Citron's Fraud

Legal actions initiated against Citron

The Citron Fraud Examiners — Wed, 10 Oct 2012 10:35:11 +0000

Qihoo plans legal action against Citron

Qihoo 360 Technology Co. Ltd. (“Qihoo 360″ or the “Company,” NYSE: QIHU), a leading Internet company in China, today initiate legal procedure against Citron Research and its main contributor Mr. Andrew Left (“Citron”). The Company has sent a letter to Citron and demands Citron immediately cease and desist from committing any and all improper and/or illegal activities in relation to its untruthful publications or statements regarding Qihoo 360. Without limiting the generality of the forgoing, the Company demands Citron (1) correct or remove those untruthful sections in the Publications within ten (10) days upon the receipt of the letter, and (2) apologize to Qihoo 360 for Citron’s undue activities. Qihoo 360 reserves its right to pursue further legal remedies.

Source: Qihoo’s announcement on Sina Weibo

Kai-Fu Lee initiates legal action against Citron

I wrote a fact-based report challenging Citron’s reports on China search companies. Citron has not explained any of the errors I brought up, but instead has attacked me personally with accusations that have no factual basis and are not truthful. Such malicious statements have been deliberately and publicly made in order to damage my reputation, in an attempt to avoid address my criticisms of Citron’s report. I have no choice but to file a lawsuit against Citron and Mr. Andrew Left.

Letter from Chinese Top Web Game Companies to Citron

The Citron Fraud Examiners — Thu, 13 Sep 2012 07:26:59 +0000

We, a group of nine Chinese gaming companies, join forces to take up Citron on its recent challenge that Qihoo’s ARPU claim of 400 RMB is fraudulent, “demonstrated” by Citron’s comparisons with other gaming companies in its reports. We prove here that Citron’s analysis lacked basic understanding of the Chinese gaming market. Citron compared different types of companies against each other, and didn’t even understand how ARPU is measured (!). We pooled our gaming statistics together to form a trusted third-party validation of gaming ARPU for Qihoo and its true peers, and we found that: 1) Qihoo’s ARPU is just about average in a group of five comparable gaming platform companies, and 2) The average ARPU of a large number of popular games on the Qihoo platform is also in line with Qihoo’s reported number. Like the earlier reports published on www.citronfraud.com, this report once again shows that Citron knows very little about Chinese market and companies, and that its analysis is as amateurish as its claims outrageous.

Mr. Left: Game over. You lose!

Letter from Chinese Top Web Game Companies to Citron

Recently, the following challenge from Citron’s Mr. Andrew Left caught our attention:

[Qihoo claims the games offered by Qihoo] generate a massive monthly ARPU of 400 RMB, more than six times the most average of publicly traded gaming companies in China, and triple that of ARPU’s of publicly traded game companies in any country. Citron believes this claim is fraudulent. If you can factually explain and defend Qihoo’s gaming revenue claims, Citron Research will donate 100k RMB in your name to a charity of your choice.

This offer enticed us, a group of top web game developers and operators in China, to get details of Citron’s report discussing QIHU’s game business. After carefully reading it, we are quite shocked by Citron’s lack of understanding of the Chinese gaming market. We hereby take on Mr. Left’s challenge and will point out errors and omissions in Citron’s argument, and demand Citron to make the promised donation.

1. Citron compared apples to oranges…and to bananas!

Citron said in their paper:

Nobody in the games business, in China or the US or anywhere, generates $53.00 per month per paying customer – not NTES, not CYOU and not SNDA. Other Chinese games vendors report ARPU’s approximately $3 to $8 per month USD. ZNGA generates about $1.00 to $4.00 per month per paying customer, depending on which number you compute. Even the “gold standard” Blizzard International, whose World of Warcraft is in a league of its own for online gaming, charges US and European gamers, who typically pay far more than Chinese gamers, $15/month for subscription.

But NTES, CYOU, SNDA, ZNGA and ATVI are in totally different spaces of games!

Here is some basic knowledge that we think Mr. Left should have acquired before he pumped out his report.

Currently, in the Chinese online game market, there are five major types that are widely accepted in the industry:

Source: iResearch Report on The Development of Chinese Web Game Industry in 2011 (Press release and PDF version, both in Chinese)

Every good and professional market research firm knows that the revenue models, industry eco-system, target audiences, user bases, distribution channels, costs of user acquisition, game life spans, and ARPUs of each type of games are vastly different from one another. And this will make the comparison and conclusion totally different.

Mr. Left didn’t point out the difference between the games in his report and compared QIHU’s games with different type of games. He either does not understand such difference or, even worse, he just deliberately conceals those facts to make his fraudulent argument for economic gains.

Mr. Left’s main argument is that ARPU of QIHU is higher than that of other companies. But QIHU’s game business is a web game operator while the other companies he lists are either client-based MMORPG studios (NTES, SNDA, CYOU & ATVI) or social game producer (ZNGA). And ARPU differs greatly for these different categories.

Web game companies include operators and studios that develop or operate web games that can be played directly from the user’s Internet browser without downloading additional software. Such games typically attract “casual” game players who play the games in fragmented time slots. Client-based MMORPG companies develop games with much longer life cycle and target serious game players who devote significant playing time to one game for a prolong period.

Mr. Left’s comparison is like comparing the price of home mortgage vs. hotel room. He is advised to compare Westin with Marriott prices, not with HSBC payments!

2. Citron doesn’t know how to measure ARPU

Can the ARPU of a web game company be much higher than that of a client-based MMORPG company? Absolutely, and here are the reasons:

1) Web games attract users who have shorter attention span, and therefore monetization tends to be heavier in the beginning to maximize economic return for developers during web games short life cycle; Client-based MMORPG games, on the other hand, try to create a loyal user base and generate recurring income for a prolong period of time. Therefor MMORPG games tend to spread monetization over years, thus may appear less intense (in terms of monetization).

2) We have data from most major web game developers in China and their games’ ARPU on major operators’ platforms. The data shows that the average ARPU to be consistently around RMB 400 – 600, with QIHU within the range. For example, one major web game’s ARPUs across key operators are:

4) Another important difference is the way ARPU is calculated. While monthly ARPU is always total revenue divided by paying users in a month, the definition of “paying users” are different.3) We note that the only web game platform company with a meaningfully lower ARPU is Renren (NYSE: RENN). The reason for that is because while there is some overlap between Renren and QIHU’s games, Renren’s users are largely students with lower disposable income, and since Renren is a social network, many of its games are social games. Both of these factors drive the ARPU lower.

For client-based MMORPGs, the “user-denominator” is the number of active paying accounts, which equals to “the number of game player accounts that spend virtual currency at least once during a given period,” as SNDA defined in its Annual Report 2010
For web games, the denominator is the number of users who purchase virtual currencies during this month. Clearly, the web game user-denominator is much smaller than the MMORPG user-denominator, as the virtual currencies are purchased at a lower frequency and then spent over time. Therefore, web game ARPU is higher simply due to the different denominators.

Mr. Left’s comparisons is like a shopper complaining to Costco: “Your apples are so expensive!”, only to find out that Costco’s price is per crate, not per apple!

The abovementioned facts expose Mr. Left’s poor understanding of Chinese gaming market and adoption of wrong analytical methodology. Of course, to compel him to donate 100,000 RMB, we will also need to demonstrate that QIHU’s web game ARPU are real. Please read on.

3. Qihoo’s web game ARPU is comparable to its peers, and validated by third-party independent data

Let’s look at Qihoo’s true peers. Among the web game operator platforms that have a similar user base and game composition, the following companies’ platforms are similar to that of Qihoo’s.

37wan
PPS
Qidian
Yaowan

Since Citron states Qihoo’s self-stated ARPU is fraudulent, we the undersigned shall use our own ARPUs to crosscheck Qihoo’s results. We, as a group of nine leading Chinese web game developer, collectively developed thirteen very popular games, which represent a significant majority of Chinese web game industry (excluding Tencent)，by disclosing average ARPU of our flagship games across all major web game platform, The nine undersigned developers who voluntarily contributed to this study are:

Xindong Games (心动游戏)
Guangzhou Feiyin (广州菲音)
7Road (第七大道)
Game Reign (上海锐战)
UUZU (上海游族)
Gamewave (趣游)
37wan
LineKong (蓝港在线)
Zeus Interactive (天神互动)

And the 13 top web games that operated across platforms including Qihoo are：

傲剑
傲视天地
大侠传
凡人修真2（仙剑情）
火影世界
剑侠奇缘
龙城
龙将
商业大亨
神仙道
神曲
盛世三国
十年一剑

We pooled our data, and obtained their ARPU on various platforms. These 13 games contribute over 60% of Qihoo’s total web game revenue by our estimate, as well as over 60% of the revenue of Chinese web game industry (excluding Tencent). Then we calculate average ARPU of the 13 games on each platform, as shown below in the table below (for confidentiality, the specific ARPUs are redacted, but the average is shown below):

From the above table, we see that all platforms have ARPU in range 310 – 447. We note that Qihoo’s ARPU is very much in line with its peers. And our independently computed 434 RMB ARPU for Qihoo is also very similar to the numbers Qihoo asserted.

Conclusion

We have demonstrated in this letter that ARPU cannot be compared among different types of gaming companies because 1) the nature of the businesses are different, 2) ARPU is computed differently among them. Citron seems unaware of these basic differences, despite their claim that they know China.

We have also demonstrated and crosschecked two ways that Qihoo’s numbers are reasonable. We showed that other platform companies like Qihoo have similar ARPU, and that our independently derived Qihoo ARPU is consistent with Qihoo’s self-stated ARPU. We are surprised that Citron chose call Qihoo “fraudulent” and to recommend shorting a stock, without pick up the phone to call a few companies.

Like the earlier reports published on www.citronfraud.com, this report once again shows that Citron knows very little about Chinese market and companies, and that its analysis is as amateurish as its claims outrageous.

Now that we have proven that Qihoo’s numbers are reasonable, and that Mr. Left’s accusations missed the mark again, we respectfully request that Mr. Left send the donation to One Fund and the wiring information is as below:

One Foundation
Account Name：Shenzhen One Foundation
Bank Name：China Merchants Bank
Bank address：China Merchants Bank Tower, No.7088, Shennan Boulevard, Shenzhen, China
Note: Please fill in the One Family Donation Form and fax it to +86-21-6335-0291 or email it to idonation@one-foundation.com

开户单位：深圳壹基金公益基金会
银行：招商银行总行营业部
人民币账号：755917671010888
银行地址：广东省深圳市福田区深南大道7088号
捐款后，请将您的信息填入壹家人捐赠信息反馈表，
传真到 021-63350291  或邮件发送至 idonation@one-foundation.com

Signatories (In alphabetic order):

HUANG Yimeng, CEO, Xindong Games
HUANG Kai, CEO, Guangzhou Feiyin
LI Yifei, CEO, 37wan
Titan LIM, CEO, UUZU
Ben MENG, COO, 7Road
WANG Feng, CEO, LineKong
YU Guanglai, Founder, Game Reign
YU Hong, CEO, Gamewave
Andy ZHU, CEO, Zeus Interactive

______

[The Chinese version was originally posted on Zhihu.com]

Response to Citron’s Legal Threat

The Citron Fraud Examiners — Thu, 13 Sep 2012 06:39:09 +0000

Media Reports Blast Citron for Erroneous Reports

The Citron Fraud Examiners — Wed, 12 Sep 2012 14:21:31 +0000

WSJ-Chinese Backlash Hits Short Seller

By LORETTA CHAO

BEIJING—A number of prominent technology leaders in China, including current and former executives from Google Inc. and Microsoft Corp., are mounting an offensive against short seller Citron Research, protesting a spate of what they call unfair and inaccurate attacks on U.S.-listed Chinese companies.

Kai-Fu Lee

Led by Kai-Fu Lee, former head of Google’s operations in the country, a group of more than 60 executives, investors and entrepreneurs signed a letter accusing China-focused short sellers—particularly Citron—of “targeting legitimate companies with either no problems or minimal problems,” manipulating information to write reports that “boldly tell lies, knowing that their American readers have no way of verifying them.” Mr. Lee is one of the most prominent technology executives in China, and currently runs an incubator for technology start-ups called Innovation Works.

In an interview, Mr. Lee said he fears that what he considers baseless allegations by Citron and others will make it “harder and harder for Chinese companies to go public in the U.S., which is neither good for China nor the U.S.”

The group has created a new website, Citronfraud.com. The focus is in part on Citron’s criticism of antivirus software and Internet-services provider Qihoo 360 Technology Co., listed on the New York Stock Exchange. Qihoo 360 Chief Executive Zhou Hongyi is one of the letter’s signees.

“Movements only evolve around real threats,” said Andrew Left, founder of Citron, who said Mr. Lee has distorted his reports. “If what I wrote was false, then you wouldn’t need a movement around it … I am more than happy to defend [my statements] in a court of law.” Mr. Left said he has shorted Qihoo, but didn’t disclose the size of his position.

Mr. Left also pointed out that an investor in Mr. Lee’s incubator, Sequoia Capital, is also a Qihoo backer.

Mr. Lee, who said he doesn’t own Qihoo shares, confirmed that Sequoia is his investor, and added that Qihoo and Qihoo competitors are also investors, but said that didn’t have bearing on his decision to take action. “What Citron and other companies like it are doing is creating a prejudice that makes it difficult for companies we invest in to go public … that’s the agenda.”

The group of signees includes a number of prominent venture-capital and angel investors in China. Such investors provide funding for start-ups and stand to profit heavily if the companies sell shares to the public. Among the notable members is Zhang Ya-Qin, chairman of Asia-Pacific research and development for Microsoft.

Enlarge Image

Short sellers borrow shares to sell them with the hope of buying them back at a lower price and pocketing the difference, so they stand to benefit from causing share prices to drop. Investigations by short sellers have triggered a wave of delistings of Chinese companies by U.S. stock exchanges and the U.S. Securities and Exchange Commission.

This has cast a cloud over Chinese companies listed in the U.S., and analysts say it is in part the reason why share prices of larger companies have come down as well, including prominent U.S.-listed Chinese Internet firms like online video company Youku Tudou Inc. and Sina Corp, owner of the Weibo microblogging service.

“Obviously, short selling is good” and these sellers have been “exposing problems and companies with issues,” said Fan Bao, chief executive of investment bank China Renaissance Partners, who signed the letter. “But it got to a point where they are very indiscriminating, and are, in our opinion, going after some good companies.”

The group’s assertions will likely renew focus on the state of corporate research in China. In recent months, the Chinese government has made it more difficult to access financial information, including audited reports, for private companies as part of a broad information crackdown. Some investors say that has added to the already difficult task of ascertaining the state of company finances and operations.

“It’s very difficult to get the truth” about Chinese companies, said Mr. Left, whose research group has written about several firms that have been delisted and investigated. “Many times it’s not as transparent as it should be.”

Among other things, Citron alleges that Qihoo 360 overrepresented average gaming revenue per user and other financial data, and that it lacks the infrastructure and experience to run a successful search business. Mr. Zhou, Qihoo’s CEO, denies misrepresenting any numbers, saying that if he did so it would be apparent to Qihoo’s dozens of partners who share revenue with the company.

As for Citron’s assertions about Qihoo’s potential in the search business relative to competitors, Mr. Lee says Citron makes erroneous comparisons and lacks a “basic understanding” of the Chinese Internet market.

Mr. Left said he stands by his track record, and added that he has been looking at the Chinese market for years and uses respected third-party research in his reports. Citron says on its website that it has researched and published information on 20 Chinese companies. It says the majority have suffered significant losses in share price and seven have been delisted.

“In the beginning, short sellers were serving a very good purpose for the environment because of a lot of fraud that they exposed,” said Mr. Lee. But “a lot of companies are legitimate, and people are feeling that this speculation has been hurting otherwise innocent companies…as well as the general trust in any Chinese company.”

Mr. Bao of China Renaissance Partners said some of his clients are already asking about alternative listing options. “Whereas the U.S. was the default” place to go public for Chinese start-ups, the coming year will “be the real test” to see where “some of the [initial public offering] candidates in the pipeline decide to IPO. You’ll see a lot more variety of choice.”

The signees also include Wang Xiaochuan, chief executive of Sogou, the search unit of Nasdaq-listed Sohu.com Inc.

Sohu.com isn’t among the companies criticized by Citron—the short seller actually praised the firm, calling it “the most compelling investment of any China technology company trading in the U.S.”

Bloomberg-Chinese Executives Sign Letter Denouncing Short Sellers

By Bloomberg News
(Corrects to remove inaccurate reference to 360buy investor and corrects job title of Microsoft’s Zhang in third paragraph of story originally published Sept. 4)

A group of 61 Chinese entrepreneurs and executives signed an open letter accusing Citron Research and other short-sellers of manipulating information and misleading investors in reports about Chinese companies.

Short-sellers “take advantage of the information asymmetry between China and the U.S., and boldly tell lies, knowing that their American readers have no way of verifying them,” according to the letter, which has been posted to an English- language website created for an “ongoing fight against” short sellers.

Executives who signed the letter include Lee Kai-fu, former head of Google Inc. (GOOG)’s operations in China, Zhang Ya-qin, chairman of Microsoft Corp. (MSFT)’s research and development in Asia, and Liu Qiangdong, founder and chief executive officer of 360buy Jingdong Mall.

The iShares FTSE China 25 Index Fund (FXI), the biggest Chinese exchange-traded fund in the U.S., has fallen 5.2 percent this year as Citron Research, Muddy Waters LLC and other short sellers published reports on companies including New Oriental Education & Technology Group Inc. (EDU) The Standard & Poor’s 500 Index has gained 11.9 percent during that same period.

In response, Citron posted a statement on its website saying that the “attack” ignored its track record of “exposing wrongdoing in both Chinese and U.S. companies.” Short selling involves the sale of borrowed stock to profit from a subsequent decline.

Citron’s recent targets include Evergrande Real Estate Group Ltd. (3333), which last month reported a 21 percent decline in its first-half underlying profit. In a June report, Citron said the Chinese developer “has used accounting tricks and bribes to hide the fact that it is truly insolvent.” Evergrande denied the report, said its cash flow is sufficient and filed a police report in Hong Kong over allegations.

China Daily-Industry leaders protest Citron Research's reports

Do you admit:

Xinhua-Commentary: U.S. firms poison reputations of China start-ups for profit

by Xinhua writer Liu Jie

BEIJING, Sept. 5 (Xinhua) — Chinese entrepreneurs’ moves to strike back at U.S. short-sellers have revealed a malicious act: turning a profit at the cost of the reputations and destinies of China’s start-up businesses.

According to a group of 61 Chinese entrepreneurs led by Kai-Fu Lee, former head of Google China, Citron Research and other similar companies have issued negative reports about Chinese companies — some of which have few problems or even no problems at all — so they could make a profit by short-selling the companies’ stocks.

The latest victim is Qihoo 360, a promising anti-virus software and Internet service provider. Citron has issued reports full of inaccurate analyses of the company and the Chinese Internet market, according to Lee.

Lee said Citron lacks a basic understanding of the Chinese Internet and search engine market, distorts data and “compares apples to oranges.” Citron has said it would be happy to defend itself in a court of law.

Lee has written four open letters to Citron, with convincing technical details in the eyes of Chinese IT industry insiders.

In fact, the “blame China” game has been played quite often in contemporary U.S. society. From the presidential campaign to capital markets, painting an ugly face on China helps politicians win votes and helps short-sellers reap fortunes.

However, when basic facts are disregarded, such moves will prove shameful, at best.

To be honest, a small number of Chinese companies have falsified data and reports to woo investors in the U.S. stock market. However, they have paid for their mistakes, as many withdrew from the market last year or saw their share prices plunge.

But that is not the whole picture, as a majority of companies comply with laws and rules.

Citron and other short-sellers have taken aim at growing Chinese businesses, knowing they may not be as familiar to U.S. investors as some big-name companies. They know that due to information asymmetry investors can hardly verify the facts provided in their reports, given the geographical distance and lack of publicity about newer companies.

Industry heavyweights have never been the targets of short-sellers because it is more difficult to smear them. But small businesses have not been so lucky.

In the eyes of many Chinese entrepreneurs, the New York Stock Exchange is an ideal place to go public due to its mature rules and infrastructure. NASDAQ is seen as an incubator for start-up businesses and is admired by both Chinese bosses and investors.

But unjustified attacks on Chinese companies based on unreliable and ludicrous reports to potential investors are likely to shift the opinions of these entrepreneurs.

With the U.S. economy floundering for so long, the United States cannot afford to have a capital market that attracts little interest or participation from Chinese companies.

Therefore, the United States Securities and Exchange Commission needs to seriously investigate the short sellers and treat Chinese companies fairly and honestly for the sake of the U.S. stock market’s own prosperity.

Global Times-Business leaders slam Citron

By Wang Xinyuan
Led by former Microsoft and Google executive Kai-Fu Lee, technology and business leaders have launched a campaign to fight back at US short seller Citron Research, blaming the short seller for issuing faulty reports on US listed Chinese stocks Tuesday.

Lee is currently chairman and CEO of Innovation Works, an early stage incubator of high tech companies.

A total of 60 technology and business leaders signed an open letter condemning Citron for practicing fraud rather than exposing fraud. The letter was posted on a newly established website www.citronfraud.com on August 27.

The letter tracked unlawful records of Citron’s founder Andrew Left, stating that the short seller’s reports “take advantage of the information asymmetry between China and the US and boldly tell lies, knowing that their American readers have no way of verifying the facts.”

The move to attack the US short seller is aimed at encouraging the Chinese companies to sue the misleading short sellers and tarnish their reputation so that they lose trust of the investors, as well as to prevent them from issuing further fraudulent reports, Lee said in a Sina Weibo interview Tuesday.

“Citron spread rumors in their reports and I have submitted evidence…but I personally cannot sue it (Citron) because they did not short sell my company,” Lee said.

Citron recently released a report titled “Qihoo’s entry into search puts Sohu in play,” in which it accused New York Stock Exchange-listed Chinese antivirus software provider Qihoo 360 of financial fraud. Qihoo 360 chairman and CEO Zhou Hongyi is also among the signees of the open letter.

Lee pointed out that Citron’s report is based on faulty analysis of search engines and lacks basic understanding about the sector.

Andrew Left of Citron rebutted Lee Monday in a message posted on Citron’s website saying Lee is defending Qihoo because Qihoo is Lee’s investor.

“Lee has raised $180 million from a group of investors led by none other than Qihoo 360,” Left said Monday.

But Lee refuted Citron’s allegation Tuesday saying that Qihoo is not an investor in Innovation Works but the smallest passive corporate investor in a fund that Innovation Works co-manages.

“Documents we have submitted to the US Securities and Exchange Commission contain true information and are valid…We reserve the right to take legal action to fight against any fraud accusation and personal attack,” Qihoo said in a statement sent to the Global Times Tuesday.

American investors may not understand some Chinese companies’ unique business models as well as Chinese institutions, and short sellers’ simplistic reports without adequate field research may mislead investors, Li Weidong, research director at consultancy ChinaVenture, told the Global Times.

There are numerous institutions issuing research reports in the US and investors trust them, Li said.

Like US-based Muddy Waters, Citron is known for first selling shares of companies which it believes are misleading investors and write a negative report to prompt others to sell in panic, and then buys back at much lower prices and makes lucrative profits quickly.

Citron began attacking Chinese stocks in 2006 with good record when back-door listings or reverse mergers exposed a number of fraudulent Chinese companies in the US.

But with tightening rules in both China and the US, it has been getting hard for Citron to find fraudulent Chinese companies, and it has gone so far as to spread rumors through negative reports on legitimate stocks, according to citronfraud.com.

Tech In Asia-Shit Gets Real, and Personal, as Chinese Business Leaders Slam Short Sellers Citron

A bunch of Chinese business leaders have grouped together to set up CitronFraud.com, a site dedicated, it says, to exposing “the lies Citron tells about China.” Citron Research is a financial analysis firm and short seller that, says the group of over 60 businesspeople in their first collective post, routinely practices “deception” in its attacks on US-listed Chinese stocks. The post goes on to explain:

We are investment professionals and company founders/executives in China. We are joining together in this effort to expose and condemn the deception and ignorance of Citron and other short sellers like them. This English website (citronfraud.com) is being created to host this ongoing fight against fraud. […] Citron’s reports take advantage of the information asymmetry between China and the US, and boldly tell lies, knowing that their American readers have no way of verifying them.

Attacked by Chinese tech leaders: Citron Research founder Andrew Left

The Citron slam got personal very quickly, as Citron’s founder Andrew Left (pictured right) was branded “a man with a long record of fraud, deceit, and unlawful behavior.” That includes how Andrew was fired from his first ever job in 1998 for misleading and defrauding customers, as ruled by an investigation by the National Futures Association. Just fours year later he departed the role of CEO at Detour Media after the company “sued him for stealing six checks worth about $25,000.” The CitronFraud site asks:

One has to wonder why an investor would trust the investment advice of someone with a record of fraud, deceit, and unlawful behavior.

But, hey, we’re talking about the financial trading sector here, so that’s a bit like asking why one weasel mates with another.

Who’s behind CitronFraud? Among the many signed names are the CEOs of major Chinese tech firms – usually the kind of stock that Citron and other short sellers like Muddy Waters attack in their reports – as well as investment groups. Unsurprisingly, the biggest victim of Citron’s recent four reports is on the list: Zhou Hongyi, CEO of Qihoo 360 . Also in the group is the former head of Google’s China operations, Kai-Fu Lee, who first took umbrage with Citron last week when he pointed out a number of factual errors in its report on the search engine Sogou.com.

A bit like Fox News being anything but fair and balanced, we have long since noted that Citron seemed to lack a true understanding of China’s web scene, and this new site should be a useful check-and-balance on the short sellers’ claims, and a useful reference tool for overseas investors. And a source of hilarious personal slams.

Morning Whistle-Chinese IT entrepreneurs team up against Citron

The Register-China's tech giants gang up on short seller

Microsoft, SAP and others accuse market analyst Citron of fraudulent practices
By Phil Muncaster

A group of 60 Chinese entrepreneurs, CEOs, investors and regional heads of global tech concerns including Microsoft and SAP has turned their collective fury on short seller Citron Research, arguing the firm is deceiving the market by finding fault in firms where there is none.

The group launched an astonishing attack on Citron and its founder Andrew Left in an open letter posted to a new blog titled, rather unambiguously, Citron’s Fraud.

It begins thus:

Citron is an ‘investment analysis company’ owned by Mr. Andrew Left, a man with a long record of fraud, deceit, and unlawful behaviour. Citron’s reports take advantage of the information asymmetry between China and the US, and boldly tell lies, knowing that their American readers have no way of verifying them.

We are investment professionals and company founders/executives in China. We are joining together in this effort to expose and condemn the deception and ignorance of Citron and other short sellers like them.

The group says that some negative reports on Chinese companies listed in the US have “helped cleanse the environment”, but the likes of Citron have “started targeting legitimate companies with either no problems or minimal problems”, and told bare-faced lies.

The signatories include Charles Wu, VP IBM Greater China, Hera Siu, president of SAP China, Zhang Ya-Qin, president of Microsoft Asia R&D, Wang Xiaochuan, CEO of search engine Sogou, and Zhou Hongyi, chairman of browser and security giant Qihoo 360.

Another key figure behind the campaign against Citron is Kai-Fu Lee, former head of Google operations in China, who has had run-ins with the short seller before when he slammed a Citron reportwhich was highly critical of Qihoo.

Interestingly, Anonymous Analytics, the research arm of the hacktivist group, recently also exposed what it claimed to be fraudulent activity at Qihoo.

For his part, Left hit back in a blog post, claiming that Lee has a vested interest in going after Citron.

“Kai-Fu Lee has raised $180 million from a group of investors led by none other than Qihoo 360! And none of this relationship has been disclosed in his postings about Citron Research or his postings defending Qihoo 360,” he wrote.

It should be noted, however, that Sohu CTO Wang Xiaochuan also signed the letter against Citron, even though his firm actually came out looking pretty good.

Long time China market watcher Bill Bishop has also questioned the quality of Citron’s analysis.

It’s certainly true that short sellers like Citron are an irritant. It’s also true that any inaccuracies in reports from firms like Citron may cease to be such a major problem if investors were granted greater access to financial data from private Chinese firms. ®

FT-Short selling: China tech fights back

by Kathrin Hille

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Just a year ago, nobody was surprised when a US-listed Chinese company was being accused of fraud and lies. One after another, firms that had gone public through reverse mergers were accused by short-selling firms like Citron Research or Muddy Waters to have cooked the books or misled investors.

But now Andrew Left (pictured), the man behind Citron, is under fire himself. Some of the people often counted among the best and brightest in China’s technology industry are ganging up against him, warning of “fraudulent analysts” and urging investors not to listen to him.

“We strongly believe there is a huge pool of legitimate, exciting, and valuable companies in China. Citron and other short sellers’ recent efforts to slam legitimate companies and deceive investors are despicable,” the group of five dozen executives from technology companies, venture capital funds and startups said in an open letter on Monday.

Left, in an interview with beyondbrics, denied all the claims made against him.

On a dedicated website, the Chinese group pledges to host an “on going fight against fraud”.

The list of signatories includes foreign company executives such as Zhang Ya-Qin, the president of Microsoft’s R&D in Asia, and Charles Wu, an IBM Greater China vice president. But one-third of the names on the list are those of venture capitalists and other people who finance Chinese tech start-ups. The push is led by Kai-fu Lee, the former Google China head who now runs Innovation Works, a start-up incubator, and the country’s most prominent tech insiders.

He got the ball rolling a week ago when he ridiculed Citron for a recent report, claiming that the short-seller lacked the most basic understanding of the business of Sohu, one company it was discussing. Left, Lee showed, had mixed up Sohu’s search product, its browser and its Chinese-language text entry tool.

Left said that Lee’s rebuttal was “a strawman. I gave a complete sum-of-the-parts analysis. It was irrelevant to the whole body of work.”

Their initiative against the short-sellers is not surprising. Left’s business model of shooting down many US-listed companies which are Chinese has added to an already challenging environment for fostering fledgling Chinese tech firms.

But the counter-attack is more than just an industry hurting. Things have become a little more challenging for the short-sellers in targeting Chinese companies for a while.

Evergrande, one of China’s largest real estate companies, has aggressively rebutted attacks by Citron and Muddy Waters, another short-seller. Left’s attacks on Qihoo, in particular, have been less than successful. Ever since he started targeting the company late last year, he has been criticised for errors and carelessness in his reports. The company itself has fought back vigorously, and its shares, trading at US$18 at the time of Left’s first report, rather than falling to his target price of US$5, closed at US$22.39 last Friday.

It remains to be seen if the initiative will gain wider traction.

On Tuesday, the new website ran Lee’s fourth open letter to Citron, in which he accused the firm of getting the facts wrong yet again on several counts concerning himself and his fund.

“Citron’s mudslinging on individuals is as unprofessional and false as their mudslinging on companies. Also this reminds them they should answer our questions, rather than bring up irrelevant and wrong information about Dr. Lee,” he wrote.

Left has published another blog post on the debate, and said that “there is a process: these are US-listed companies, so call the SEC, or sue me, I’m a US citizen… I think the reports are accurate. You can always find things to criticise or call careless. You can’t deny my track record.”

Additional reporting by Rob Minto

Kai-Fu Lee’s Ten Questions for Citron

The Citron Fraud Examiners — Wed, 05 Sep 2012 12:17:18 +0000

by Kai-Fu Lee

Citron has used (provably incorrect) personal attacks on me to shift investors’ attention away from the core issue – that Citron lacks basic understanding about China, and fabricated or exaggerated false data to mislead investors. Below are ten questions for Mr. Andrew Left. Please answer them directly and don’t mince words.

Do you admit:

You lack even the most basic understanding of the Chinese search market, especially in your fabrication of the pinyin search product that can bypass Baidu and win share? [C1, L1] （This is like saying the Microsoft Xbox-Office can win share from PlayStation!) [L3]
You used obviously wrong China market share numbers to mislead investors? You described Sogou has having 10% market share [C3], even though whether revenue or traffic, the truthful number is about 3-5%. [L3]
You have no clue how search monetization works, and projected Qihoo to be unable to build an infrastructure to monetize search for years, when they could easily get $98 million revenue in 2013? [L1] You had no ads could be “outsourced” to Google Adwords, and huge infrastructure was not necessary? [C1]
You want your readers to measure high-tech companies by their revenue and age, but not revenue growth, earnings, or earnings growth? [C1, C3, L1, L3]
You supplied what you believe to be fraudulent data [C1, C3] for your readers to compare the potential of two companies?
You admitted that your original valuation of $679M [C1] was too high for Sohu’s video business, but explained you really meant “just an opinion that $200M is too low”? [C3] (Arbitrarily increase by more than 3x when you think something is too low?) [L3]
You would give same valuation increase to two companies when one’s market share increased 10% and the other 0%? [C1, C3, L1, L3]
You stated that navigation site and portal site valuation could be compared by web traffic [C3], totally ignoring the better monetization and lower cost for navigation sites? [L3]
You mistakenly said Qihoo led the investment into Innovation Works? [C4, L4] (in reality, Qihoo was NOT an investor in Innovation Works, but just the smallest corporate LP holding 1.7% in a fund that Innovation Works co-manages. Also Qihoo is a big competitor for Innovation Works, and will not be investing in any of the funds we directly manage.)
You mistakenly said there is bad blood between me and Sohu/Sogou? [C4, L4] (I have a good relationship with Sohu executives – ask them! Another proof is that Sogou CEO signed the letter condemning you, even though you said his company was the best investment in China .)

[C1] Left, “Qihoo’s entry into search puts SOHU in play” Aug 24, 2012
[C2] Left, “Open Letter to Kai-Fu Lee”, Aug 30, 2012
[C3] Left, “Reply Points to Kai-Fu Lee”, Aug 31, 2012
[C4] Left, “The Final Word on Citron vs. Kai-Fu Lee Debate”, Sep 4, 2012
[L1] Lee, “China Short Sellers: Exposing Fraud, or Practicing Fraud?”, Aug 27, 2012
[L2] Lee, “Kai-Fu Lee’s Second Letter to Citron”, Aug 31, 2012
[L3] Lee, “Kai-Fu Lee’s Third Letter to Citron“, Sep 3, 2012
[L4] Lee, “Kai-Fu Lee’s Fourth Letter to Citron“, Sep 4, 2012

[This letter was originally posted on Zhihu.com]

Kai-Fu Lee’s 4th Letter to Citron, Sep 4

The Citron Fraud Examiners — Tue, 04 Sep 2012 06:50:58 +0000

Again, Citron chose to continue to evade Dr. Lee’s questions and criticism on their erroneous report and, under attack by the 61 business leaders for fraud, put together an attack on Dr. Kai-Fu Lee today. They had four main points, and here are Dr. Lee’s responses:

1) Qihoo led the investment into Dr. Lee’s company.
Response: No! Qihoo is not an investor in Dr. Lee’s company (Innovation Works). Qihoo is the smallest passive corporate investor in a fund that Innovation Works co-manages (with about 80 investors). Qihoo is perhaps the biggest competitor for Dr. Lee’s companies. And Qihoo will not be an investor going forward in Dr. Lee’s own new fund.

2) Qihoo led the investment into Dr. Lee’s company. Dr. Lee did not disclose that.
Response: Dr. Lee volunteered that disclosure to WSJ (WSJ can vouch for that), and the information is also in the public domain. As an “investigative reporting” company, Citron was too incompetent to even find that! What happened to Citron’s “nose”?

3) Sequoia is an investor in Qihoo and Dr. Lee’s company (actually co-managed fund).
Response: So?

4) Sohu/Sogou is a company Dr. Lee hates due to disputes of the past, so he is attacking Citron for helping Sohu/Sogou.
Response: Actually after the dispute with Sohu/Sogou, Dr. Lee has got to know both Sohu and Sogou CEO, and there is strong mutual respect among them. Sogou CEO joined this condemnation for Citron despite Citron’s praise for his company. Note that not everyone acts out of personal spite like Mr. Left, but people like Dr. Lee and Sogou CEO values integrity higher.

Dr. Lee has made very clear that he does have an interest in stopping Citron’s fraud, because Dr. Lee’s company has invested in 50 companies, most of which plan for US IPO. If Citron’s fraud continues to fool American investors, it would create an unfair and hostile environment for Dr. Lee’s investments. The same concern has been expressed by the 21 investors with their names signed on the condemnation letter.

Citron’s mudslinging on individuals is as unprofessional and false as their mudslinging on companies. Also this reminds them they should answer our questions, rather than bring up irrelevant and wrong information about Dr. Lee.

________

REFERENCE | Citron Research: The Final Word on the Citron vs Kai-Fu Lee Debate?

WSJ Report on Citron: Chinese Backlash Hits Short Seller

The Citron Fraud Examiners — Mon, 03 Sep 2012 18:30:46 +0000

Chinese Backlash Hits Short Seller

BY LORETTA CHAO

BEIJING—A number of prominent technology leaders in China, including current and former executives from Google Inc. and Microsoft Corp., are mounting an offensive against short seller Citron Research as they protest a spate of what they call unfair and inaccurate attacks on U.S.-listed Chinese companies.

Chinese Business Leaders Condemn Citron

The Citron Fraud Examiners — Mon, 03 Sep 2012 18:15:57 +0000

Chinese Business Leaders Condemn Citron

_____________________

Citron is an “investment analysis company” owned by Mr. Andrew Left, a man with a long record of fraud, deceit, and unlawful behavior. Citron’s reports take advantage of the information asymmetry between China and the US, and boldly tell lies, knowing that their American readers have no way of verifying them.

We are investment professionals and company founders/executives in China. We are joining together in this effort to expose and condemn the deception and ignorance of Citron and other short sellers like them. This English website (citronfraud.com) is being created to host this ongoing fight against fraud.

We urge investors to seek trustworthy professionals for investment advice regarding Chinese companies, and not rely on institutions and individuals with fraudulent history, falsified expertise, and interest conflict.

_____________________

To Whom It May Concern:

For the past few years, a number of “China Short Sellers” have been publishing negative reports on Chinese companies (typically listed in the US). When these reports were accurate and discovered problems in the Chinese companies, they have helped cleanse the environment.

However, recently some of these “China Short Sellers” started targeting legitimate companies with either no problems or minimal problems. Their reports would take advantage of the information asymmetry between China and the US, and boldly tell lies, knowing that their American readers have no way of verifying them. An example of such a report is Short Seller Citron Research’s report “Qihoo’s entry into search puts SOHU in play“, which has been critiqued by Dr. Kai-Fu Lee in his “China Short Sellers: Exposing Fraud, or Practicing Fraud?” We applaud Dr. Lee’s accurate exposure of Citron’s seven errors of gargantuan proportions.

We are investment professionals and company founders/executives in China. We strongly believe there is a huge pool of legitimate, exciting, and valuable companies in China. Citron and other short sellers’ recent efforts to slam legitimate companies and deceive investors are despicable. We are joining together to expose and condemn the deception and ignorance of Citron and other short sellers like them. This English website (citronfraud.com) is being created to host this ongoing fight against fraud.

Finally, China is not well understood by foreign investors, so we urge investors to seek trustworthy professionals for investment advice regarding Chinese companies, and not rely on institutions and individuals with fraudulent history, falsified expertise, and serious interest conflict.

Signed on behalf of individuals (listed alphabetically within each group):

Investment Companies
Bai Wentao, Founding Partner, Share Capital
Cha Li, Founding Partner, iStart Ventures LLC
Chen Datong, Managing Partner, West Summit Capital
York Chen, Managing Partner, IDTech Ventures
Cadol Cheung, Founding Partner, Fuel Capital
David Ho, Founder & Chairman, Kiina Ventures
Kai-Fu Lee, Chairman & CEO, Innovation Works
Li Yunlong, TusPark Ventures
James Mi, Managing Partner, Lightspeed Ventures
Gavin Ni, Managing Partner, Zero2IPO Ventures
Lawrence Pan, Founding Partner, China SageWater Capital, Inc.
Xu Xiaoping, Managing Partner, Zhen Fund
Charles Xue, Angel Investor
Andy Yan, Founding Partner, SAIF
Raymond Yang, Founding Partner, WestSummit Capital
Ye Don, Tsing Capital
Charles Yen, Vice Chairman, Vincera Capital
Jeffrey Zeng, Senior Managing Director, Citic Capital
Zhou Wei, Partner, Kleiner Perkins Caufield & Byers
David Zhang, Managing Partner, Matrix Partners
Allen Zhu, Partner, GSR Ventures

Company Executives
FENG Jun, Chairman & CEO, Aigo
GONG Haiyan, Founder & Co-CEO, Jiayuan.com
Alan GUO, Chairman & CEO, Lightinthebox.com
HE Boquan, Founder, Le Bai Shi (Robust)
JIANG Tao, President, CSDN
Ricky LEI, CEO, Hinge Software
LI Ya, COO, Phoenix New Media
Alvin LIU, Chairman & CEO, A8 Music Holdings, Ltd.
Richard LIU, Chairman & CEO, 360Buy.com
LIU Wei, President, Giant Interactive
NIU Wenwen, President & Chief Editor, Entrepreneur Magazine
Hera SIU, President, SAP China
SONG Jun, Chairman, AMAA(Beijing)
SUN Taoran, Chairman & President, Lakala
TAN Zhi, Former President, Focus Media
WANG Xiaochuan, CTO of Sohu.com and CEO of Sogou
Charles WU, Vice President, IBM Greater China
Nick YANG, co-Founder, Kongzhong
YANG Xiangyang, Chairman, Yuanzheng Ventures
YU Minhong, Chairman & CEO, New Oriental
ZHANG Ya-Qin, Mentor , AMAA
ZHOU Hongyi, Chairman & CEO, Qihoo 360

Investment Banking & Analysis/Consulting
Bao Fan, Chairman & CEO, China Renaissance
Chen Hong, Chairman & CEO, Hina Group
Wang Ran, Chairman & CEO, eCapital
Henry Yang, Chairman & CEO, iResearch

Entrepreneurs
Dai Kun, CEO, Comhui.com
Huang Guangming, CEO, Manboker
Lai Weixiao, CEO, Seeyoo
Evan Shen, CEO, Byban
Song Yanlin, CEO, Nanothink
Wang Yu, CEO, Shanghai Yuking Chemtech Co. Ltd
Xie Lei, CEO, Ormita Commerce Network
Xi Ming, CEO, Hunan Century-Express
Xu Hailing, CEO, Kiel Technology (HongKong) Ltd
Zeng Weijing, CEO, Tmimi
Zeng Zhaoxia, CEO, Cheeris
Vinson Zhang, CEO, Heroitte Analytics
Zhao Pu, CEO, O.C.T.mami
Zhao Xuesong, CEO, Mowidi
Allen Zhao, CEO, Earth&People
Zhou Xiang, CEO, Kancart
Zhu Nathan, CEO, Suzhou Langran Network Technology Co. Ltd
Zuo Lei, CEO, ThinkLand

Kai-Fu Lee’s 3rd Letter to Citron, Sep 3

The Citron Fraud Examiners — Mon, 03 Sep 2012 18:00:25 +0000

Dr. Lee responds to Citron’s Letter of Aug 31

_________________________

In Mr. Andrew Left’s “point-by-point” response dated August 31, 2012, he completely evaded Dr. Lee’s original seven criticisms, and chose to just mince words. Dr. Lee’s new response below restated the seven clear criticisms, and also pointed out the following new observations from Mr. Left’s letter dated August 31:

Mr. Left’s unwillingness to engage on the direct accusation that he totally misunderstood Sogou’s product line should be taken as an admission of ignorance
Mr. Left’s understanding of a company he recommends is at the level of an analyst who says : “Buy Microsoft because the Xbox+Office product will beat PlayStation”.
Mr. Left made a new statement about market share that is off by a factor of 2-3X!
Mr. Left admits that he used what he considered fraudulent data in his recommendation, without revealing the “fraud” to new readers.
Mr. Left comically restates “a valuation of $697M” as “just an opinion that $200M is too low”.
During a period where company’s market share went from 0% to 10%, while another stayed flat at 4.5%, Mr. Left concludes the two companies’ valuations should increase by exactly the same amount.

_________________________

On August 31, 2012, Citron’s Andrew Left issued a response to my two letters and seven points. Below are my point-by-point rebuttal to him:

1. Citron lacked basic understanding of Chinese search market.

2. Citron misunderstood Sogou products and combined two products into one.

a. My main point in these two sections was that Mr. Left didn’t even possess a rudimentary understanding of Sogou’s products and their competitiveness. His lack of understanding was comically demonstrated in his fabrication of a new product by combining two basically unrelated products! I will take his silence on this point as his acknowledgement of his inept understanding of all the products offered by the company that he is recommending. (Imagine an analyst recommending Microsoft because “Xbox will defeat PlayStation because Microsoft Office is integrated with every Xbox game”!!!)

b. Regarding the NEW points he brings up:

i. Mr. Left now claims Sogou is about 10% the size of Baidu. Does he mean revenue or search share? Let’s try both: Baidu’s 2012 Q2 revenue was $859M, and Sogou’s was $30M. Baidu’s Q2 search share was 86.32% and Sogou’s was 4.54%. So Sogou is 3.5% or 5.3% of Baidu, not 10%. It is appalling that Mr. Left as an analyst could be off on his market share numbers by a factor of 2-3!

ii. Mr. Left states that Qihoo “might gain a 10% foothold in search in China, after several years”. The fact is that Qihoo has 10% now.

iii. Mr. Lefts states that Qihoo’s search compared to a fully monetized search is comparing “apples” to “oranges”. He is completely wrong, and didn’t get the basic points I made about using Google AdWords. Google AdWords can be added to the existing Qihoo search in about one quarter, and it would produce $98M of revenue per year. This has been done by AOL, ask.com, and Tencent’s Soso. This is about converting oranges to orange juice (with a proven juice machine), not apples!

3. Citron compared apples to oranges in its web traffic analysis, and did so unfairly.

a. Again, Mr. Left ignores my points that: 1) comparing web traffic is not a meaningful way to compare two companies’ market value (Yahoo has three times the traffic of Amazon, but only one-seventh the value), 2) it is not meaningful to compare web traffic of two companies in different businesses (MSN had more traffic than Google for a long time, but are not comparable), and 3) Citron distorted the data to get the result it wanted.

b. Mr. Left states that “portals and navigation sites were both gateways” thus they’re in the same category.” In China, Navigation sites’ purpose is to send the users to another site (possessing much value as it serves as a recommendation engine that could be monetized); portal sites’ purpose is to keep users there (costing a great deal to build all the content). I would prefer to own a “navigation site” that has one-half the traffic of a “portal site”. It monetizes better, and costs less to run. These are simple points missed by Mr. Left, who appears to want to use Alexa to determine stock price.

4. Citron omitted critical data in its financial comparisons of Sohu and Qihoo.

a. Mr. Left states that “The “financial comparisons” between Sohu and Qihoo are for every investor to draw their own conclusions”. But he left out revenue and earnings growth! How can an investor draw conclusions without the most critical data? If Mr. Left wants to compare the financial performance, then he must follow industry practice and provide revenue and earnings growth. His approach of doing financial analysis omitting the most critical information (in order to reach his wrong conclusion) is outrageous!

b. Mr. Left states that it is OK to leave out the revenue and earnings growth figures in assessing Qihoo because the company revenue numbers are fraudulent. In that case, Mr. Left’s usage of the revenue information directly is even more fraudulent. Why did Mr. Left use what he considers to be fraudulent data in his analysis? (and not pointing it out to the first-time readers!)

5. Citron did not understand search monetization and zeroed $98M of revenue.

a. There are three points: (A) When Qihoo used Google search and ads, analyst predicted $100M revenue in 2013, (B) When Qihoo used its own search, and no ads, it would receive $0, (C) If Qihoo used its own search but Google’s ads as I suggested, it would get back the $98M in 2013.

b. Both of Mr. Left’s defensive points are just mincing words: (1) Qihoo’s management stating zero search revenue was about (B) only. (2) Mr. Left’s acknowledgement of analyst $100M estimates are about (A) only. They do NOT answer my criticism of his report.

c. My criticism was simply that: Mr. Left’s original paper mentioned (A) and (B) but not (C). In other words, Mr. Left assumed it would take years for Qihoo to build the monetizing infrastructure, thus negatively affecting revenue. Mr. Left did not understand that Qihoo did not need to build an ad infrastructure, and can just use Google AdWords. No amount of word-mincing will trick people to think Citron understood this basic point.

6. Citron’s video analysis was ludicrous, and missed obvious business issues.

a. My criticism was on Mr. Left’s statement: “we’ve assumed a valuation of SOHU’s video matching Tudou ($679M).” This was outrageous, and I gave four business reasons to discredit his analogy. In Mr. Left’s “rebuttal”, he now restates his position to be “JP Morgan’s $200M is too low”. I will accept his restatement ($679M down to “more than $200M”) as admission that he was originally guilty of “undisciplined and wild copy-pasting of numbers.”

7. Citron’s adding market cap from one company to the next was wild and ridiculous.

a. My original point was very simple: Citron took Qihoo’s market cap gains in four days and simply adding it to Sogou’s market cap, during a period when Qihoo’s market share went from 0% to 10%, while Sogou’s went from 4.5% to 4.5%. This is shocking. Mr. Left’s reply was that this was somehow related to JP Morgan’s analysis (???). His evasiveness is not surprising, as there can be no way to justify that kind of wild analysis.

It is interesting that Mr. Left’s “rebuttal” didn’t answer any of the issues I brought up in my original paper. This is understandable because his report had fundamental flaws and errors. It is ironic that Mr. Left has said in the past: “I only tell the truth. We run everything by a team and if we are unsure of it, we don’t publish it”. It certainly seems that his definition of “truth” is not from this planet.

Kai-Fu Lee

___________

REFERENCE | Citron Research: Reply Points to Kai-Fu Lee August 31 [PDF]

(This article was originally posted on Zhihu.com)

Kai-Fu Lee’s 2nd Letter to Citron, Aug 30

The Citron Fraud Examiners — Thu, 30 Aug 2012 04:20:29 +0000

August 30, 2012

Dear Mr. Left:

Thank you for responding to my letter. To remind you, the main points in my letter were:

Citron lacked basic understanding of Chinese search market.
Citron misunderstood Sogou products and combined two products into one.
Citron compared apples to oranges in its web traffic analysis, and did so unfairly.
Citron omitted critical data in its financial comparisons of Sohu and Qihoo.
Citron did not understand search monetization and zeroed $98M of revenue.
Citron’s video analysis was ludicrous, and missed obvious business issues.
Citron’s adding market cap from one company to the next was wild and ridiculous.

In your response, you chose only to say that I “did not properly represent” your statements in (4), and for the other six points, you said you did not want to “go back and forth”, and respected my knowledge. Since you have implicitly acknowledged the other six points, I also agree it’s not necessary to “go back and forth” on point (4).

Interestingly, you chose to bring up several other issues which had NOTHING to do with my letter, so I see no need respond. Perhaps someone else will take you up on the 100K RMB offer, and if they do, I hope they will donate the money to an anti-fraud cause.

Kai-Fu Lee

___________

REFERENCE | Citron Research: Open letter to Kai-Fu Lee Aug 30 [PDF]

(This letter was originally posted on xueqiu.com)