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  "docSlug": "637d86f8f55c",
  "documentTitle": "Duoyuan Global Water Inc. (DGW)",
  "authorId": "51_Muddy_Waters",
  "authorName": "Carson C. Block",
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  "sourceTypeSlug": "short_seller",
  "sourceTypeLabel": "Short seller",
  "presentationDate": "2011-04-04 00:00:00",
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  "notes": "This is a research note from Muddy Waters Research regarding DGW (Duoyuan Global Water).",
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      "kind": "callout",
      "text": "DGW Engages in Improper Undisclosed Related Party Transactions that Transfer Money to Chairman Guo.",
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      "text": "To create and then dismantle a sales network, replacing it with a loosely controlled distribution network upon which the Company becomes completely dependent defies conventional business wisdom.",
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      "kind": "list",
      "text": "DGW's prices are too high. Few customers request DGW's product. DGW is not competitive, and does a poor job of marketing and promotion. DWG products make up a tiny portion of his sales. DGW's main focus is on making money on stocks.",
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      "kind": "paragraph",
      "text": "We contacted one real distributor of DGW product. The information came from an investor who performed due diligence on DGW in 2009. The distributor is based in northeast China. His comments were:",
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      "text": "To create and then dismantle a sales network, replacing it with a loosely controlled distribution network upon which the Company becomes completely dependent defies conventional business wisdom. It only makes sense if the objective is to create opacity and obfuscate actual business performance.",
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      "text": "According to the genuine 2009 audit report for DGW Langfang, DGW Langfang had improper payables owed to Huiyuan as of December 31, 2009. (We show the page from the audit report listing these payables in Appendix A.) In the audit report, we see Chairman Guo attempting to obscure this information. The audit report lists different payables to Huiyuan using different Chinese characters (but having the same pronunciation) for Huiyuan's name. We have searched for the alternate entity, but there is none. Thus, both names refer to the same entity, which Chairman Guo solely owns.",
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      "kind": "paragraph",
      "text": "DGW Langfang's audit report shows that it is transferring money in undisclosed transactions to a company owned by Chairman Guo, Beijing Huiyuan Duoyuan Digital Printing Technology Institute (\"Huiyuan\").",
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      "kind": "paragraph",
      "text": "Huiyuan, a sole proprietorship, is a special type of legal entity that is particularly opaque, and therefore well-suited for draining money from DGW. Guo established Huiyuan in 2000 as a sole proprietorship with registered capital of RMB 30,000 (approximately US$3,600 in 2000). Sole proprietorships do not pay enterprise income tax, are not audited, and thus receive less scrutiny from the tax bureau and SAIC. Shareholders of sole proprietorships are deemed to be the legal owners of the proprietorships' assets.",
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      "kind": "paragraph",
      "text": "We have posted a video of our attempts to call DGW's sales offices on You Tube at the following URL: http://www.youtube.com/watch?v=udSlymgaH_g",
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      "text": "28 There is no limitation on liability for sole proprietorship shareholders. 29 Huiyuan was alternately written in the genuine 2009 audit report as 慧元研究所 and 惠元研究所.",
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