Saturday, 22 March 2014

Catcha Group related party fraud

Catcha Group is a private Malaysian investment company that holds stakes in several loss-making related companies on the ASX, with this cartel inflating incomes and assets with sham related party transactions. The cartel has issued millions of shares based on cooked books. The Catcha Group cartel includes iProperty Group (IPP.AX), iCar Asia (ICQ.AX) and iBuy Group (IBY.AX) on the ASX, as well as Catcha Media Berhad on the Malaysian stock exchange. The extremely poor underlying operational performance of these internet businesses is irrelevant to their use in securities fraud.

The cartel's reported net incomes have been fraudulently inflated by sham related party transactions. In September 2012, IPP sold Indonesian car sales portal Mobil123 to ICQ for scrip, recording a $2.2m book profit on the transaction. Without this related party transaction, IPP would have had twice as large a loss in 2012. In October 2013, IPP sold the ramped holding of ICQ to cartel associate Acorn Capital, making a gain of $5.0m. Without this related party transaction, IPP would have reported a loss in 2013 instead of a maiden profit of $1.7m. The reported net income of IPP is more affected by its sham related party transactions than by its operations, as a statement of fact.

Fund associates of the cartel include Acorn Capital and a group of Australian listed investment companies headed by Australian Foundation Investment Company (AFI.AX). These funds cooperate with the Catcha Group criminals to ramp the tightly held shares of the ASX-listed cartel companies IPP/ICQ/IBY, generating unrealized profits for the funds involved. The fund operators charge real cash fees based on such fraudulently engineered unrealized profits. Since inception, IPP has been ramped 15X and ICQ has been ramped 7X. In the last year alone, IPP has been ramped four times over, ICQ has been ramped three times over, and IBY has almost been doubled.

This leads to commensurate unrealized profits for cartel fund associates AFI, Mirrabooka Investments (MIR.AX), Contango Microcap (CTN.AX) and Acorn Capital. For some of these fraudulent investment companies, this scam alone accounts for a significant proportion of their yearly (unrealized and fraudulent) profit. IPP has now been ramped to the point of inclusion in the S&P ASX 300 index, allowing the criminals to pass off some the junk cartel assets to funds that are mandated to purchase such indices. The annual reports for the cartel companies contains sundry other accounting fraud. In note 23 of its inaugural financial statements, IBY reports the following goodwill for the related party "assets" it purchased in late 2013:
  • $23.8m goodwill for Buy Together Hong Kong, an "asset" contributing a $141K loss for the period.
  • $40.6m goodwill for Dealguru Holdings, an "asset" contributing a $244K loss for the period.
  • $12.1m goodwill for Dealmates, an "asset" contributing a $29K loss for the period.
IBY has total reported assets of $93.7m, with goodwill accounting for $77.6m. But don't worry, in note 12 of the financial statements the IBY directors solemnly declare they have impairment tested said $77.6m of goodwill and found everything in order. The directors do not list the assumptions necessary for reconciling their cash generating units with a $77.6m value, but since IBY's auditor signed off without remark the assumptions must of course be entirely reasonable and non-fraudulent.

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