必然降低努力创业的动力。而A股市场也因为被不断“抽血”而跌跌不休。中国资本市场应尽早割除大比例超募这个“肿瘤”。(转)

阎焱：未来十年中国将是VC/PE的乐土

新浪创业讯 软银赛富基金主管合伙人阎焱在3月18日举行的2010 ChinaVenture中国投资年会上表示，收益于中国相对廉价的劳动力和强劲增长的国内消费市场，未来十年中国将成为VC/PE的乐土。

阎焱认为中国的VC/PE在未来十年内整体的平均回报会高于其他国家的同类资产，甚至会高于国内其他行业的平均回报。但与此同时他也表示：“中国的VC /PE的风险也高于其他国家和其他行业，这个行业不能只看到赚钱的风光。所有的GP投资人都有流血的时候，也有赔钱的时候。”

对于当下大热的人民币基金，阎焱认为尽管已经占据了国内私募股权投资基金的半壁江山，但这个行业是一个需要经验积累的过程，并不代表就一定能够赚钱。同时他认为国内机构投资人尚未形成，真正意义上的LP在全国目前只有一家。

谈到PE/VC面临的机遇时，阎焱表示中国巨大的市场为风投基金提供了源源不断的项目，人民币基金面临的前所未有的机遇，从中央到地方政府在历史上第一次大规模的提供政策支持，而整个社会也逐渐认识到股权投资确实是能够赚钱的。

此外，阎焱认为中国第一代的富豪们基本上是第一代的创业者，缺少让专业投资机构代其管理财产的意识和文化。而一些非常有远见的创业者尽管开始介入私募股权基金，但是基本上让他们的下一代在负责和经营，缺乏必要的市场经验。(王霄 发自上海)