Sunday, 9 March 2014

The seedy business of SOL Holdings Corp

SOL Holdings Corp (6636.T), formerly Syswave Holdings Corp, is a failing Tokyo-listed semi-conductor business turned fraudulent investment company. With a $30m market cap, SOL Holdings has a legacy of loss-making operations in a potpourri of industries, now deriving "profits" from sham related party transactions. In 2013 Brunei-based private company Greenfields Holdings Limited emerged as new top shareholder and SOL Holdings purportedly focused on agricultural business, acquiring Sorghum Japan from Marvel Seeds for JPY500m.

SOL Holdings props  up its recurring operating losses with fake "profits" from sham transactions with related parties. In September 2012, SOL Holdings announced a "business alliance" with RealVision Inc (6786.T), acquiring a 16.3% stake. In November 2012, SOL Holdings announced an "enhancement" of the alliance, upping its stake in RealVision to 32.2%. As part of this "enhancement", SOL Holdings sold Soar System to RealVision for JPY251m, having previously bought Soar System in 2009.

In November 2012, SOL Holdings announced it was purchasing JOBU Corporation, engaged in database system structuring, dispatching and data deletion, for JPY100m. In December 2013, SOL Holdings announced it was selling JOBU to RealVision for JPY300m. This sham related party transaction created JPY200m in fake "profit", with SOL Holdings tripling its money on paper in little over a year. Without this fraudulent transaction on its books, SOL Holdings would have been forced to report even greater losses.

The share price of SOL Holdings is currently manipulated by the entities controlling the company, leading to the familiar pattern of long-term shareholder value destruction interspersed with sharp sudden ramps to benefit insiders. This includes an unexplained three-fold spike in the share price in 2013. SOL Holdings is now starting up international subsidiaries with which to commit further related party fraud. In March 2014, ASX-listed and perennially value-destroying investment company A1 Investments & Resources (AYI.AX) announced it was acquiring all outstanding shares of Marvel Seeds for $5.5m.

This scrip transaction equates to a reverse takeover, given that AYI has a market cap of around $500K and negative net assets of A$1.1m, according to its latest half yearly report. According to AYI, Marvel Seeds retains a "sales agreement" with SOL Holdings, promising $13m of sales in 2014 from this related party. The "profit" created by "transactions" between SOL Holdings and its cartel members can then be used to justify the true purpose of the scheme; issuing shares to hapless investors based on fraudulent accounting.

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