Fund intermediaries and credit creation

If fund intermediaries are allowed to disregard costs and fix their unit price at NTA, this will introduce a systemic source of overvaluation. The ongoing fair value of a fund to a non-controlling investor is equal to the NTA less costs as proportion of asset cash flows. For example, a fund that every year burns 20% of the cashflows generated by its assets has a fair value of 80% of NTA. Funds that set prices above this fair value during times of net investor inflows are deliberately defrauding their investors, as they could not support this price were there sustained net investor outflows. On an aggregate level, such fund intermediaries engage in a completely unregulated and unrecognized credit creation process.

Assume Fund A invests in Asset X, and has management costs equalling 20% of the cash flows generated by this investment each year. Since 80% of the cash flows reach the owners of Fund A, the fair value of the fund would as noted be 80% of NTA. Now assume instead Fund A invests in Fund B that invests in Fund C that invests in Asset X, with each fund manager taking 20% of received cash flows. Since 51% of the cash flows now reach the owners of Fund A, the fair value of Fund A is 51% of NTA. The remaining 49% of cash flows from Asset X are absorbed by the fund managers.

	Fund A	Fund B	Fund C	Asset X
Cashflow to owner	51%	64%	80%	100%
Cashflow to fund manager	13%	16%	20%

Despite the funds having fair values ranging from 51% to 80% of NTA, all three can fix their price and issue units at NTA, with all three claiming the full right to the same cash flow. In effect, this means the cash flows from Asset X are rehypothecated into 149%, since 100% of the cash flows are promised to investors and 49% absorbed by the fund managers in aggregate.

In aggregate, fund intermediaries and their price-fixing are a form of shadow banking and contribute to the credit creation process, since they create "assets" that can then be used as collateral for lending. In the example above, if Asset X was worth $1bn, the intermediaries have created a further $490m through deliberate fraud, conjuring $490m worth of collateral from thin air into the economy. If all fund intermediaries in an economy fix their unit price at NTA, the aggregate amount of credit creation this entails is equal to aggregate intermediary costs. In Australia, given the high total cost of fund intermediaries, this synthetic leverage has a significant - and entirely ignored - impact on credit creation.

Lionhub Group Limited launches new revaluation fraud

International criminals increasingly use the Australian stock exchange to perpetrate revaluation frauds, creating phantom collateral they can borrow against, with the loan proceeds used for further fraud. Most recently, Singaporean criminals backdoor listed LionHub Group Limited (LHB.AX) on the ASX, taking over a dormant shell company in order to create a fake "market" price. After various sham related party transactions and a fraudulent capital raising, LionHub now has 757m shares outstanding and $6.5m cash in the bank. Although LionHub issued less than 5% of shares in the capital raising, the issue price of $0.20 implied a "market" value of $151m for the company.

Magically, the $6.5m in cash has been revalued to a $151m ASX-listed asset, guaranteed by ASIC to be unmanipulated. This fraudulent asset can then be used as collateral for debt, or be dumped on unwitting grannies by associated criminal fund managers. The top 20 shareholders own 95% of LHB, and after reinstatement to listing on June 12 the share price will be controlled by this cartel, creating a fake "market" value.

Shell companies for revaluation frauds are openly marketed in Australia by criminal enterprises such as Wholesale Investors, which also offer to ramp share prices and supply local sham directors and company secretaries. LionHub has connections to Sino Australia Oil & Gas (SAO.AX) and other related party frauds, sharing the same criminal associates. These manipulated frauds follow the standard pattern of long-term shareholder value destruction interspersed with sharp ramps engineered to benefit insiders.

ASIC and media alike regard the fraudulent ramps as magical market mysteries, enigmatic and wonderful occurrences for which there just can be no explanation. New revaluation fraud Fifth Element Resources (FTH.AX) issued 21m shares at $0.20 in a fraudulent capital raising, after which the share price was ramped to $0.95 in a month. Prior to the capital raising and ramp, an insider had purchased 20m shares at $0.01.

According to ASIC, this is not a ramp and FTH is not an openly manipulated share, because if it were ASIC would have done something. According to ASIC, this is all just a magical market mystery, and so ASIC lets it continue trading freely and attract more victims.

Axstra Capital and Wholesale Investors pump-and-dump

Axstra Capital and Wholesale Investors run a pump-and-dump operation and investment cartel, not to be confused with Avestra Capital and Next Investors, artificially inflating the share prices of small caps for a fee. The Wholesale Investors criminals target small investors, using handy relief helpfully provided by the complicit regulator. As a service to criminals, ASIC regularly provides exemptions that produce loopholes and results diametrically opposite to what the law actually intended. The exemption in question removes disclosure requirements for business introduction services, subject to conditions. Names and logos can only be available on subscription, and acknowledgement of disclaimers is required beforehand. However, Wholesale Investors openly flouts these requirements and makes names and logos available straight away, with additional spruiking available on subscription. For example, one of the Austalian [sic] Investment Opportunities spruiked by the cartel is named Westlake Funding Ltd, as can be seen below by non-subscribers.

http://www.wholesaleinvestor.com.au/companies/

The Wholesale Investors website is rife with listed and unlisted securities frauds, with rigged "market" values. The criminals recently took an interest in Qanda Technologies (QNA.AX) and immediately ramped the stock from $0.03 to $0.11. Sharp ramps such as these provide profits for insiders, allows unrealized profits to be booked by fund managers, and increases the value of securities used for further cartel leverage.

In the long term, such manipulated companies inevitably display catastrophic shareholder value destruction. Qanda Technologies illustrates this beautifully, with sequential manufactured ramps interrupting steady decline. This is because QNA is a listed securities fraud.

ASIC protects pump-and-dump cartels instead of protecting the victims, displaying what must now be regarded as treasonous rather than incompetent behaviour. As a result, the Australian share market is now so infested with manipulation it is hard to pinpoint where the fraud ends. By the same token, mainstream financial reporting and pump-and-dump articles are becoming indistinguishable, sometimes written or commissioned by the same criminals. The Wholesale Investors criminals are also associated with the pump-and-dump site Proactive Investors. On 3 June, Queensland Bauxite Limited (QBL.AX) was the subject of a Proactive Investors "article" and 115% share ramp.

According to ASIC these are not ramps but rather magical market mysteries. If fund managers package and dump such ramped shares on granny investors, it is a magical market mystery when the grannies lose all their money. It is not ASIC's fault, since market manipulation does not exist.

Australian central banker joins Djerriwarrh Investments fraud

Djerriwarrh Investments (DJW.AX) is a criminal listed investment company that uses accounting fraud to inflate its books, including doublecounting upcoming dividends as a receivable, and manipulates its share price beyond asset backing before issuing shares to granny investors. DJW shares are currently ramped 29% beyond the value of the listed holdings that constitute its backing, so an investor buying $10,000 worth of DJW makes an immediate loss of around $2,200, not even taking into account subsequent fees charged. Like other similar scam companies, Djerriwarrh has a mysterious buyback mechanism in place with Goldman Sachs, for "capital management" purposes, that DJW claims to not use at all.

http://www.asx.com.au/asxpdf/20140203/pdf/42mj09h6cvm2xr.pdf

Scam listed investment companies have forged high level connections with regulators, media, analysts, fund managers and the government. The companies sometimes buy respectability by enticing figureheads to join their boards, relying on greed to silence questions and doubts fiduciary duty would mandate. On 29 May Djerriwarrh announced that a board member of the Reserve Bank of Australia had joined as non-executive director, to help with "deliberations" and "governance".

http://www.asx.com.au/asxpdf/20140529/pdf/42px6rv23zdksm.pdf

If this central banker observed her fiduciary duty as director of a company entrusted with other people's money, she would have done her due diligence, studied the annual reports for Djerriwarrh, and realized it is a fraud scheme. DJW is structured so that the average investor almost certainly will lose money, and thus has crossed the line into scam. Joining such a scam can provide a quick revenue stream in the form of director fees, but requires a complete lack of integrity and criminal negligence of fiduciary duty.

Avestra's Next Investors pump-and-dump AnaeCo

Avestra Capital runs a pump-and-dump operation, through its corporate authorised representative S3 Consortium Pty Ltd, offering to artificially inflate the price of Australian small cap shares for a fee. The website www.nextinvestors.com spruiks shares the criminals are trying to pump-and-dump, with these deliberately misleading "tips" and "opportunities" spread through spam emails and social media. The website even has a special VIP section for the extremely gullible to self-select. Most recently, Next Investors pump-and-dumped AnaeCo (ANQ.AX), an eternally loss-making trash management company with ties to other elements of the Australian financial underworld.



ANQ follows the standard pattern of manipulated shares, with long term catastrophic shareholder destruction interspersed by ramps designed to benefit insiders. This is because ANQ is a listed securities fraud. On 21 March 2014, the Avestra criminals started the pump-and-dump with a Next Investors article claiming ANQ had miraculously solved the world's waste problems. Global waste crisis solved!

http://www.nexttechstock.com/global-waste-crisis-solved-asx-company-invents-astonishing-technology

Over the next few days the criminals that had commissioned this pump-and-dump could unload their ANQ junk shares at up to 55% higher prices, fleecing the unsuspecting until the engineered ramp inevitably faded. What happened next is as idiotic as any episode of "America's Dumbest Criminals". When queried by the ASX about the mysterious 21 March price increase, the criminals at AnaeCo just had to say they had no idea, using the template provided here. ASIC would have written it off as yet another one of their magical market mysteries. Instead, AnaeCo responded that the price increase could be attributed to a positive article by "Stocks Digital".

http://www.asx.com.au/asxpdf/20140321/pdf/42njyh5c16ng5j.pdf

But the name "Stocks Digital" is not mentioned anywhere in the article published on Next Investors. The website www.stocksdigital.com offers to "raise awareness of small caps" using "social media and the internet", providing no other information except a number to an Australian mobile phone. By mentioning Stocks Digital, the AnaeCo criminals inadvertently proved they had commissioned the pump-and-dump, and supplied the contact information of the pump-and-dumpers. In May ANQ announced that an ANQ director had lost control of a 163m shareholding, followed by the announcement of his resignation. The share price ramp to $0.013 at the end of the March quarter had artificially inflated the "market" value of the director shareholding used as security for a loan. Just before end of trading on May 23, 163m ANQ shares changed hands at $0.006.

According to ASIC, pump-and-dump schemes are illegal and operators "can be jailed and fined heavily". However, since ASIC never enforces this, ASIC has effectively legalized pump-and-dump schemes in Australia. As a result, such fraud is guaranteed to become more common.

Google Australia censorship

Google Australia has removed several posts from this blog, at the behest of the criminals whose securities fraud are exposed within. People in China and Russia are free to read these posts if they wish, and make their own mind up, but Australians are not allowed to. In Australia, criminals decide what information you are allowed to access. This is for your own good. However, Australian readers of this blog can bypass this censorship by adding /ncr to the blog address, with the full uncensored version of The Great Australian Investment Ponzi available here:

http://drbenway.blogspot.com/ncr

The removed posts can be accessed by Australian readers by following these links:

http://drbenway.blogspot.com/ncr/2014/04/conman-michael-featherstone-harasses.html
http://drbenway.blogspot.com/ncr/2014/01/avestra-hires-self-confessed-criminal.html
http://drbenway.blogspot.com/ncr/2013/12/aha-avestra-and-formosa-auto-trade-scam.html

The Chilling Effects clearinghouse still has not processed the takedown requests in relation to these posts. Perhaps this information is taboo too. If you are a rich criminal, the Australian system works great, as it allows you to hide your crimes using legal threats. After all, who has better access to lawyers, rich criminals or whistleblowers? According to Google's transparency report, in the first six months of 2013, the Australian government made 19 requests for content removal, of which 4 were for defamation on Blogger.

http://www.google.com/transparencyreport/removals/government/AU/

With recent judgments against Google in Australia and in the EU, the censorship situation is likely to deteriorate worldwide. The effect of this is easy to predict. Information that is true and in the public interest will be suppressed by those with the means to do so.

AIMS Property Securities Fund circular investment fraud

AIMS Property Securities Fund (APW.AX), formerly MacarthurCook Property Securities, is a loss-making property fund flagrantly committing fraud by making circular "investments" with related funds. Dual listed on the ASX and SGX, the fund holds a purported $37m in unlisted property funds that it values at will, and a further $18m in listed property funds. The fund consistently burns around half the cash generated by its assets, and so given these ongoing costs its fair value to a non-controlling investor would be around 50% of NTA. If APW truly traded in a free market, where a multitude of buyers and sellers made transactions without the intention or ability to affect the price, it would trade at 50% of NTA. The criminal operators of this fund has attempted to ramp the price up towards NTA with buybacks and related party purchases. So naturally, APW follows the familiar pattern of long-term shareholder value destruction interspersed with sharp ramps to benefit insiders.

The latest half-yearly report for APW shows how the fund has "invested" $3.5m in the related MacarthurCook Office Property Trust. The report also discloses how the MacarthurCook Office Property Trust has "invested" $2.5m in APW. Because of this circular "investing", these related funds report NTAs fraudulently inflated by several million dollars, with this fraud constituting a significant proportion of their reported assets. This circular investment charade is criminal, regardless of regulator incompetence. APW also holds 49.9% of AIMS Property Fund (St Kilda Road), while related party AIMS Capital Management Limited holds 27.8% of APW. Seen as a whole, APW is a criminal enterprise, a circular investment scam that plans to issue units to victim investors based on a purposefully inflated balance sheet and performance.

AIMS Property Securities Fraud recently won a long running lawsuit against P-REIT (PXT.AX), currently managed by equally criminal BlackWall Property Fund. Just like APW, BlackWall funds circularly "invest" in each other and perform accounting fraud, as seen in the latest PXT half-yearly report. The lawsuit related to rights of withdrawal and redemption, as APW had been issued units with the promise of par redemption. With the judgment for $15.4m plus costs, one set of criminal managers has been ordered to hand over shareholder funds to another set of criminal managers. There were no small shareholder winners.

The Australian Foundation Investment Company share fix

The Australian Foundation Investment Company (AFI.AX) is a criminal listed investment company that engages in accounting fraud and share manipulation. AFI cooks its books with related party crossholdings, ramped illiquid assets and doublecounted dividends receivables. The AFI cartel ramps its share price above asset backing before issuing shares, in one of the most flagrant cases of Australian securities fraud. The fund currently has a "market" price set by the criminals at 19% above asset backing, with this price of course only sustainable as long as investors do not actually try to cash out. An investor purchasing $10,000 worth of newly issued AFI shares makes an immediate 16% loss, receiving an asset backed by $8,400 and paying a hidden $1,600 fee to the scheme operators, not even taking into account subsequent fees. This is not an investment, it is an outright scam.

Recently, the entities that fix AFI's price curiously have abandoned any semblance of "market" pricing. Starting in March 2014, the AFI share price plateaued in a way that is overtly inconsistent with market pricing, openly proving it is manipulated. Between 11/03/14 and 11/04/14, AFI closed at $6.00 plus/minus $0.02 on 21 out of 24 trading days. Even more curiously, between 14/04/14 and 7/05/14, AFI closed at $5.96 plus/minus $0.01 on 14 out of 15 trading days. This "liquid" $6.2bn listed company closed within 0.17% on eleven days straight, a near statistical impossibility in an unmanipulated market. Only a moron would pretend this has anything to do with market pricing or that AFI's share price is not fixed.

Australian presstitutes, analysts and dregulators simply pretend as if this did not happen.

Australian Unity funds fraudulently misrepresent fees

Australian Unity Limited (AYU.AX) is a fund manager engaged in related party fraud, with its various funds "investing" in each other. By using internal crossholdings, Australian Unity charges management fees many times in excess what it discloses in Product Disclosure Statements, and inflates the asset base upon which it issues units. This is deliberate fraud.

Page 6 of the Product Disclosure Statement of the Australian Unity Pro-D Balanced Fund, reports (negotiable) management fees of 0.65%. However, Australian Unity siphons money from Pro-D into various other related party funds, charging management fees several times over as part-owner of "investment partners" including Acorn Capital. This fraud allows Australian Unity to charge fees many times higher than it discloses, and inflates the fund's asset base. The  magical get-out-of-jail card Australian Unity relies on is tucked into the last page of the PDS, where it says "The fund may also invest in other Australian Unity Investments managed funds".

Of course such a clause in no way frees the criminal directors from their fiduciary duty. Their related party "investing" is illegal, regardless of the clause. Nor can the clause be used to justify underreporting the fees charged. If such a clause could legally be used to hide fees, then all funds could report zero fees in disclosure documents, while having a centipede of intermediaries charge undisclosed fees. The clause is not lawful as it would invalidate the entire disclosure regiment. There would be no point in fee disclosure if such a clause could be used. But as long as ASIC protects the Australian Unity criminals, they can underreport the fees of their funds using fraudulent PDS.

Acorn Capital recently launched a listed investment company to join the circular investment cartel. The Acorn Capital Investment Fund Limited (ACQ.AX) charges 1% of assets plus a performance fee. Naturally, the criminals immediately siphoned money from Australian Unity funds into this new fee-charging intermediary, including money from the Pro-D Balanced Fund. This was a deliberate act of fraud.

Blue Sky Alternative Investments related party fraud

Blue Sky Alternative Investments Limited (BLA.AX) is a relatively new related party fraud masquerading as a fund manager. Operating a number of "alternative" funds with assets largely revalued at will, Blue Sky "co-invests" shareholder capital in these related parties, paying management fees to itself. Blue Sky and its funds perform internal sham transactions to generate fake profits and assets. The criminals then attract new victim investors using fraudulently manufactured performance metrics. The annual reports of Blue Sky are a maze of related party transactions and interests, with gross accounting fraud rendering them next to useless for an investor. Like other circular investment scams, Blue Sky's balance sheet is bloated by related party crossholdings, loans, intangibles and receivables. The company's net profit is inflated by sham transactions and revaluations that have become increasingly farcical.

In the 2012 financial year the company used accounting fraud to inflate its net profit by $4m, with fraud constituting more than four fifths of reported profit. According to its annual report, in June 2012 Blue Sky bought the Lightsview Re-water Infrastructure Network business for $1, creating a magical $2.1m "profit". Blue Sky also bought and revalued Blue Sky Water Partner Pty during the year, creating a $1.7m "profit" from the sham related party transaction.

In the 2013 financial year revaluations boosted the company's reported net profit by 0.9m. Blue Sky "sold" Lightsview to Water Utilities Australia (WUA), an entity set up by Blue Sky itself, for $1,375,000 in cash and $1,375,000 in WUA stapled securities. This resulted in a fake "profit" of $0.6m for Blue Sky and the creation of $4.1m in goodwill. Blue Sky then increased its holdings in WUA by $5m, and gouged the entity with fees paid in scrip.

In its half yearly report to December 2013, Blue Sky reported the "acquisition" of Blue Sky RAMS Management Income Fund, Willunga Basin Water Company and Water Utilities Australia Fund 2. Equity accounting and revaluation of these acquisitions created $12m goodwill and $10m other intangibles. Blue Sky reported half yearly "revenues" of $8.2m, mostly from related parties in which Blue Sky "invests", and a net loss of $1.2m. This loss-making fraudulent mess of a company was then ramped to a $135m market cap, creating unrealized profits for criminal fund associate and substantial holder Pie Funds Management Limited.

In its latest quarterly report to March 2014, Blue Sky reports "lending" $2.4m to a director related entity. The Blue Sky criminals are planning to expand the circular investment cartel, putting $5m in Blue Sky Water Fund and $1m in Blue Sky Apeiron Global Macro B Trust. Blue Sky is also launching a listed investment company, complete with "bonus options", in yet another attempt to fleece granny investors. The LIC structure offers unique advantages to criminals, since LICs are permitted to issue shares at above asset backing, but have no obligation to buy back shares at any price.

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.

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.

Bitcoin miner listed and ramped on ASX

After ASX-listed scams run out of money, their shell can be used for another scam, with this process repeated ad infinitum and ad nauseam. It has now become standard practice for failed Australian companies to announce a splendid scrip acquisition immediately followed by a ramp. Naturally, the sudden ramps of these previously illiquid and unheralded companies is entirely engineered by related parties of the operators, it has absolutely nothing to do with a "market" outcome.

Macro Energy Limited (MEJ.AX), previously known as Verus Investments Limited, is an investment company that has a long proud track record of destroying shareholder value. Its latest half yearly report discloses remaining assets of around $3.5m, predominantly in cash, and 218m shares outstanding. Today MEJ announced it is acquiring Digital CC Holdings, which through its subsidiary digitalBTC engages in vaguely described operations involving bitcoin mining and trading.

http://www.asx.com.au/asxpdf/20140313/pdf/42nbwgj1sml1kc.pdf

The scrip acquisition of Digital CC is to be accompanied by a share consolidation, a $9m capital raising, and share options to insiders. Following the announcement, the scheme operators immediately ramped the share price of MEJ by 50%. The ramp had nothing whatsoever to do with the "market", it was a predetermined planned outcome for the illiquid share. On the previous trading day, 9000 shares of MEJ were traded on the ASX at around $0.026, for a daily trading value of around $230.

Revaluation ramps such as these have not only come to be condoned, but to be expected as part of the market. Little is known about the actual operations of digitalBTC, but what can be said with certainty is that the company is controlled by criminals who without compunction manipulate "market" prices. This in and of itself should be enough to disqualify such schemes as investments. But in Australia scamming is an accepted way to make money, as long as you succeed at it. The head of digitalBTC made his money from various adult entertainment and horoscope SMS frauds, yet is still hailed as a paragon of entrepreneurship.

http://juha.saarinen.org/2422
http://ideceive.blogspot.com.au/2006/08/phone-scam-your-1-true-love.html
http://www.callercenter.com/blg/articles/love-calculator-scam-breaks-hearts/

These scams did not provide promised services, made it hard or impossible to unsubscribe, were deliberately deceptive about costs and made unauthorized charges.

Mariner starts new revaluation fraud with Yellow Brick Road associates

Mariner (MCX.AX) is a failed investment company that has destroyed hundreds of millions of dollars in investor wealth, while enriching the scheme operators. After years of catastrophic losses and with $1.3m negative net assets in its latest half yearly report, Mariner finally seemed unable to cause more shareholder value destruction. But the decaying corpse of Mariner refuses to stay down, as the listed shell still retains value as a vehicle for securities fraud. Mariner has attempted to launch various revaluation and related party frauds, while propping up the company through related parties including Lemarne Corporation (LMC.AX). Scheduled to buy (and immediately revalue) retirement village assets, the project vendors subsequently pulled out, possibly after realizing the fraudulence of their counterparty and reputational risk involved.

http://www.asx.com.au/asxpdf/20140207/pdf/42mlb7lcxy2rwc.pdf

But many others have less compunction about morality or reputational risk. On 28 February, Mariner announced it was "buying" a rental book of plant and equipment assets for $13m, with the vendors financing the acquisition. This allows the vendors to move the assets off the balance sheet, and allows Mariner directors to attach their snouts to the trough of a new rort.

http://www.asx.com.au/asxpdf/20140228/pdf/42n37fbwv9p0d0.pdf

The transaction involved a $11m loan and a $1.85m convertible note. It was also announced on 28 February that a "sophisticated investor", presumably entirely unrelated from the vendor "syndicate of investors", was to be issued 1.5m MCX shares for a $0.15m consideration. Today Mariner announced that Global Clean Energy Finance Pty Ltd had become a substantial shareholder with a 10.9% stake.

http://www.asx.com.au/asxpdf/20140312/pdf/42nb2xpmbnbf7p.pdf

Global Clean Energy Finance Pty Ltd lists the same address as the consistently loss-making Yellow Brick Road (YBR.AX), and its company secretary is a principal at YBR, the directors of which routinely engage in related party transactions to enrich themselves, and laughably hold paid seminars for aspiring entrepreneurs.

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.

http://www.reuters.com/finance/stocks/6636.T/key-developments/article/2769978

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.

http://www.reuters.com/finance/stocks/6636.T/key-developments/article/2649112

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.

http://www.asx.com.au/asxpdf/20140303/pdf/42n46dybwbjgpw.pdf

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.

Blumont Group ramps Merlin Diamonds (MED.AX)

Merlin Diamonds (MED.AX) is a failing diamond miner that was the subject of a proposed takeover by the Singaporean circular investment cartel Blumont Group in early 2013. Now MED is again attempting to join this revaluation fraud. On 17 February 2014, MED announced Blumont Group was being issued 26m shares at $0.075, constituting 11% of shares outstanding. On 20 February, MED announced a further 117,333,333 shares were being issued at $0.075 to "international investors", constituting around a third of the company.

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

http://www.asx.com.au/asxpdf/20140220/pdf/42mvg8hpjz15gm.pdf

On 28 February, MED announced a scrip take-over offer from Blumont Group, offering 5.7 Blumont shares for every 2 MED shares. This implies a "market" value of $0.15 for MED, and its share price was immediately moved 41% to $0.12 by the cartel. Those "international investors" sure had excellent timing, achieving unrealized profits of $5.3 million, a 60% gain in a week. They can then claim these fake "profits" in annual reports, and attract new sucker investors based on the fraudulent performance figures.

It goes without saying that the "international investors" are associates of the Blumont cartel, and that these are all sham transactions between related parties, designed to create fake "profits" and "assets". Merlin Diamonds now functions as a vehicle for international securities fraud.

ASIC refuses to take any action as the number of openly fraudulent ASX-listed companies rises by the day. No reasonable person could honestly claim to believe that these revaluation frauds are legit, the result of non-collusive market behavior. But sanity testing its results is not part of ASIC's procedure. As long as ASIC has followed its procedures, it regards itself as having done a fine job, even if the results are abhorrent.

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.

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.

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.

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."

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".

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.