Friday 28 February 2014

AG Financial and the Avestra circular investment scam

AG Financial (AHA.AX) is part of a circular investment scam run by criminals from Avestra Asset Management. Formerly known as Excela (EXA.AX), AHA was taken over by Avestra, and funds under its management siphoned into Avestra funds, including Avestra Advantage and Worberg Global. These funds then acquired significant stakes in the illiquid AHA, which was ramped to create unrealized sham profits. AHA effectively used funds under its management to "invest" in itself.

This crossholding fraud might be too blatant, even for Australia, if Avestra funds showed up in disclosure documents as majority owners of AHA. It was thus necessary to find cartel ratholes and perform sham transactions. Today AHA released a number of substantial shareholder statements from the cartel. The Avestra funds Canton Mackenzie and Avestra Advantage reported selling 34.5m and 29.3m AHA shares, respectively, on 21 February and 24 February 2014, at $0.035 per share.

http://www.asx.com.au/asxpdf/20140228/pdf/42n2l1kpwppfhq.pdf
http://www.asx.com.au/asxpdf/20140228/pdf/42n2l382flrc13.pdf

Substantial shareholder statements from hitherto unknown entities China Thrive Investments and Infinito Capital reported purchases of 34.5m and 29.3m AHA shares, respectively, on 21 February and 24 February 2014, at $0.045 per share. This leaves $638,000 "mysteriously" missing and unaccounted for.

http://www.asx.com.au/asxpdf/20140228/pdf/42n2m2tj0g0gyg.pdf
http://www.asx.com.au/asxpdf/20140228/pdf/42n2lzf591sgq8.pdf

The substantial shareholder forms for China Thrive Investments and Infinito Capital were filled out in identical handwriting. The forms, ostensibly submitted by non-associated parties, were filled out by the same person. Not much more is known about the enigmatic entities that now apparently hold 37% of outstanding AHA shares. China Thrive Investments previously showed up as a substantial shareholder for the AIM-listed Chinese shadow banker Adamas Finance Asia. This BVI-incorporated entity holds interests in four special purpose vehicles, which in turn holds interests in four Chinese businesses.

http://www.investegate.co.uk/aim/rns/sch-1-china-private-equity-investment-holdings-ltd/201402050959403482Z/
http://www.adamasfinance.com/index.php

In general, substantial shareholder notices in Australia are considered entirely voluntary, since there is exactly zero enforcement. Some entities do not submit these forms at all. Some choose to omit certain information, such as consideration paid, while others submit a range of possible values. Anything goes. For example, the recently ramped Australian Bauxite (ABZ.AX) was 44% owned by crossholding fraud Hudson Resources (HRS.AX), according to its 2013 annual report. HRS then sold its stake gradually, to parties that by and large have declined to submit substantial shareholder notices.

iCar Asia iCooks its iBooks

Goodwill and other intangibles are commonly used to inflate book assets, overstate profits, and justify fraudulently obtained executive bonuses. The classic method of this fraud goes as follows:
  1. Directors go on an acquisitive spree, buying overpriced companies and booking goodwill
  2. The purchases boost "assets" and "profits", leading to executive bonuses and effusive backslaps
  3. Inevitably the worthless goodwill must be written off, but this loss is labelled "non-recurring" and "non-cash", and most importantly, is not included in the "underlying profit" on which bonuses are based
Some companies ludicrously claim "underlying profit" significantly exceeding "actual profit" for decades. "Underlying profit" basically means whatever number the directors feel like, and likewise intangibles can be freely inflated. This goodwill hustling is common knowledge in the finance industry and entirely condoned by regulators and media.

Australian companies must regularly test their goodwill for impairment, a process which they predictably have turned into travesty. The impairment test usually involves a discounted cash flow (DCF) analysis using inputs that have no basis in reality. Cash flows are forecast and discounted for several years ahead, with a terminal value added by assuming subsequent eternal growth. As any junior investment banker can attest, DCF valuation is notorious for its sensitivity to inputs. The advantage of DCF is that you can arrive at any final number you wish, by minor tweaks to growth or discount rates.

In Australia, directors choose blatantly fraudulent inputs to these calculations, with no objections from auditors or regulators. One of the most extreme examples is iCar Asia (ICQ.AX), part of the iProperty group revaluation fraud and circular investment scam. In its annual report to December 2013, iCar reported losses ballooning to $6.9m on less than $1.8m revenue. iCar reported net assets of $17.6m, of which intangibles accounted for $6.7m. After heavy ramping by cartel owners, iCar sports an entirely reasonable "market" cap of around $200m.

http://www.asx.com.au/asxpdf/20140227/pdf/42n0y4cmlkl4pl.pdf

Page 42 of this report reveals the inputs the directors used for impairment testing of iCar's $4.7m goodwill. Presumably with a straight face, the directors assume revenue growth rates of 203% for Malaysia, 376% for Thailand, and a staggering 4766% for Indonesia. Terminal growth rates of 3%, 4% and 6% were assumed for the three countries, respectively, after the forecast period. For perspective, let's say little Johnny runs a lemonade stand, achieving $1000 in annual revenue. After four years with a 4766% revenue growth rate, little Johnny's lemonade stand would be bringing in $5.6 billion.

This is sufficiently divorced from reason and reality to constitute fraud. The auditor of iCar should never have signed off on this. By putting his name to this annual report he committed a criminal act and became an accomplice to securities fraud.

Thursday 27 February 2014

The game theory of oligopoly pricing

Every single spruiker of the sharemarket explicitly or implicitly assumes a high degree of market efficiency. Absent market efficiency, there would be no benefit to making even the "right" investment, as you could not expect price rises to follow improved fundamentals, and investing would make no sense. Efficiency is what separates a "market" from a "scam". In the absence of market efficiency, there is no possible justification for allocating a single cent of pension money to the sharemarket. Market efficiency is assumed when using market prices as the best available estimate of value. In fact, it does not even make sense to talk about "market prices" without assuming a high degree of market efficiency. The market tautologically is efficient.

There are a number of necessary conditions for an efficient market, some of which are esoteric (homoscedasticity) and most of which are patently untrue (rationality of expectations). The most basic yet often overlooked assumption is that of many buyers and sellers, none of which individually can move prices. If a market has but a few participants, that individually affect prices, market efficiency can not be assumed.

A large and growing number of shares in the Australian market now have such concentrated ownership they can not be regarded as trading at a "market" price. Major fund managers often dominate the share registers and without any question individually affect prices. The efficient market framework is not helpful for such an oligopoly of market-moving players. The reason for this is that in an oligopoly, player actions affect prices as well as the decisions of other players. Analysis of oligopolies thus necessitates game theory. In an efficient market there is no such need, as individual buyers or sellers have no impact on price, and thus no impact on each other. The game theory of oligopoly markets has both competitive and cooperative aspects. Repeated interactions among the oligopoly players increase the likelihood of successful cartel cooperation.

Such mechanics will be most obvious in the case of an illiquid share held by a small handful of players, with a current "market" price far above any reasonable fair value. Assuming an efficient market, each player would have an incentive to sell relentlessly. In an oligopoly framework, each player would realize such a decision's effect on price and on other players, and have an incentive to not collapse the book value of their holding.

The rise of investing intermediaries such as fund managers (as opposed to direct personal ownership) has separated ownership and control, and introduced a separate set of incentives that ultimately distorts prices. Since financial intermediaries derive cash fees from unrealized profits, there will be a systematic bias toward ramped prices unsupported by fundamentals. A market dominated by a few major financial intermediaries will thus be much more predisposed to boom-and-busts, as opposed to a market with highly distributed direct ownership. Boom-and-bust is embedded in the very fabric of the current market structure. Laws that by design funnel pension money to financial intermediaries exacerbate the problem.

Wednesday 26 February 2014

OMI Holdings (OMI.AX) launches new revaluation fraud

OMI Holdings (OMI.AX) is a failed investment company, headed by operators with unparalleled skill at shareholder value destruction. After unsuccessful ventures ranging from medical products to graphite mining, OMI reported accumulated losses of $41m in its latest half yearly report to December 2013. OMI was seemingly approaching the end of its misery. The same report revealed OMI had net assets of $281,917, most of it in cash. OMI had 14m near worthless shares outstanding, suspended from trading on the ASX.


But OMI still had value as a vehicle for securities fraud. Today OMI announced it was buying iSentric from Donaco International (DNA.AX), by issuing around 252m shares. This iSham transaction would price iSentric at $12m, and thus engineer a value for OMI of $14m out of thin air. The fraudulent transaction thus instantly turns less than $300K into $14m for the criminals running OMI.

For their part, the operators of DNA purchased iSentric for $8.5m in June 2013, naturally using inflated DNA shares. The sham transaction with OMI thus creates $3.5m in fake profits, constituting a 41% book gain for the criminals running DNA, as boasted in an ASX announcement. A single shareholder controls 66% of the 377m DNA shares outstanding. DNA's recent grotesque ramp, share issuing and scrip acquisitions are reminiscent of the Blumont scam.


According to ASIC this is not a ramp, but rather a magical mystery, in a market ASIC does a great job regulating. Meanwhile, the yawning chasm between ASIC's self-perception and reality continues to widen, making any meaningful reform yet more unlikely.

Friday 21 February 2014

Chinese government entity starts ASX-listed securities fraud

The first IPO using ASX's new BookBuild facility turned into a farce, as it was used by Chinese investment companies to launch a new securities fraud. U&D Coal Limited (UND.AX) purportedly sought to raise $125m by selling 250m shares, constituting 20% of the company. In reality, this was a sham IPO taken up entirely by the existing owner cartel, not performed for the purpose of raising capital for a business, but performed solely to create a fake "market" price. This inflated "market" price, endorsed by the mongooses at ASIC, engineered a pre-IPO fantasy value of $500m for UND out of thin air, creating vast fake unrealized profits for the cartel owners. With 1.1bn shares outstanding, the top 20 shareholders own 99.8% of UND.

http://www.asx.com.au/asxpdf/20140217/pdf/42ms05qlzddn2g.pdf

More than 99% of UND is owned by a cartel of three related entities. Australian Kunqian International Energy, a subsidiary of China's state-owned Henan Energy Chemical Group, owns 55% of UND. China Kunlun International Holding and Golden Globe Energy own a further 44% of the company, with these two mysterious entities sharing the same British Virgin Island P.O. box address and rathole director.

http://www.asx.com.au/asxpdf/20140221/pdf/42mwvk2qx7brk4.pdf
http://www.asx.com.au/asxpdf/20140221/pdf/42mwvng9ymlwz0.pdf

The ASX BookBuild facility raised $50,097,000 from the sale of 100,194,000 shares. Of these, the abovementioned Australian Kunqian bought 100,000,000. Another 150,000,000 shares were directly issued to the other two cartel members. Hilariously, the financial media still hailed this as a fine IPO, pretending UND now trades at a market price and shilling the share to granny investors.

http://www.theaustralian.com.au/business/markets/first-asx-raising-nets-50m/story-e6frg916-1226789138380#
http://www.theaustralian.com.au/business/latest/coal-firm-edges-higher-on-asx-debut/story-e6frg90f-1226831758004

To reiterate, a share can be 99.2% owned by three related entities based in BVI, and the cretinous sub-humans of Australian financial media will still pretend it trades at a "market" price. The media will shill literally any stock, no matter how obviously a vehicle for securities fraud. Prior to its sham IPO, UND bought Endocoal (EOC.AX) for $71m, using funds borrowed from China Construction Bank Corporation. According to page 3 of its annual report, a condition for this debt facility was that UND list on the ASX within a year.

http://www.asx.com.au/asxpdf/20140217/pdf/42ms0gb1ywrp4f.pdf

The directors at UND include Dongsheng Wu, Mr Wang and Dr Dickie. But there is conflict brewing in the sausage factory, with Kunqian about to replace the board.

http://www.asx.com.au/asxpdf/20140219/pdf/42mthd1bhf8l7k.pdf

This inadvertently hilarious ASX disclosure plaintively describes the Company as being "utterly surprised and disappointed by this action". Heartbroken, the Company laments that "Kunqian has given no proper account of its conduct or decision."

Monday 17 February 2014

Platinum Partners Limited launches new Australian circular investment scam

Platinum Partners Limited is an American hedge fund that engages in share manipulation, related party fraud and circular investment scams run by overseas listed investment companies. An openly criminal organization, Platinum Partners is associated with the Blumont group securities fraud, and helped this cartel of Singaporean listed investment companies manipulate the price of each other and their "investments". Before the "mysterious" October 2013 crash of the Blumont cartel, Platinum Partners was reportedly set to inject a further US$560 million into shares issued by the cartel. After the collapse, Platinum Partners instead provided funds in the form of convertible bonds, proving there is more than one way to skin a cat or fleece an investor.

http://www.themalaymailonline.com/money/article/platinum-partners-invested-in-asiasons-blumont-liongold-before-share-collap
http://www.reuters.com/article/2013/10/18/blumont-convertible-bonds-idUSL3N0I804D20131018

This blatant fraud was supported, legitimized and encouraged by regulators in Australia, Singapore, Malaysia and the United States. Even after receiving detailed information about the fraud, the regulators' sole action was to help the powerful criminals hide their tracks, proving conclusively the extent of regulator complicity in these crimes. These frauds continue unabated, with Merlin Diamonds (MED.AX) today announcing Blumont is making an "investment" in the company.

http://www.asx.com.au/asxpdf/20140217/pdf/42mrqjt6cy9w8f.pdf

Platinum Partners is now helping Malaysian listed investment company Notion VTec Berhad launch a circular investment scam using the ASX-listed Alcyone Resources (AYN.AX). Platinum Partners "lent" money to AYN, which then "bought" assets from Platinum Partners, while Platinum Partners also "invested" in AYN shares. AYN can no longer be considered a mining company, but now functions as a vehicle for securities fraud, performing sham transactions and revaluations with related parties.

http://www.asx.com.au/asxpdf/20131211/pdf/42lk3dsjj801kp.pdf

Notion VTec Berhad recently became a "cornerstone investor" in AYN, taking up a 20% stake as the loss-making AYN issued a veritable tsunami of shares. Trading at around $0.001-0.002, AYN now has close to 7bn shares outstanding, and so it is likely that the criminals will effect a share consolidation and a share ramp. AYN of course has been repurposed as a "listed investment company", making its first "investment" in loss-making Black Mountain Resources (BMZ.AX), using the funds helpfully "lent" by Platinum Partners.

http://www.asx.com.au/asxpdf/20131224/pdf/42lvx0ql8hrlqb.pdf

This follows the fabulous and entirely unexpected news that Northern Mining (NMI.AX) has become a listed investment company too, by establishing investment subsidiary NMI Limited in the Seychelles.

http://www.asx.com.au/asxpdf/20140211/pdf/42mn9c7g0vv24b.pdf

This means parties unknown invest in Provenance Finance BVI, which invests in Northern Mining, which invests in NMI Limited, which invests in "opportunities".

Monday 10 February 2014

Co-Investor Capital Partners ramps Digital Performance Group

Co-Investor Capital Partners is a criminal investment company that manipulates the share prices of the chronically underperforming companies held by its various funds. Co-Investor owns at least 78% of Digital Performance Group (DIG.AX) according to disclosure documents, with the top twenty shareholders of DIG holding 91%. Over the last decade, DIG has a consistent track record of losses and shareholder value destruction, while issuing close to a billion shares. This is an almost comically poor company.


But DIG's catastrophic operational performance is irrelevant, since DIG is simply a vehicle for securities fraud. Co-Investor associates have been installed as management, reaping several million dollars a year from the failing company. Co-Investor currently controls the "market" price of DIG, intermittently ramping the price to create unrealized profits and to provide opportunities for insiders to cash out. In October 2013, Co-Investor and its accomplices ramped DIG sixfold, after issuing free "performance options" to insiders.


According to ASIC, this is not a ramp because ramps don't exist. According to ASIC, this is just a magical market mystery, an inexplicable and marvellous occurrence. Therefore, ASIC needs to take no action about this securities fraud, and Co-Investor Capital Partners can continue falsifying its accounts to attract new granny investor victims for its funds. Naturally, the long-term performance of DIG follows the standard Australian pattern for manipulated companies, namely long-term catastrophic shareholder value destruction interspersed with sharp ramps to benefit insiders. Co-Investor's other "strategic block investments", such as Eureka Group Holdings (EGH.AX), follow the same exact pattern.

In August 2013, the Co-Investor criminals announced they were looking to perform sham transactions between their owned companies, creating crossholdings to inflate book values. This related party fraud would see DIG acquire several of the other failing "investments" held by Co-Investor funds, using its ramped shares as payment.

http://www.asx.com.au/asxpdf/20130813/pdf/42hmkmx8d6d60v.pdf

ASIC freely allows circular investment cartels to defraud granny investors and protects the criminals. At this point, ASIC can no longer can be construed as merely incompetent, but must be regarded as treasonous.

Thursday 6 February 2014

Provenance Finance ramps Northern Mining

When an investment vehicle makes a large investment in a share with low liquidity, the purchase by itself pushes the share price higher, leading to unrealized profits. This would seem obvious, that an entity purchasing all offered shares affects the price, but everyone pretends this is not the case. When a fund ramps a share by making large purchases, media shills regard this as great "stock-picking", as if the ramp was completely coincidental to the large purchases. Of course, smallcap funds can't actually sell their holdings at ramped book prices, since selling would lower the share prices. Unrealized and unrealizable profit explains why 90% of Australian smallcap funds outperform their index, the "outperformance" is entirely manufactured by themselves.

But why would an investment entity want to ramp a holding? Fees are charged based on unrealized profits, and ramped holdings can be used to borrow against or inflate the books of an associated company. Most commonly, however, the investment entity is issuing shares or units based on the ramped holdings, effectively selling the ramped holdings to hapless investors. Ramps accompanying new investments in Australia have largely dispensed with such formalities as pretexts.

On 9 August 2013, Provenance Finance Limited BVI was issued 87m shares at $0.006 in Northern Mining (NMI.AX) and took control of the board. In August and November 2013 NMI then issued 502m shares at $0.012, bringing total shares outstanding to 938m. Based on no news whatsoever NMI's share price was ramped tenfold in sharp steps, from $0.006 in June 2013 to $0.06 in February 2014. The "profit" created for Provenance Finance and associates holding NMI shares has nothing whatsoever to do with "stockpicking".


As part of the takeover, a director of NMI sold his shareholding to a mysterious entity named Daso Investment Limited, described in disclosure documents as an "investment fund with a focus in energy and resource sectors". Not much else at all is known about Daso, but both Provenance Finance and Daso Investment list their address at the P.O. box used by NMI.

http://www.asx.com.au/asxpdf/20131024/pdf/42k8yppm8g9296.pdf

Is it stupid to have your rathole list the same address as the company? Not under the zero enforcement policy instituted by ASIC, which recently confirmed it will do nothing about insider trading, as long as it is denied. ASIC even provided the explanation to be used by insider traders, namely that they didn't know the insider information was price sensitive. ASIC also created a precedent where literally any and all obviously price-sensitive insider information can be traded on, ridiculously enough including undisclosed takeover proposals.