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Is China Green Agriculture (CGA) The Next Chinese Fraud?

Tyler Durden's picture





 

After Muddy Waters came out with research two months ago that singlehandedly destroyed recent Chinese NYSE IPO, RINO, we predicted that there would soon develop a cottage industry of micro investment firms who do diligence on various Chinese frauds (and there are many of them), establish a short base, and subsequently release a research report in the name. Today we get the latest such possible casualty: meet China Green Agriculture, a Xian, China firm founded in 2000, which "engages in the research, development, manufacture, and distribution of
humic acid based compound fertilizers in China... The company
also engages in the development, production, and distribution of
agricultural products, including fruits, vegetables, flowers, and
colored seedlings." Sure enough the company IPOed on the NYSE in mid-2008, and if the just released research report by J Capital Research is correct, the firm is about to join such other disgraces as RINO in the NYSE IPO dunce corner. To wit: "In this report, we present compelling evidence that China Green Agriculture (NYSE:CGA) has significantly over-stated its true revenues and earnings. We estimate that CGA’s value is no more than $2.85 per share, as opposed to its current market price of $9."

From the report, the key concerns with CGA, which mirror almost verbatim those that Muddy Waters had with RINO, are the following:

  • Vastly Inflated Revenue
  • False Claims About Technology
  • Questionable Tax Reports
  • Possible Self-­Dealing
  • Excessive Purchase Price for Gufeng Subsidiary
  • Improbable Margins
  • Dubious Related-­Party Transactions
  • Huge Multiple Paid for Gufeng
  • Excessive Share-­Based Compensation

and most troublingily:

  • No Response from CGA: Over more than a year, we have made repeated requests in person, in writing, and by telephone to CGA executives, including the company chairman, to verify or disprove the information in this report or to provide even one telephone number for even one sales office. While affable and communicative, the company has in every case refused to provide any specific responses to our questions.

As always buyer beware, but a cursory glance reveals that there could be some very serious downside in the name. And unlike RINO, the short interest here is far more manageable: just 2.72 million shares short on a 14.34 million float.

Full report (pdf):

 

 


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Wed, 01/05/2011 - 12:43 | Link to Comment bankrupt JPM bu...
bankrupt JPM buy silver's picture

And its up 3%...nuff said.  Market is greeeeeeeeeeeeeeeeeat!

Wed, 01/05/2011 - 12:44 | Link to Comment Tyler Durden
Tyler Durden's picture

It seems you have a 15 minute delay

Wed, 01/05/2011 - 12:49 | Link to Comment ZeroPower
ZeroPower's picture

Yahoo charting FTW

Wed, 01/05/2011 - 12:46 | Link to Comment Ragnarok
Ragnarok's picture

Down 8% and dropping...

Wed, 01/05/2011 - 12:56 | Link to Comment plocequ1
plocequ1's picture

Whats down?? I see all green. Please be specific..

Wed, 01/05/2011 - 13:02 | Link to Comment Ragnarok
Ragnarok's picture

Ummmm.... the topic of this article, CGA.  Are you jones'n me?

Wed, 01/05/2011 - 12:59 | Link to Comment bankrupt JPM bu...
bankrupt JPM buy silver's picture

NO not at all.  Scotia platform froze quotes on this.  Halt Imminent. Feel sorry for the moron who just filled my $5 puts.  Idiot.

Wed, 01/05/2011 - 12:45 | Link to Comment williambanzai7
williambanzai7's picture

  • Vastly Inflated Revenue
  • False Claims About Technology
  • Questionable Tax Reports
  • Possible Self- Dealing
  • Excessive Purchase Price for Gufeng Subsidiary
  • Improbable Margins
  • Dubious Related- Party Transactions
  • Huge Multiple Paid for Gufeng
  • Excessive Share- Based Compensation
This is a basic China JV due diligence checklist

Wed, 01/05/2011 - 12:51 | Link to Comment plocequ1
plocequ1's picture

Its all good. Higher stock market, Lower unemployment and fresher, crispier veggies in my Sesame Chicken. Life is good.

Wed, 01/05/2011 - 12:50 | Link to Comment Leo Kolivakis
Leo Kolivakis's picture

Be careful...lots of people automatically assume that all Chinese companies are frauds (as if we've never known US and Canadian frauds too!). What's next? Are they going to accuse Chinese solars of fraud too? -)

Wed, 01/05/2011 - 12:55 | Link to Comment geminiRX
geminiRX's picture

....they're gonna need lot's of silver for those panels which will chew those profit margins to shit. Better hope silver stays under 30

Wed, 01/05/2011 - 13:02 | Link to Comment Hephasteus
Hephasteus's picture

NO they don't. That's a design decision. Silver tabbing is chosen to make the thinnest possible panels. They could use frickin 8 guage copper tabbing if they wanted to. It's just design. It's also a bad design. They have huge resistance losses from the tabbing they use in commercial panels. Since payback is so long term on solar anyway. They might as well invest a little more or go home.

Wed, 01/05/2011 - 12:58 | Link to Comment NotApplicable
NotApplicable's picture

Of course they are all frauds! As always, criminal syndicates have no desire, let alone the ability to provide goods and services effieciently. Instead they create a grand facade, in order to steal more.

Even if a legit company forms, it is only a matter of time before it becomes a honeypot too rich for the gangs to ignore.

BTW, your comment about the US and Canada is logically irrelevent, and if anything undermines your initial point.

Fraud here, fraud there, fraud everywhere. It really makes me wonder some times about Jim Rogers.

Wed, 01/05/2011 - 13:07 | Link to Comment Godisanhftbot
Godisanhftbot's picture

 Rogers of the  BowTie Gang?

Wed, 01/05/2011 - 12:54 | Link to Comment RobotTrader
RobotTrader's picture

No professional who trades for a living would buy that kind of garbage.

Whoever bought that thing deserves to get wiped out.

FXI, on the other hand, or any other big cap Asian ETF or ADR, is doing just fine.

No need to gamble on the low grade screamers.

Wed, 01/05/2011 - 13:03 | Link to Comment Hephasteus
Hephasteus's picture

Weird. That's EXACTLY what I say about APPLE!!!

Wed, 01/05/2011 - 15:06 | Link to Comment Husk-Erzulie
Husk-Erzulie's picture

:-))

Wed, 01/05/2011 - 13:13 | Link to Comment Cdad
Cdad's picture

No professional who trades for a living would buy that kind of garbage.

What the fuck are you talking about, Robo?  Who do you think brought the garbage to market?

And again, how can actual recovery ever take place while our financial institutions are polluted with crack head bankers who cannot remember their moral codes because of the distraction of multi million dollar bonuses?  Answer...recovery cannot occur while these crooks, like those that bring Chinese garbage to our markets, continue to populate our financial institutions.

Thank you fucksticks at the NYSE for bringing all of this Chinese IPO garbage to us...thaaaaaaaaaaaaaaaaaaank yoooooooooooooou!

Wed, 01/05/2011 - 13:27 | Link to Comment Hephasteus
Hephasteus's picture

Shhh. These guys found a alien in a crashed space ship that craps super fertilizer. Don't tell anyone it's an ancient chinese secret!!!!! LOL

Wed, 01/05/2011 - 12:58 | Link to Comment bankrupt JPM bu...
bankrupt JPM buy silver's picture

Loaded up on the $5 putskies....BRING EM HOME TO POPPA!!

Wed, 01/05/2011 - 13:02 | Link to Comment geminiRX
geminiRX's picture

Looking at the put volume, the wound that is leaking blood is attracting the sharks. What month did you buy?

Wed, 01/05/2011 - 13:24 | Link to Comment bankrupt JPM bu...
bankrupt JPM buy silver's picture

Jan 22's...this should gap down tomorow around $6, and friday should be pay day.  10-4 OUT.

Wed, 01/05/2011 - 13:42 | Link to Comment geminiRX
geminiRX's picture

I bought a little time with mar puts......

Wed, 01/05/2011 - 13:00 | Link to Comment youngman
youngman's picture

I am very positive on the whole Chinese market..but there are many scams there..both individual and government sponsered...vacant cities...or stocks...housing bubbles...but on the other hand they have done very well since 1973 if I remember correctly when Nixon opened it up...look at the story of the Apple manufacturing guy....quite a story of sucess...its like anything...study a little bit before you jump in..

Wed, 01/05/2011 - 13:06 | Link to Comment Salinger
Salinger's picture

next question:

How long before Mary Mary visits the offices of ZH?

Wed, 01/05/2011 - 13:03 | Link to Comment Moric
Moric's picture

Well if someone wants to do a bit more due diligence another company to question might be Yongye http://www.google.com/finance?q=NASDAQ:YONG . 

Wed, 01/05/2011 - 13:05 | Link to Comment Caviar Emptor
Caviar Emptor's picture

I wanna know about GAGA! 

 

Get GoooGooo for GAGA!

Wed, 01/05/2011 - 14:37 | Link to Comment steve2241
steve2241's picture

Until I figure out how to post an image, hopefully in the next ten minutes, here's Ms. Gaga in all her glory http://cdn.crushable.com/files/2010/06/gagrr.jpg

Wed, 01/05/2011 - 13:06 | Link to Comment wiskeyrunner
wiskeyrunner's picture

Barrons show inflows near 1 trillion, yet zero hedge says 90 billion in outflows.

People who follow zero hedge will lose.

http://blogs.barrons.com/focusonfunds/2011/01/05/2010-etf-inflows-top-10...

Wed, 01/05/2011 - 13:10 | Link to Comment Tyler Durden
Tyler Durden's picture

Luckily, since all our data is based on facts, you are spot on that those trading based on reality may or may not lose, but those trading on mark-to-skittles will definitely win the game. And by the way, how much of the 1 trillion (not sure where you got that from incidentally) is based on fixed income, commodity, currency, and triple leveraged daytrading ETF inflows?

Wed, 01/05/2011 - 19:14 | Link to Comment rocker
rocker's picture

Thanks Thunder Dome.

Wed, 01/05/2011 - 23:06 | Link to Comment geminiRX
geminiRX's picture

According to his thesis the next big leg up in equities seems to start in June/July....meaning that pain in the Dow and S&P will begin shortly....but maybe I read the article wrong. Out of all analysts I have read, I really respect Armstrong and some of his predictions have been spot on in the past. There are many people on zerohedge that have been calling for a collapse on the stock market - and - I must admit I was one of them. However, Armstrong has a powerful theory stating that money is flowing from public to private - which means government money may float the boat of those calling for $5000 gold and Dow 18000. Money will flow into these companies, even though the majority of the population will not be consuming. 

Wed, 01/05/2011 - 13:08 | Link to Comment Hephasteus
Hephasteus's picture

The banks need healing so the Goldman JP Morge and Bernank are out stealing. When you're broke the only way to heal is other peoples assets. We need a new song. OPA.

http://www.youtube.com/watch?v=mJgFU3U4X_Y

Wed, 01/05/2011 - 13:09 | Link to Comment flaunt
flaunt's picture

Thanks for the head's up.  I need to get better at interpreting your tweets :)

Wed, 01/05/2011 - 13:09 | Link to Comment spanish inquisition
spanish inquisition's picture

Ya bums,

You Chinese think you can dump garbage on our market without going through the "proper channels"? You gotta pay for the proper investment services "fees" if you want to dump crap like an auto manufacturer or some faceweb product.

Da Squid

Wed, 01/05/2011 - 13:16 | Link to Comment cougar_w
cougar_w's picture

"Chinese Fraud"

I'm just as likely to cap on the foreigners as the next guy, but this is less about China and more about business. Meaning business as usual. The Chinese didn't invent financial innovation, Americans did. Like everything else invented in America, the Chinese are just getting in on the game.

Our biggest export in America is fraud. The Chinese bought the franchise and sold the product back to us, that's all.

Wed, 01/05/2011 - 13:49 | Link to Comment topcallingtroll
topcallingtroll's picture

Chinese fraud is a little different.  It is pervasive and primitive, made up sales and seriously fudged numbers, as well as an obvious disdain for investors even worse than in the USA.  They don't engage in financial innovation.  The small cap chinese market is just plain old primitive fraud.  There is a reason for this.  I don't think most of you realize how much the Chinese hate us and they think anything they do to us is fair  paybackfor the "exploitation" of China in the 19th century.  They blame us for China being backward, 19th century colonialism that is.  Of course they are totally innocent of fault in their failure to progress.

Wed, 01/05/2011 - 14:50 | Link to Comment cougar_w
cougar_w's picture

I think you've missed the point. Financial innovation these days is simply a code phrase for a suite of crimes involving bookkeeping fraud, insider trading, theft of public funds, and frontrunning. I have not doubt that BAC, Citi, Wells, GS and the lot would be found up to their eyeballs in felony counts (real felonies, not just felonies of public opinion) were anyone to give even a cursory look.

Old fashion crooked thumb-on-the-scales double-dealing snake-oil-peddling fraud, like back in the old country. Hasn't changed much in 8,000 years. Won't change much in another 8,000 years either, though we might be trading sea shells and feathers by that time.

Wed, 01/05/2011 - 13:34 | Link to Comment DonutBoy
DonutBoy's picture

Ok - if these puts pay-off I start supporting ZeroHedge with worthless dollars.  I need a T1 line to start front-running ZH.

Wed, 01/05/2011 - 13:46 | Link to Comment topcallingtroll
topcallingtroll's picture

cga is off it's low but death is now inevitable.  Hey TD can you follow all these micro-investment firms that put out short calls on small china US listed stocks?...This looks like easy money for a while.  There is a lot of low hanging fruit here!  Yes the chinese market in small caps is virtually all fraud.  The only difference is the size of the fraud.  If we could follow all these short reports on small chinese companies we could make a lot of money and do good at the same time.

Wed, 01/05/2011 - 13:47 | Link to Comment Diogenes
Diogenes's picture

It's not "do diligence" it's "do due diligence". And yes, I realize it still sounds like "doo doo" no matter how slow you say it.

Wed, 01/05/2011 - 13:51 | Link to Comment Tyler Durden
Tyler Durden's picture

actually it is.

Wed, 01/05/2011 - 13:59 | Link to Comment topcallingtroll
topcallingtroll's picture

actually you are both right.  YOu can do your own diligence.  I do think diogenes has the better sentence structure, because all of us had to pause for a second at the do diligence even if technicall it is also correct.

Wed, 01/05/2011 - 20:01 | Link to Comment ZeroPower
ZeroPower's picture

Who cares, we call it DD and thats that. 

Wed, 01/05/2011 - 13:53 | Link to Comment topcallingtroll
topcallingtroll's picture

you are wrong diogenes..oh wait.....you are right.....you kept the verb you just changed the object.

Wed, 01/05/2011 - 13:49 | Link to Comment Salinger
Salinger's picture

very cool, a ZeroHedge inspired Flash Crash of CGA

http://www.bit.ly/ePDjVg

Wed, 01/05/2011 - 13:58 | Link to Comment topcallingtroll
topcallingtroll's picture

naah....most zero hedge readers are not really investors.  There are a lot without any money and just hang out here for escape as they dream of the crash that solves everything and turns the USA into heaven for all.  For all the people who hang out here and don't invest a dime in the market this is just another jesus narrative....people unhappy with their lives hoping for financial armaggeddon and a better day.

Wed, 01/05/2011 - 13:59 | Link to Comment geminiRX
geminiRX's picture

Are you the greater fool?

Wed, 01/05/2011 - 14:03 | Link to Comment topcallingtroll
topcallingtroll's picture

they don't call me the troll for nothing, but I'm going on vacation.  You won't have the troll to kick around anymore, at least for a couple of wee.  Tyler this is a major break for you.  Find a way to follow the coming deluge of china small cap usa listed short reports.  This is an easy fraud to unravel and ninety percent are fraud.

Wed, 01/05/2011 - 14:19 | Link to Comment geminiRX
geminiRX's picture

I have money and I invest. I also remember a day not that long ago when fundamentals mattered and the markets were moderately free of government manipulation. All zerohedge readers want to do is continue to expose the fraud and return the markets back to the human traders.......and reduce the damn government deficit before we blow ourselves to hell! That's not asking a lot - is it?

Wed, 01/05/2011 - 14:05 | Link to Comment Oh regional Indian
Oh regional Indian's picture

What is the ownership of CGA? Mostly institutional = fraud from the start. Made company.
Mostly public. Well, then they'd deserve the sheeple tab.

my guess is largely institutional. Chinese agricultural hedge or some such excuse. East Asian Exposure.
Far Eastern Risk Mitigator.

ORI

http://aadivaahan.wordpress.com

Wed, 01/05/2011 - 14:10 | Link to Comment curbyourrisk
curbyourrisk's picture

My question....is what Chinese company can be trusted.  I deal with many here at my job and I can honestly say...I have never seen a set of books i believe.

Wed, 01/05/2011 - 17:45 | Link to Comment red2893
red2893's picture

http://theopeningrange.blogspot.com/

 

I would say it is fraud, but what would I know?

Wed, 01/05/2011 - 19:27 | Link to Comment rocker
rocker's picture

Thanks Red

Fri, 01/07/2011 - 10:37 | Link to Comment flaunt
Do NOT follow this link or you will be banned from the site!