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  "documentTitle": "Duoyuan Global Water Inc. (DGW)",
  "authorId": "51_Muddy_Waters",
  "authorName": "Carson C. Block",
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  "presentationDate": "2011-04-04 00:00:00",
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  "notes": "This is a text-heavy research note page documenting specific instances of corporate fraud.",
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      "text": "Muddy Waters caught DGW red handed (and hopefully red faced, but we doubt that Chairman Guo really cares). It replaced the genuine 2009 audit report in its SAIC file with a forged 2009 audit report.",
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      "text": "Muddy Waters Research",
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      "text": "revenue: $85.7 million",
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      "text": "Our extensive surveillance of DGW’s factory supports the RMB 2.3 million (US$0.3 million) revenue figure. As detailed in the next section, we saw no product shipments and very little manufacturing activity during our tours and surveillance of the factory.",
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      "text": "Duoyuan Clean Water Technology Industries (China) Co. Ltd. (“DGW Beijing”) 2009 SAIC financial statements showed revenue of RMB 3.3 million (US$0.5 million), and a loss of 30.5 million (US$4.5 million). These numbers likely consolidate some – if not all – of DGW Langfang’s results. Thus DGW’s consolidated 2009 revenue ranges from RMB 3.3 million (US$0.5 million) to RMB 5.6 million (US$0.8 million).",
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      "text": "Until October 2009, DGW’s corporate structure was simple – DGW Langfang produced all of DGW’s products at its facility at 6 Xiangyundao Road. It then sold the products to DGW Beijing, which in turn sold them to DGW’s distributors. (In Different Flowers from the Same Garden: DGW and DYP, we discuss how DGW’s corporate structure became significantly more complicated post-IPO in order to make it easier to drain investor funds.) Historically DGW booked approximately 75% of its consolidated revenue in Langfang and the balance in Beijing. Because Langfang is the heart of DGW’s operation, we focused our research on it.",
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      "text": "Muddy Waters caught DGW red handed (and hopefully red faced, but we doubt that Chairman Guo really cares). It replaced the genuine 2009 audit report in its SAIC file with a forged 2009 audit report. Again, audit reports are available for download on the Muddy Waters website (see supra for links).",
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      "text": "We authenticated the original 2009 audit report, which was prepared and certified by Langfang Zhongtianjian Certified Public Accountants Co. Ltd., as accurate and genuine by two means: 1) we compared the documents with audit reports issued by the same auditor for other Langfang-based entities controlled by Chairman Guo, and 2) we had an experienced PRC auditor review all of the reports. The following describes some of the major telltale signs of forgery by comparing the two 2009 audit reports:",
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      "text": "We viewed and copied DGW Langfang’s SAIC file in February and March 2011. Subsequent to our obtaining the genuine DGW Langfang 2009 audit report in February, which shows that it only generated 2009 revenue of US$0.3 million, DGW replaced the report with a forgery. The forged report shows DGW Langfang generated 2009 revenue of US$85.7 million. DGW also inserted a forged 2008 audit report that shows revenue of US$61.7 million. DGW had clearly become worried about being exposed as a fraud, and was taking countermeasures.",
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      "text": "Creating Value DGW Style: Forging PRC Audit Reports.",
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