L.A. Firm's China Ventures Turn Sour (Pt. 1)
MaloneBailey's heightened rigor appears to have had an immediate impact. Before the controversy erupted, the firm had about 25 Chinese clients, according to Qin, who was born and raised in Liaoning Province. (That ranks the MaloneBailey the No. 4 auditor of U.S.-listed Chinese companies this year, according to the Web site AuditAnalytics.com, behind only Deloitte & Touche, PricewaterhouseCoopers, and the New York-based Friedman.)
By analyzing bank statements for possible forgery, Qin says, the firm uncovered evidence of fraud at nine of its Chinese clients -- roughly a third. He refused to name the companies. Most appear to be listed on the over-the-counter bulletin board and the Pink Sheets. (Presumably, some of these companies haven't yet publicly disclosed MaloneBailey's red flags.) A search showed that Heli Electronics (HELI), whose stock is listed on the OTCBB, announced on April 1 that it wouldn't be able to file its 10-K on time because MaloneBailey had resigned back on March 11.
The alleged chicanery has followed a pattern, Qin says. In many instances, "bank employees are colluding with clients. The bank employee would provide us with falsified bank statements." He said his firm developed methods to detect whether those statements are real. Among other things, the firm's auditors -- many with experience working at Chinese banks, Qin says -- examine the "chops" that every official document in China needs to carry. Like a seal, a chop is meant to certify that a document is genuine. According to Qin, MaloneBailey auditors are able to detect fraudulent chops.All of which raises the question: Why hadn't MaloneBailey been auditing Chinese companies using this "method" from the very beginning? "We didn't know there was so much fraud in China when we did the 2009 audit," Qin says. "We noticed this in 2010; that's why we designed those procedures. But you're right. From hindsight, if we have done the same procedures in the 2009 audit, we would have caught the errors of fraud last year." That doesn't quite answer the question, however, when it comes to China Century Dragon, which started trading on the Amex only in February. As part of that public offering, MaloneBailey had signed off just months ago on China Century's financials, as filed with the SEC in its S-1 registration statement. When asked about this, Qin reiterated that he wouldn't comment on specific companies. He also declined to comment on WestPark. This is the first of a two-part series on Westpark Capital, accounting firm MaloneBailey and recent allegations of improper accounting at a handful of Chinese companies. Click here for Part 2 of this story. -- Written by Scott Eden in New York >To contact the writer of this article, click here: Scott Eden. >To follow the writer on Twitter, go to http://twitter.com/ScottEden. >To submit a news tip, send an email to: firstname.lastname@example.org.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV