{ "docId": "019dd923-622c-750b-8b95-ddcaae91147c", "docSlug": "16b80d15dcb2", "documentTitle": "Sino-Forest Corporation (TRE)", "authorId": "51_Muddy_Waters", "authorName": "Carson C. Block", "documentKindSlug": "research-note", "documentKindLabel": "Research note", "sourceTypeSlug": "short_seller", "sourceTypeLabel": "Short seller", "presentationDate": "2011-06-02 00:00:00", "orientation": "portrait", "aspectRatio": 0.7070758, "pageNumber": 6, "pageCount": 40, "prevPage": 5, "nextPage": 7, "slideType": "expose_contradiction", "function": "expose_contradiction", "density": "overcrowded", "nDataPoints": 6, "notes": "The text serves as a forensic analysis of corporate filings versus actual operational reality.", "elementsJson": [ "paragraph", "footnote" ], "metadataConfidence": 1, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b95-ddcaae91147c/6", "deckHref": "/decks/019dd923-622c-750b-8b95-ddcaae91147c", "deckJsonHref": "/decks/019dd923-622c-750b-8b95-ddcaae91147c.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b95-ddcaae91147c#slide-6", "components": [ { "bbox": null, "kind": "callout", "text": "Essentially because TRE learned that it could successfully lie about operating a factory with a party known to shareholders, it went two steps further – lying about operating a trading business with a party unknown to shareholders.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd952-ee37-76cb-846b-86e4f74d1511", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.12, "w": 0.72, "x": 0.14, "y": 0.09 }, "kind": "paragraph", "text": "Forestry Bureau that it filed with the Zhanjiang City Foreign and Economic Relations and Trade Commission (\"COFTEC\") a letter containing numerous grievances. We show this letter and a translation in Appendix A5. This letter and the rest of the EJV's SAIC file make clear that the EJV never achieved the any operation remotely close to that envisioned by the partners or described by TRE in its annual reports. Moreover, the Forestry Bureau accuses TRE of misappropriating cash through improper transactions.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "369cc77f-b428-4e6b-b79a-d6b97e190294", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.11, "w": 0.72, "x": 0.14, "y": 0.29 }, "kind": "paragraph", "text": "TRE's penultimate fraudulent act in Leizhou was to claim that the Leizhou Forestry Bureau reimbursed TRE $12.43 million between 1999 and 2003 through a series of payments consisting of logs. This claim that the Forestry Bureau owed TRE in excess of $10 million dollars was a gross exaggeration of the facts and contradicts the EJV's SAIC file, improperly adding $12.43 to TRE's shareholders' equity. This type of phantom transaction would become the blueprint for TRE's massive fraud.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "9f7e93f8-42bf-4503-b8d5-6e6261ae5f0c", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.2, "w": 0.72, "x": 0.14, "y": 0.41 }, "kind": "paragraph", "text": "There was another critical outgrowth from the Leizhou EJV. Upon termination, TRE converted the company to a wholly foreign-owned enterprise (\"WFOE\"). The WFOE's business scope included \"producing and selling wood products.\" TRE wound this company down in December 2003. This is the same year it began telling investors that it used AIs to handle its sales because it was not licensed to sell woodchips and wood based products domestically. TRE wound down a business that was licensed to sell wood chips; yet, at the same time was stating that it was forced to use AIs because none of its companies were licensed to sell woodchips in the domestic market. At that time, the Leizhou WFOE could have utilized this business to take over and carry out the proprietary sales of the wood chip and processed wood business. Essentially because TRE learned that it could successfully lie about operating a factory with a party known to shareholders, it went two steps further – lying about operating a trading business with a party unknown to shareholders.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "a41a0ed1-61ca-438b-b9f8-adf43fb9b344", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.07, "w": 0.72, "x": 0.14, "y": 0.21 }, "kind": "paragraph", "text": "In its 1997 annual report, TRE claims that its Heyuan and Guangxi CJV partners took over the (fictitious) wood chip business from the Leizhou EJV – even growing it by 193% that year. Considering the base year (1996) revenue was zero, we believe investors should assume that 1997 results from the CJVs were shy of $16.1 million TRE reported.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "c04013ea-9d58-4edc-b22a-f3a5a63c7c8a", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.16, "w": 0.72, "x": 0.14, "y": 0.64 }, "kind": "paragraph", "text": "The Leizhou EJV, the Zhanjiang Leizhou Eucalyptus Resources Development Co. Ltd., came into being on January 29th, 1994. TRE subscribed to 53% of the equity, which was to total $10 million, and the total investment was established at $25 million. TRE's obligation was straightforward; it would contribute 53% of the investment in cash ($5.3 million) in phases. It was to inject 15% of the registered capital within three months of incorporation, and its portion of the balance of the registered capital within two years. It paid in one million dollars, which left a balance of $4.3 million. The Forestry Bureau was to contribute forest assets of 3,533 ha (note that this greatly contradicts TRE's Canadian filings, which state 20,000 ha), and other assets. The articles of association show that the newly formed entity was created for the specific purposes of:", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "cb771707-1df7-4c9c-aff2-90fd932c5687", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.06, "w": 0.5, "x": 0.14, "y": 0.85 }, "kind": "source-note", "text": "6 Annual Reports 1997 p. 21, 1998 p. 25\n7 Leizhou WFOE business certificate April 12, 2000 See Appendix A10\n8 2003 Annual Information, p. 22\n9 Leizhou EJV, Articles of Association, 1993 See Appendix A2", "attrs": null, "subkind": null, "toolName": null, "toolSlug": null, "confidence": null, "componentId": "ebbe0a7a-7b1a-4e73-b7ed-ec9f1df00f7f", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.02, "w": 0.32, "x": 0.34, "y": 0.61 }, "kind": "title", "text": "Leizhou EJV – The Ghost of Ventures Past", "attrs": null, "subkind": "headline", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "f72a649d-1fd7-4a66-8d07-abf32ec58c34", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [], "arcBeats": [ { "to": 40, "from": 3, "beatId": "88101fba-40c4-4ce1-bed1-ff010cf7d0c8", "arcName": "Overcoming the Monster", "arcSlug": "overcoming-monster", "beatName": "Expose Contradiction", "beatSlug": null, "evidence": "The document repeatedly exposes contradictions and suspicious transactions in Sino-Forest Corporation's business practices", "position": 0, "confidence": 0.8, "parentBeatName": null, "parentBeatSlug": null } ], "loops": [], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }