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3 Manipulation Cases We Can Learn From
By InvestingNook  •  March 8, 2016

Case studies of companies which have been accused – but not necessarily ascertained guilty – of manipulating their financial statements provide timeless lessons to an investor.

Longtop Financial

Longtop provides a range of software solutions and services to financial institutions in China. On 26th April 2011, Citron Research released a report which alleged the following:

  1. Margins far in excess of competitors. Peers reported much lower gross margins of between 15%-50% and operating margins of 10%-25%. This was highly suspicious in cost-competitive China.
  2. Unconventional staffing model. Staffing model allowed the company to transfer the majority of its cost structure off balance sheet to another unconsolidated, affiliated company.
  3. Key management background misdeeds. Before founding Longtop, the Chairman and CEO were sued by their previous company for unfair business practices.
  4. Non-transparent management transactions. Longtop’s Chairman transferred 70% of stock holdings to employees and friends in the first four years of the company ...
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By InvestingNook
As Co-Founder and Fund Manager of Heritage Global Capital Fund, we started InvestingNook as a website dedicated to sharing the knowledge of value investing – allowing our readers achieve an edge over the markets with the knowledge of value investing.
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