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Latest Chinese Fraud Du Jour: Gulf Resources (GFRE), Price Target $0.00

Tyler Durden's picture





 

Another day, another worthless Chinese company - Gulf Resources: (and no kidding - this time the price target on GFRE is a rather bold $0.00). This time the report comes from Glaucus Research which promises to create another massive shorting opportunity for those who can find the borrow in this alleged Nasdaq Fraud. From the report: "we present evidence that GFRE engaged in an inappropriate self-dealing
transaction, the details of which GFRE intentionally concealed from the
SEC and investors, that GFRE’s largest customer is privately owned by
GFRE’s chairman, that GFRE engaged in dubious capital expenditures that
may have been a smokescreen for transfers of cash to insiders, and that
GFRE is exaggerating the size of the company’s operations.  We also
present evidence that the company’s CEO has a close relationship with a
notorious puppet master of Chinese small cap scams."

From Glaucus Research:

We recently conducted extensive due diligence on Gulf Resources, Inc. (“GFRE” or the “Company”). Our research included factory visits, examinations of U.S. and Chinese financial filings, and discussions with company representatives, vendors and local government officials.  
 
In our report, we present compelling evidence that a rival, privately-held Chinese conglomerate owned by GFRE’s chairman and founder, is actually the legal owner of GFRE’s factories and operating assets.  We believe that, given the difficulty of litigation in China and the complex multi-jurisdictional organizational structure of GFRE, shareholders are most likely left without a remedy.
 
In short, investors in this NASDAQ-listed company are likely holding worthless paper in a shell company.
 
In addition, we present evidence that GFRE engaged in an inappropriate self-dealing transaction, the details of which GFRE intentionally concealed from the SEC and investors, that GFRE’s largest customer is privately owned by GFRE’s chairman, that GFRE engaged in dubious capital expenditures that may have been a smokescreen for transfers of cash to insiders, and that GFRE is exaggerating the size of the company’s operations.  We also present evidence that the company’s CEO has a close relationship with a notorious puppet master of Chinese small cap scams.
 
Below are the highlights of our report:

  • A privately held Chinese company, owned by the founder and chairman of the board of GFRE, claims to own and operate all of GFRE’s assets and business.  This suggests that the chairman sold investors shares of a worthless shell entity while keeping the underlying business under a separate privately held conglomerate. Given the difficulty of litigating in China and the complex multi-jurisdictional corporate structure of GFRE, shareholders may have great difficulty in recovering any value from the company. 
  • GFRE engaged in inappropriate self-dealing by massively overpaying for a business owned by its chairman and his family.
  • GFRE has failed to disclose that its largest customer is a related party.
  • We visited each of GFRE’s factories and each appeared far smaller than indicated in GFRE’s SEC filings.  A representative from a local government office confirmed that GFRE’s production was substantially smaller than GFRE’s claims in its public filings. 
  • GFRE’s CEO has omitted the fact that he was formerly the CFO of China Finance Inc., a notorious purveyor of fraudulent Chinese microcap companies. 
  • GFRE commissioned two contractors to perform two expensive capital expenditure projects.  Despite a thorough investigation, we have been unable to find any evidence that either contractor is a working business. We believe that management may have used these suspicious capital expenditure projects as a vehicle to transfer money out of the company.
  • BDO Limited is GFRE’s 3rd auditor in 4 years.  GFRE dismissed its previous auditor, which had questioned the effectiveness of its internal controls, immediately prior to the release of GFRE’s FY 2009 Form 10-K, and replaced it with BDO limited, an auditor that has represented other publicly listed Chinese companies which have committed, or are accused of committing, fraud.

Full report:

GlaucusResearch Gulf Resources GFRE Strong Sell April 26 2011

 


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Tue, 04/26/2011 - 10:05 | Link to Comment Mercury
Mercury's picture

Zero point zero!....fraud, self dealing and conflicts of interest...O'Reilly's going to hit the roof!

The partners are already on it.

BDO?

No, we already have BDO.

Oh.

Tue, 04/26/2011 - 10:09 | Link to Comment fx
fx's picture

Let it drop to ZERO - and then BTFD!

Tue, 04/26/2011 - 10:04 | Link to Comment Hephasteus
Hephasteus's picture

MarketWatch community is quite bullish on this. Seems legit to me.

Tue, 04/26/2011 - 10:04 | Link to Comment Mercury
Mercury's picture

...maybe because all they're watching is the market.

Tue, 04/26/2011 - 10:11 | Link to Comment Hephasteus
Hephasteus's picture

I hope I don't make any money today.

I'm getting gold and silver guilt.

Tue, 04/26/2011 - 10:17 | Link to Comment UninterestedObserver
UninterestedObserver's picture

I shorted a basket of 12 RTO's a while ago - easy money.

Tue, 04/26/2011 - 10:35 | Link to Comment HedgeFundLIVE
HedgeFundLIVE's picture

The IMF is now predicting that China will pass the US, as the world’s number one economic power, within five years. That should come as a big shock, seeing that most experts were predicting it to happen in about twenty years. The US has definitely slowed as the world’s true number one, thats for sure. http://www.hedgefundlive.com/blog/china-to-surpass-us-sooner-than-expected

 

Tue, 04/26/2011 - 10:45 | Link to Comment jal
jal's picture

Where did the China learn how to do fraud in the stock market. Who were their teachers?

Were the teachers english speaking?

Maybe the chinese are not slow learners after all?

Maybe the chinese have got western partners helping them?

Dammmm it looks like its the same old players doing the same old games in a different playground.

 

jal

Tue, 04/26/2011 - 10:58 | Link to Comment centerline
centerline's picture

Sick looking chart.  Some cheap puts might be in order.

Tue, 04/26/2011 - 12:52 | Link to Comment slaughterer
slaughterer's picture

Fuck, I have 500,000 shares of GFRE in my IRA.  /sarc

Tue, 04/26/2011 - 16:12 | Link to Comment trav7777
trav7777's picture

why the fuck would anyone "invest" in the total CON that is China any longer?

And their 'economy' will pass ours?  I guess this is fitting as they are about the only bigger fraud than the USA these days

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