ASIC has for years allowed revaluation fraud and circular investment scams, whereby a cartel of related companies uses crossholdings to inflate the reported assets based on which shares are issued to granny investors. The cartel manipulates the share prices of its members and performs internal circular sham transactions, loans and write-offs. By having cartel members trade at artificial prices with each other, false profits can be engineered and fraudulent balance sheets created. Nothing new under the sun; Ivar Kreuger used the same basic modus operandi in 1930.
One such circular investment scheme has been formed by Hudson Investment Group (HGL.AX), Hudson Resources (HRS.AX), Raffles Capital (RAF.AX), Sovereign Gold Company (SOC.AX), Precious Metals Resources (PMR.AX) and various associated unlisted entities such as Pacific Portfolio Investments. These parties have formed a criminal organization, the aim of which is to issue shares to granny investors based on fraudulent valuations. Crossholdings serve both to inflate NTA and to separate control from ownership, while internal sham transactions and revaluations create fake profits. The annual reports for the cartel members are all fraudulent, signed off on by auditor and cartel associate KS Black & Co.
The above figure shows crossholdings as disclosed in the cartel's latest fraudulent annual reports. True crossholdings are likely to be substantially higher, given hidden holdings through shell companies. These crossholdings are in and of themselves prima facie evidence of securities fraud, as directors using shareholders funds to build crossholdings with related parties are breaching their fiduciary duty, irrespective of whether such fraud is disclosed or not.