Wednesday, June 13, 2012

Value Fail: Qiao Xing Mobile

This fail should come as no surprise to anyone familiar with the name, but only recently was Qiao Xing Mobile somewhat officially outed as a fraud. Though I sold my shares months ago when the hints of fraud started coming out, I held off on this post-mortem in the hopes that this company turned out to be one of the good ones. Alas, it doesn't look that way, making Qiao Xing the latest addition to this site's Value Fail page.

Why does it now look pretty clear that this is a fraud? Consider the following:

1) The CFO resigned May 2nd for "personal reasons", and the company has not responded to the exchange's request for further info about this.

2) The independent auditor resigned May 8th. Worse, the company did not disclose this!

3) The company asked for an extension to file it's annual report, and then missed filing by that extended date and has not offered any explanation.

4) For these and other reasons, the NYSE has decided to de-list the company's shares. The NYSE argues that the company has not been publicly disclosing material events.

What can be learned from this? Well, a couple of things fooled me in 2009 when the company first drew my attention. First, it was losing money, whereas most frauds at least show profits (sometimes ridiculously so). But frauds come in all shapes and sizes, I suppose; some fraudsters appear willing to report losses!

The company also received an offer from its parent company, making its value seem legit to me. But then it turned out that this offering company was a fraud itself!

Finally, I may have been influenced by the fact that an activist investor in the US was aggressively buying up Qiao Xing Mobile's shares. But someone else's due diligence cannot replace yours! Never assume other shareholders are buying for good reason.

I'm not proud of this one. I apologize to anyone who lost money in this name because they got the idea from me.

Disclosure: No position


Anonymous said...

I lost money on this. Not sure if I got the idea from you though.

It feels better to hear your write up of the events. Thanks for the follow up.

Your work is appreciated.

Anonymous said...

no reason for apologies! thank you for the outstanding blog and all of your work that you share with us, this is one of my favorite value blogs and always thought provoking. honesty provokes progress and as long as we all learn from investments that don't go as planned then we will all have increasing success!

Anonymous said...

what a load of crap.
thanks for the memories.

Anonymous said...

Let's not be misled by the CFO's resignation.

Just because the CFO is a Singaporean does not mean he was not part of the entire scheme. He was with the cmpany since DAY 1. He might have jumped ship after hearing the intention of auditors to resign.

He is as guilty and should be brought to task for his breach of fiduciary duties and fraud - he did sign off each set of accounts over the past few years, did he not?

snowball said...

I have position in xingf but the stock does not trade anymore. Do I consider it as a pure loss ? :-(

c68d1fbc-671a-11e3-8877-000bcdcb5194 said...

With a name like Qiao Xing Mobile, what was anyone seriously expecting?

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