{
  "docId": "019dd923-622c-750b-8b95-d44d4f82ec42",
  "docSlug": "637d86f8f55c",
  "documentTitle": "Duoyuan Global Water Inc. (DGW)",
  "authorId": "51_Muddy_Waters",
  "authorName": "Carson C. Block",
  "documentKindSlug": "research-note",
  "documentKindLabel": "Research note",
  "sourceTypeSlug": "short_seller",
  "sourceTypeLabel": "Short seller",
  "presentationDate": "2011-04-04 00:00:00",
  "orientation": "portrait",
  "aspectRatio": 0.7070758,
  "pageNumber": 19,
  "pageCount": 21,
  "prevPage": 18,
  "nextPage": 20,
  "slideType": "expose_contradiction",
  "function": "expose_contradiction",
  "density": "overcrowded",
  "nDataPoints": 4,
  "notes": "This is a research note from Muddy Waters Research regarding DGW Langfang.",
  "elementsJson": [
    "paragraph",
    "footnote"
  ],
  "metadataConfidence": 1,
  "imagePath": null,
  "slideHref": "/slides/019dd923-622c-750b-8b95-d44d4f82ec42/19",
  "deckHref": "/decks/019dd923-622c-750b-8b95-d44d4f82ec42",
  "deckJsonHref": "/decks/019dd923-622c-750b-8b95-d44d4f82ec42.json",
  "deckAnchorHref": "/decks/019dd923-622c-750b-8b95-d44d4f82ec42#slide-19",
  "components": [
    {
      "bbox": null,
      "kind": "callout",
      "text": "Muddy Waters, LLC believes that DGW is the biggest fraud we have encountered so far in terms of revenue overstatement.",
      "attrs": null,
      "subkind": null,
      "toolName": "Visual emphasis",
      "toolSlug": "visual-emphasis",
      "confidence": null,
      "componentId": "019dd953-0934-771a-b7aa-002629424d9b",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": null,
      "kind": "metric",
      "text": "share price: $1.00",
      "attrs": null,
      "subkind": "primary",
      "toolName": "Quantification",
      "toolSlug": "quantification",
      "confidence": null,
      "componentId": "019dd953-0934-771a-b7aa-04654a1d0a2f",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.09,
        "w": 0.76,
        "x": 0.12,
        "y": 0.52
      },
      "kind": "paragraph",
      "text": "We estimate DGW’s value at less than $1.00 per share. Muddy Waters, LLC believes that DGW is the biggest fraud we have encountered so far in terms of revenue overstatement. We are unable to determine how much cash is left in the Company, and we believe that the book values of assets are overstated. Unfortunately we believe that shareholders will ultimately be able to recover very little of value from the Company.",
      "attrs": null,
      "subkind": "paragraph",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "5186ecd2-1b6c-41da-826e-50c0064ca184",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.18,
        "w": 0.76,
        "x": 0.12,
        "y": 0.09
      },
      "kind": "paragraph",
      "text": "The 2009 Annual Audit Report of DGW Langfang showed an account payable balance of RMB 26.2 million (US$3.8 million) to Huiyuan at year-end. The payable grew 434% during 2009. This payable is unusual because (among other reasons) the payable is far more than the revenue DGW Langfang generates. Further, Huiyuan is in the printing business (if it has a business other than tunneling cash out of DGW) – we cannot conceive of a justification for DGW to be doing business with Huiyuan. Most importantly, DGW does not disclose these related party transactions in its SEC filings.",
      "attrs": null,
      "subkind": "paragraph",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "671e8c7c-7005-4541-bd2e-340dfcc7557a",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.05,
        "w": 0.76,
        "x": 0.12,
        "y": 0.28
      },
      "kind": "paragraph",
      "text": "Despite Huiyuan’s equity capital being de minimus, and recording no revenue in 2009 according to its SAIC file, it has managed to make investments totaling at least RMB 30.5 million (US$4.5 million) in other entities over the years.",
      "attrs": null,
      "subkind": "paragraph",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "866c7fa0-b816-41fc-a104-d175f61b3653",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.07,
        "w": 0.76,
        "x": 0.12,
        "y": 0.39
      },
      "kind": "paragraph",
      "text": "On September 28, 2010, DGW announced that its board of directors had engaged Skadden, Arps, Slate, Meagher & Flom LLP to conduct a review of DGW’s internal controls. We understand that the review has taken longer than originally expected. Given our findings, Muddy Waters expects the review to identify material deficiencies.",
      "attrs": null,
      "subkind": "paragraph",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "daf48d41-ab8b-475c-be75-d7e4653b3bbe",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.02,
        "w": 0.6,
        "x": 0.12,
        "y": 0.87
      },
      "kind": "source-note",
      "text": "http://www.sec.gov/Archives/edgar/data/1465317/000095012310089367/h04504e6vk.htm",
      "attrs": null,
      "subkind": null,
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "040f3458-f1a0-4c71-85f3-d05d2316b7d4",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.02,
        "w": 0.25,
        "x": 0.12,
        "y": 0.35
      },
      "kind": "title",
      "text": "DGW’s Internal Review",
      "attrs": null,
      "subkind": "headline",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "19309071-93af-40e9-be42-2b1b9dab79a4",
      "frameworkName": null,
      "frameworkSlug": null
    },
    {
      "bbox": {
        "h": 0.02,
        "w": 0.18,
        "x": 0.12,
        "y": 0.48
      },
      "kind": "title",
      "text": "Estimated Value",
      "attrs": null,
      "subkind": "headline",
      "toolName": null,
      "toolSlug": null,
      "confidence": null,
      "componentId": "328c265b-a18e-421b-b828-2b48d7929c37",
      "frameworkName": null,
      "frameworkSlug": null
    }
  ],
  "metrics": [],
  "tools": [],
  "frameworks": [
    {
      "name": "fraud-exposure",
      "slug": null,
      "matchId": "0f2670e0-5515-48e8-b864-d6e59a39978f",
      "evidence": "The slide explicitly identifies related-party transactions, lack of disclosure, and revenue overstatement as evidence of fraud.",
      "confidence": 0.9
    }
  ],
  "arcBeats": [
    {
      "to": 21,
      "from": 17,
      "beatId": "5af8849d-b9b4-4c1e-a118-da97d93b54f7",
      "arcName": "Overcoming the Monster",
      "arcSlug": "overcoming-monster",
      "beatName": "The Victory",
      "beatSlug": "overcoming-monster-the-victory",
      "evidence": "The document concludes by presenting evidence of DGW's improper transactions and financial discrepancies.",
      "position": 3,
      "confidence": 0.8,
      "parentBeatName": "Turn",
      "parentBeatSlug": "turn"
    }
  ],
  "loops": [
    {
      "to": 19,
      "from": 18,
      "name": "Cost Of Inaction",
      "slug": "27-cost-of-inaction",
      "bestFor": "Urgent budget requests, compliance, risk mitigation",
      "matchId": "592e62bb-68f4-4abe-95c2-89fa30c41d92",
      "evidence": "The document implies that inaction would lead to further financial discrepancies and damage to investors.",
      "position": 3,
      "objective": "To highlight the cost of inaction in addressing DGW's fraud",
      "structure": "The Status Quo -> The Hidden Costs Accumulating -> The Future State of Inaction -> The Tipping Point",
      "confidence": 0.6,
      "description": "Quantify what happens if the audience does nothing"
    }
  ],
  "imagePathAlt": null,
  "thumbSrc": null,
  "thumbSrcAlt": null,
  "locked": true
}