Alibaba Fraud?

Reading time: 574 words, 2 to 3 minutes, 2 pages.

Alibaba, Chinese, DotCom and IPO are four words that should ring alarm bells with investors.

1) Alibaba claims they’re a combination of eBay and Amazon and last year their customers allegedly spent more than on both. Yet both those companies have entirely different operating models so how could such a combination work for long? Competitors are already nipping at their heels. All I can see is they’re both large, well-known companies so invoking their legendary names might well lure investors to Alibaba.

2) They’re Chinese. So was Sino-Forest, once a darling of the Toronto Stock Exchange. Sino-forest fraudulently claimed to operate hundreds of thousands of hectares of prime forest land hoping to acquire real forestry companies in North America. That is until they were called out by short sellers, Muddy Waters, sinking Sino-Forest’s $6 billion stock valuation into bankruptcy in 2011. Today their case is still wending its way through the Ontario Securities Commission hearings where the best description that Sino-Forest’s lawyers can come up with is, “the unique business and cultural requirements of operating in mainland China” which is another way of saying, well, that’s how they do things in China.

Another example is Silvercorp, a Chinese miner once touted by Casey Research and whose resources were as imaginary as Sino-Forest. Their stock price plunged from a high of $14 to less than $2.

3) It’s been 14 years since the Dot. Bomb bust and investor’s goldfish-brief memories are notoriously short and have again achieved a nirvana of complacency. Maybe it is different this time? Where have we heard that before?

4) Company stock Initial Public Offerings (IPO’s) are the darlings of investors seeking yield in a zero interest rate world making them desperate and extremely stupid. Wall Street and Bay Street banksters love IPO’s for the commissions and obscene bonuses they earn.

Don’t forget that China’s economy has no transparent oversight and completely lacks any framework for dispute resolution. They’ve had 5,000 years to perfect graft and corruption into a national art form while we innocent westerners were painting ourselves blue and living in caves in Europe.

Don’t forget that the Chinese have allegedly met every GDP growth forecast to the decimal every month, every quarter and every year for almost two decades. I might have been born at night, but not last night.

And, don’t forget that in the folk tale Ali Baba and the Forty Thieves Ali Baba knows the secret to break into the den of thieves. Coincidence, I’m sure.

Lastly, why bother hacking retailers like Target for their credit card data when Alibaba can get millions of customers to freely give them their credit card numbers? It sounds like a sweet deal alright, but not for customers or investors, but for Alibaba, the thieves and the banksters.

No doubt Alibaba’s stock price will take off for a while after the IPO. Then the smart money will bail out, taking their profits and leaving the poor widows, orphans and pensioners holding the bag.

I smell a Sino-rat. Perhaps, we could start an office pool; when will Alibaba cave?

September 17, 2014

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About gerold

I have a bit of financial experience having invested in stocks in the 1960s & 70s, commodities in the 80s & commercial real estate in the 90s (I sold in 2005.) I'm back in stocks. I am appalled at our rapidly deteriorating global condition so I've written articles for family, friends & colleagues since 2007; warning them and doing my best to explain what's happening, what we can expect in the future and what you can do to prepare and mitigate the worst of the economic, social, political and nuclear fallout. As a public service in 2010 I decided to create a blog accessible to a larger number of people because I believe that knowledge not shared is wasted.
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2 Responses to Alibaba Fraud?

  1. Heidi Yu says:

    Don’t you think if regulators can not accept “that’s how they do things in China”, they should not let the Chinese companies list on the markets in the first place? Don’t you think their is truth which will not change, no matter you accept “that’s how they do things in China” or not?

    Take Sino-Forest as an example. The question is: Did Sino-Forest own 800,000 hectares of forests in China or not? If Sino-Forest owned the forests, the forests will not disappear simply because the regulators do not accept “that’s how they do things in China”.

    • gerold says:

      You’re right, regulators should not have accepted Sino-Forest in the first place, but I suspect regulatory listing requirements are not stringent enough to have caught Sino-Forests scheming attempt to convert imaginary assets to real assets. Remember, it took the in-depth investigation of Muddy Waters to uncover the fraud.

      Then too, the OSC can’t deny every Chinese company just because they’re Chinese. The way things are done in China may be acceptable there, but Chinese companies are expected to meet OSC regulations here.

      The OSC is pursuing Sino-Forest through regulatory channels and NOT through Canadian courts so even if fraud is proven, no one is going to jail. That’s too bad because it sets a bad precedent and simply encourages more fraud.

      Does Sino-Forest actually have 800,000 hectares? If they did, would they have gone bankrupt? I think not.

      Bottom line: think twice before buying into Alibaba’s IPO.

      – Gerold

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