{ "docId": "019dd923-622c-750b-8b96-aa4b5c012f2a", "docSlug": "aa7e6c3950ac", "documentTitle": "TAL Education Group (TAL)", "authorId": "51_Muddy_Waters", "authorName": "Carson C. Block", "documentKindSlug": "research-note", "documentKindLabel": "Research note", "sourceTypeSlug": "short_seller", "sourceTypeLabel": "Short seller", "presentationDate": "2018-06-13 00:00:00", "orientation": "portrait", "aspectRatio": 0.77272725, "pageNumber": 49, "pageCount": 71, "prevPage": 48, "nextPage": 50, "slideType": "expose_contradiction", "function": "expose_contradiction", "density": "dense", "nDataPoints": 3, "notes": "The slide uses investigative research to challenge the legitimacy of a related party transaction.", "elementsJson": [ "callout_box", "paragraph", "footnote" ], "metadataConfidence": 1, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b96-aa4b5c012f2a/49", "deckHref": "/decks/019dd923-622c-750b-8b96-aa4b5c012f2a", "deckJsonHref": "/decks/019dd923-622c-750b-8b96-aa4b5c012f2a.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b96-aa4b5c012f2a#slide-49", "components": [ { "bbox": { "h": 0.15, "w": 0.76, "x": 0.12, "y": 0.12 }, "kind": "callout", "text": "What did TAL tell Deloitte? The GZ 1-1 transfer and buyback is a major related party transaction. What rationale or justification was provided to support the $50 million gain? Having been executed without the transfer of an entity and for non-cash consideration, what rationale was presented to the auditor to make it comfortable the transaction was not a sham?", "attrs": null, "subkind": "primary", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "227d34a2-2be9-4025-adde-a4dd69acd3a2", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "callout", "text": "The GZ 1-1 transfer and buyback is a major related party transaction.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd953-25b2-736e-8e68-52c89b451fc8", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.25, "w": 0.76, "x": 0.12, "y": 0.56 }, "kind": "paragraph", "text": "7. Websites and recruitment ads from the time of Changing Edu's purported ownership show TAL playing a key role, supporting our view that TAL never relinquished control of the business. One of the first red flags we came across was the http://gz.jiajiaoban.com website, which showed no evidence that TAL had disposed of GZ 1-1. Online teacher recruiting ads from the time also show TAL having significant ongoing involvement. The jiajiaoban.com domain is a TAL-owned domain. Using the waybackmachine, we retrieved historical versions of the website from different points in time during the purported disposal. The website continued to list GZ 1-1 among TAL's brands, and the GZ 1-1 portion's \"about us\" page continued to feature only TAL (formerly known as Xueersi) during the period of supposed non-ownership. There were no indications of Shujia or Changing Edu, nor any", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "47e2bc6c-ff3a-45f3-8725-1b6a47d0313e", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.25, "w": 0.76, "x": 0.12, "y": 0.31 }, "kind": "paragraph", "text": "6. If TAL is to be believed, Changing Edu was opening new GZ 1-1 learning centers even after it had decided that the business did not fit its strategic direction and decided to dispose of it. TAL's timeline has it reacquiring GZ 1-1 in November 2016. However, Changing Edu began increasing the store base by about 30% seemingly as it was deciding it wanted out of the business. During the period Changing EDU purportedly owned GZ 1-1, the number of learning centers also reportedly increased from 10 to 14. One of the new learning centers opened at the end of November 2016 (before GZ 1-1's purported return), and two more opened in February 2017. In total, three of the four new learning centers opened after ownership purportedly reverted to TAL, implying that Changing Edu had committed to opening these locations around the same time it decided to dispose of the business. Assuming Changing Edu really did not want to continue to run the business, such incremental investments would have been illogical.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "97b94cc8-da5a-467d-bc22-76ebb787e66c", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.12, "w": 0.76, "x": 0.12, "y": 0.82 }, "kind": "source-note", "text": "120 TAL Investor Presentations from Q2 FY2016 to Q3 FY2017. 121 According to the waybackmachine, the Baoercheng LC opened at the end of November 2016, while the Haigangcheng and Dongshankou LC's opened at the end of Feb 2017. 122 TAL FY2016, 20-F, p. 53. www.jiajiaoba.com The different cities using this domain are each given a two-letter prefix based on the cities' initials. Gaungzhou's is \"gz\", making it http://gz.jiajiaoban.com; Shanghai is http://sh.jiajiaoban.com; Tianjin is http://tj.jiajiaoban.com; etc.", "attrs": null, "subkind": null, "toolName": null, "toolSlug": null, "confidence": null, "componentId": "2049cfc1-d81e-4162-995f-12931b630923", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [ { "name": "fraud-exposure", "slug": null, "matchId": "5d10b6f4-aca1-4e8b-ab12-6b56f4fcb91e", "evidence": "The slide systematically presents red flags and logical inconsistencies to challenge the validity of a corporate transaction.", "confidence": 0.9 } ], "arcBeats": [ { "to": 71, "from": 3, "beatId": "9de0976e-28e1-420f-a107-b337349d49c9", "arcName": "Problem-Agitate-Solution", "arcSlug": "problem-agitate-solution", "beatName": "Expose Contradiction", "beatSlug": null, "evidence": "The document is primarily composed of slides that expose contradictions in TAL Education's financial reports", "position": 0, "confidence": 0.8, "parentBeatName": null, "parentBeatSlug": null }, { "to": 71, "from": 24, "beatId": "f1a1059e-e779-4948-a18b-bd7e979146da", "arcName": "Problem-Agitate-Solution", "arcSlug": "problem-agitate-solution", "beatName": "Appendix Data", "beatSlug": null, "evidence": "The document includes extensive data and financial reports to support its claims", "position": 2, "confidence": 0.8, "parentBeatName": null, "parentBeatSlug": null } ], "loops": [ { "to": 71, "from": 2, "name": "Cost Of Inaction", "slug": "27-cost-of-inaction", "bestFor": "Urgent budget requests, compliance, risk mitigation", "matchId": "173d833e-f506-46f1-a81b-f0c40e490cd2", "evidence": "The document implies that investors who fail to address these discrepancies may suffer significant financial losses", "position": 2, "objective": "What is the cost of not addressing TAL Education's financial discrepancies?", "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 }