Steamships Trading Company and NASFUND securities fraud

Steamships Trading Company (SST.AX) is a $1.1bn company incorporated in Papua New Guinea, claiming operations in "hotel management, manufacturing, property, shipping and transport". In reality, SST is a securities fraud that inflates its accounts using sham transactions between related parties, with a share price fixed by a cartel of three entities.

SST's annual report is a maze of related party transactions and assets. SST's balance sheet shows $13m invested in related companies, $42m in loans to related companies, $29m of "other receivables" and $38m of goodwill. SST added $28m of goodwill to the balance sheet in 2013 by purchasing related party Pacific Towing Limited. This sham transaction created a "profit" of $15m, constituting almost a third of the company's reported net profit of $48m in 2013. The annual report of SST is sufficiently fraudulent that it is next to impossible to gauge the company's true value.

But the true value of SST is almost certainly lower than its manipulated "market" value. SST's share price is not determined by a market. According to disclosure documents, three entities own 98% of SST and have done so for the last decade. John Swire & Sons owns 72%, Bell Potter Nominees fronts 20%, and National Superannuation Fund holds 6%. So far in 2014, SST has traded on 35 days, with an average daily volume below 500 shares. For the last decade the share price of this $1.1bn market cap company has been set by cartel, and not even the most mentally impaired regulator could pretend otherwise with a straight face. Ramped 13% overnight on 2 January 2014, SST functions as a listed securities fraud.

National Superannuation Fund (NASFUND) is a PNG-based superannuation provider that has been embroiled in scandal after scandal, engaging in various revaluation and related party frauds. NASFUND's stake in SST has been revalued upward over the last decade, creating unrealized profits for the fund, based upon which its criminal operators charge real cash fees. The NASFUND criminals pretend SST trades at a market price when reporting performance and asset figures for the fund, while being perfectly aware that SST does not trade at a market price at all. This is deliberate fraud, perpetrated on the 174,000 victims of the fund. NASFUND's inflated $69m stake in SST accounts for a significant proportion of the fund's assets. The SST scam alone accounts for 5% of the fund's net asset value, or around 12% of its listed equities. As long as contributions exceed withdrawals, the fund can continue inflating its accounts with SST.

Systemic drivers of overpricing in less than perfectly efficient markets

Anomalous historical asset price movements, showing disproportionately low or high volatility, can prove an asset effectively is not priced by a market, in which case the asset is likely to be overpriced.

The most basic sign of a manipulated asset price is too little movement. A share that barely moves is not plausibly priced by an efficient market. If extended, such a plateau is statistically unlikely to be caused by chance market dynamics, the result of interaction between a multitude of buyers and sellers with no interest or ability in moving the price. Such a plateau is more likely to be caused by an entity (or cartel of entities) with an interest in fixing the price at that level. There are numerous examples in the Australian share market of prices unnaturally fixed at plateaus. When share prices are openly fixed by criminals in this way, this is ignored by ASIC in every single instance.

The second most basic sign of a manipulated asset price is too much movement. If a share shows excessive volatility given the company's overall characteristics, it is unlikely to be caused randomly by an aggregately disinterested market. If a billion dollar company has daily share price gyrations of 10% on no news, it does not plausibly have a market-based price. Such price swings prove the existence of entities with the intent and power to move the share price. Myriad Australian companies now have volatility disproving their putatively market-based pricing, to various degrees. This is of course never investigated, even as policy funnels vast amounts of pension savings into the share market on the mere assumption of fair market prices.

If the price of an asset has been deliberately moved from market value, it is more likely to be overpriced than underpriced, simply because there is more money to be made from inflating asset prices. Based on inflated prices, capital is raised and fees paid. With rare exception fraud involves selling deliberately overpriced assets (rather than the opposite). Overpricing is more easily effected than underpricing. Anomalous price movements, proving an asset is not priced by a market, thus make it overwhelmingly likely the asset in question is overpriced. Since mispriced assets are likely to be overvalued, in aggregate the market is likely to be overvalued, to the extent that some assets are deliberately mispriced.

The rise of financial intermediaries is by far the strongest systemic driver of asset overpricing. In Australia, financial intermediaries form an oligopoly, exacerbating mispricing. When selling assets to the public, the intermediaries have a direct incentive for higher prices. When managing assets for the public, the intermediaries are incentivized to build unrealized profits, out of which cash fees are charged, regardless of whether these profits are eventually realized. There are more commissions, fees and bonuses if asset prices rise. These factors create a strong bias for asset overpricing, made possible by net investor inflows largely driven by mandatory superannuation and further leveraged by repressed interest rates.

Overstating profits by inflating inventory

All else equal, increasing held inventory will lead to an increase in reported profit, since some fixed costs are moved from the profit statement to the balance sheet. Although not a new finding, this effect is frequently overlooked by shill analysts, wilfully or otherwise. As a result, inventory stuffing has reached ludicrous proportions for many Australian companies.

Let's say Acme Corporation has $10,000 in fixed costs and a variable cost of $1 per unit produced. Assume Acme knows it will sell 4K units in the next year. If Acme produces 4K units, it will have a total cost of goods sold of $14,000. If Acme instead produces 5K units, moving 1K units to inventory, the cost of goods sold will be $12,000, with this lower COGS translating into higher reported profit. This is because $2,000 in fixed costs has been moved to the balance sheet.

Of course, when this inventory is eventually sold, the fixed cost is moved back to the profit statement, leading to a higher COGS and lower profit. Stockpiling inventory can only boost reported profits temporarily. The dollar amount of the temporary reported profit increase is given by:

Increase in reported profit = Increase in inventory * Fixed costs / Total costs

The dollar boost to reported profits caused by inventory stockpiling is equal to the dollar increase in inventory times the proportion of production costs that are fixed. In the example above where 5K units are produced by Acme, inventory increases by $3,000 while the fixed cost proportion is 2/3, leading to a $2,000 increase in profit. Inventory stockpiling is thus more effective for boosting reported profits for capital intensive companies with a relatively high proportion of fixed costs.

In relative terms, the potential boost to reported profit from stockpiling is greater for lower margin companies. The figure below illustrates the relative effect of inventory stockpiling on a company's reported profits, for various initial profit margins and fixed cost proportions. 

The figure illustrates the tremendous potential impact on reported profits from stockpiling, especially in lower margin companies with relatively high fixed costs. For example, a company with a 10% profit margin and a fixed cost ratio of 0.5 can more than double its reported net profit, by stockpiling a fifth of produced units.

Shown below is the historical net profit and inventories of newly ASX-listed Beacon Lighting (BLX.AX), which upon listing was immediately ramped by a cartel including Wilson Asset Management (WAM.AX), creating unrealized profits based upon which the WAM sociopaths will charge very real cash fees.

BLX released its 2011 and 2012 financial reports on the ASX, but uploaded two copies of the same report. Unsurprisingly, nobody even noticed.

Conman Michael Featherstone harasses this blog

Michael "Mick" Featherstone is a former Gold Coast police officer who turned to a life of petty fraud. According to Crikey, Mick Featherstone was involved with the illegal pyramid scheme 1CellNet a decade ago, as well as with a melange of similar "predictive software scams", with names such as Ezyshoppe, Cyber Wall St, Cell Wireless, World Games Inc, Virtual Games Global, Global Stock Game, 1GlobalVillage Club and Aspiritus. Perversely, Mick also ran a business offering to "help" the victims of such schemes.

http://www.crikey.com.au/2008/12/09/white-shoe-brigade-kicks-back/

Mick then founded a private investigation firm, which offers flagrantly illegal services such as phone tapping. In a 2008 article, Michael Featherstone openly admitted to being a criminal, routinely breaking Australian privacy laws and trespassing during his "investigations". But as Mick put it, his victims "rarely take the matter to police". The Gold Coast police apparently took no action against their former colleague marketing an openly criminal business. This is one of the few places on earth where you can boast of a criminal enterprise in the newspapers without any repercussions.

http://www.goldcoastcomputers.com.au/gold-coast-computers-articles/2008/6/8/hightech-spy-business-booms/

Mick's next enterprise was internet reputation management through Phoenix Global, also known as Internet Reputation Australia. Mick now claims to be a professional in the field of internet reputational risk, while openly admitting crimes on the internet. Phoenix Global claims offices in major Australian cities that upon closer inspection turn out to be P.O. boxes. Using this company, Mick issued frivolous threats to take down posts from this blog.

http://drbenway.blogspot.com/2013/12/aha-avestra-and-formosa-auto-trade-scam.html
http://drbenway.blogspot.com/2014/01/avestra-hires-self-confessed-criminal.html

The posts detail Avestra Asset Management's involvement in the Formosa Auto-Trade scam. Using flyers handed out on the street, this scam involved the sale of "auto-trading" laptops for $30,000 to gullible investors, who were promised extravagant annual returns on forex markets, "no knowledge or effort required". All you had to do was buy a $30,000 auto-trading laptop, sit back, and your return would be $5,000 a month in perpetuity.

http://www.aussiestockforums.com/forums/showthread.php?t=21337
http://www.forexpeacearmy.com/forex-forum/scam-alerts-folder/13119-formosa-auto-trade-system-paycheck-autotrade-scam.html

Avestra has now gained control of listed funds manager AG Financial (AHA.AX), embezzling controlled funds by related party fraud, and is loath to have its past exposed. The fact that Avestra would associate itself with the likes of Michael "Mick" Featherstone speaks volumes.

Aquaint and the Bria East Asia Fund ponzi

Aquaint Capital (AQU.AX) is a recently ASX-listed fraud scheme, legitimized and licensed by ASIC, purportedly engaged in "property business". In reality, Aquaint exists solely to perform fraudulent related party transactions. Its most recent annual report reveals the purchase of $17.2m of redeemable preference shares in the Cayman Islands based Bria East Asia Fund.

http://www.asx.com.au/asxpdf/20140401/pdf/42nr2m4jmzksgs.pdf

The Aquaint criminals hold 82.9% of the Bria East Asia Fund, yet fraudulently claim to have no control of the "fund". The fabulous returns offered by the "fund" is described on page 67 of Aquaint's annual report, detailing the November 2012 "Confidential Private Offering Memorandum" of the Bria East Asia Fund. According to this document, Bria shares are redeemable after two years, while offering the following completely legit dividends:

• Investors of at least $25,000 receive 24% total cumulative returns
• Investors of at least $80,000 receive 36% total cumulative returns
• Investors of at least $800,000 receive 48% total cumulative returns

How stupid would you have to be to fall for this scam? Malaysian high net worth investors and Australian regulators know the answer to this question. Do the "confidential" documents of this related party fraud set off alarm bells? Or the tiered return structure and its desperate hard-sell? No? How about the 48% promised return of this Cayman Islands fund?

Of course, Bria East Asia Fund has no operational cash flows to support paying investors (read: victims) 48% returns over two years. The "fund" is controlled by the same criminals that control Aquaint, and pays returns out of new investor inflows. In a word, Bria East Asia Fund is a ponzi scheme. The Bria East Asia Fund would not be allowed to spruik openly even in the cesspit that is known as Australia. But as long as Aquaint is separated by one fraudulent degree from Bria, as long as the Aquaint criminals claim that Bria is unrelated, ASIC will continue giving its sign-off. Of course, if Aquaint issues shares to Australian investors, and then buys Bria shares with the proceeds, Bria effectively is raising funds from the Australian public. But as long as the Aquaint criminals claim that Bria is an unrelated entity, ASIC will continue to allow the fraud to continue without taking any action whatsoever. This is now standard operating procedure for ASIC.

http://www.smh.com.au/business/uproar-as-asic-clears-man-behind-trio-scam-20120605-1zude.html

After the Trio Capital ponzi scheme collapsed, ASIC publicly cleared the mastermind of any crime. ASIC openly stated that ponzi schemes are legal in Australia, as long as they are properly structured. This is a monumental statement, and goes way beyond mere incompetence, although the significance was entirely lost on the dimwit Australian public. ASIC has legalized ponzi schemes in Australia, thus guaranteeing that such schemes will proliferate. When the Bria fund blows up, the Aquaint criminals expect to face zero legal recourse.