China Short Sellers: Exposing Fraud or Practicing Fraud?, Aug 27

Posted by The Citron Fraud Examiners on August 27, 2012 under Replies to Citron | 1,126 Comments to Read

by Kai-Fu Lee

Recently, several “China Short Sellers” have developed a scheme to make themselves rich. First, short a US-listed China stock. Then, write a negative report on that company. After the stock drops, cover the short, and pocket a huge profit. This practice itself is already questionable, but what is despicable is how these short sellers take advantage of the information asymmetry between China and the US, and write reports full of holes and lies, knowing that their American readers have no way of verifying them. This paper dissects one such example, Short Seller Citron Research’s report “Qihoo’s entry into search puts SOHU in play” (August 24). This paper will show that Citron lacks even the most basic understanding of the Chinese Internet/Search market, yet it fabricates and distorts information to deceive investors. It is not my intention to support or challenge Citron’s recommendations, but only to expose Citron’s ignorance and deception, and raise the question whether any investor should ever trust them.

Citron lacks basic understanding of search

The most ludicrous part of Citron’s report is its faulty analysis of search engines and basic misunderstanding search engine Sogou’s strategy and products.

First, some background for those unfamiliar with the Chinese market:

Sogou is a company majority owned by Sohu, and produces three products:
1. Sogou.com search, comparable to Google.com search.
2. Sogou browser, comparable to IE or Chrome browser.
3. Sogou Pinyin IME (input method editor). An IME is a “soft keyboard” that converts typed roman character input (like “beijing”) into Chinese characters (like “北京”). IMEs are installed in Windows/Mac and are general purpose text-entry tools (not just for search).
Sogou IME is the leading IME in China, with about 74% penetration.
Sogou browser is an emerging browser that has increased its user penetration from 5% in 2010 to over 20% recently.
Sogou search has had about 1% market share until Sogou Browser became successful. As Sogou Browser increased its penetration to over 20%, Sogou search also increased its share to 3-4.5%.
Browser market share can increase search market share, because many Chinese users have a habit of searching from the browser directly. Only about half of the search queries are entered on a search engine’s webpage.
Pinyin IME is a software product basically detached from search, and has no direct relationship with search engines. (Note that a few IMEs including Sogou have experimented with a feature to encourage users to search directly from the IME, with disappointing results, as it is not natural.) Empirically, search market share and IME market share can be shown to be virtually uncorrelated.

The above points are validated by the following table, showing search market share (from iResearch), as well as Sogou Pinyin and Sogou Browser market penetration (from Sohu):
Read more of this article »

Tags: Citron, QIHU, SOHU

About Citron and Andrew Left

Posted by The Citron Fraud Examiners on August 17, 2012 under The Truth | 1,120 Comments to Read

The Dark Side of Andrew Left

Citron Research is a one-man show run by Mr. Andrew Left, whose fraudulent career began with a huge black mark. In 1998, in his first job, Mr. Left was found by the National Futures Association to have: “MADE FALSE AND MISLEADING STATEMENTS TO CHEAT, DEFRAUD OR DECEIVE A CUSTOMER IN VIOLATION OF NFA COMPLIANCE RULES 2-2(a) AND 2-29(a)(1). ” Mr. Left was debarred for three years, among other punishments. This finding can be found on the website of the National Futures Association.

After being debarred, Mr. Left was employed as the President & CEO of Detour Media in 1999. But in February 2002, his company sued him for stealing six checks worth about $25,000. In Detour Media’s official SEC filing, the company alleged Mr. Left’s “fraud and deceit, negligent misrepresentation, breach of fiduciary duty and unlawful monetary conversion.” This legal paperwork, as well as the final judgment (Mr. Left had to pay $26,445.22) can be found on Court orders Mr. Left to pay $26,445.62 for lawsuit (fraud and deceit).

In 2005, Mr. Left founded www.stocklemon.com, a predecessor to www.citronresearch.com. On this website, he slammed a company called WHIS, and one of WHIS’s principals, Mr. Salim Rana. He fabricated information about Mr. Rana (calling him a thief who steal from the elderly), and Mr. Rana sued Mr. Left for libel. Mr. Left failed to comply with the court’s order for discovery. As a result, the court issued a judgment, ordering Mr. Left to pay Mr. Rana $2,500,000 for damages. The documents can be found here: Court orders Mr. Left to pay $2,500,805.64 for lawsuit (libel)

In 2010, Mr. Left again ran into trouble with the law, in an altercation with a businessman. He was arrested in Florida. In addition, the records show that he was charged for “failing to appear.” His arrest record, along with his mug shot, can be found here.

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

Citron’s Methodology

Andrew Left’s company Citron provides investment advice, typically in the form of shorting stocks that Citron believes to be fraudulent or have “terminal business models.” Citron also invests its own money, and presumably makes its short trades before its readers do, and gets in at a better price than its readers.

Citron began shorting and attacking Chinese stocks in 2006, with a good record until mid-2011. This “golden period” was made possible by a wave of reverse mergers that took a number of fraudulent Chinese companies public. Citron and its customers made good profit from 2006 until 2011 by exposing these fraudulent companies. Read more of this article »

Tags: Andrew Left, Citron