Monday, August 29, 2011

Sino-Forest faces more scrutiny

The beleaguered Chinese forestry company Sino-Forest has had its ratings withdrawn by Standard and Poor's (S&P) today subsequent to news that its Chairman and Chief executive Alan Chan has resigned.  S&P states that the charges laid against Sino-Forest are most likely true and as such, it is forced to de-list.  Moody's Investors Service on the other hand has cut Sino-Forest's rating "to Caa1 from B1 and warned it was continuing its review of the company for further downgrade."

This blog earlier wrote an article describing the underlying fraud and failures of corporate governance associated with Sino-Forest.  In the days ahead there will be plenty of finger-waving at the company and its managers. The fact that corporate fraud  is involved is hardly new.  The tool most used by white-collar criminals is accounting gimmickry to conceal nefarious activities that enrich the owners and/or management.  I have written previously on the wide-spread corruption within China and prevalent ethos of fraud within America's most vaunted institutions, such as AIG, Goldman Sachs, Lehman Brothers, Big Pharma, and Moody's.  The fact remains that China is learning from the Master, the United States of America, when it comes to engaging in corporate malfeasance.

The questions that need to be addressed are:
  1. Are any rating agencies actually capable of rating any company's true credit worthiness?
  2. Why are accounting agencies constantly failing to detect this level of deception?
  3. Why aren't agencies such as the the Ontario Securities Commission (OSC) given more resources and talent to investigate and prevent systematic corruption within its jurisdiction?
  4. Why aren't Canadian governments more vigilant in prosecuting corporate criminals?
  5. Why aren't US governments more vigilant in prosecuting corporate criminals?
  6. Why are so few white-collared criminals prosecuted and furthermore found guilty in both Canada and the USA?
Only once the public begins to ask and demand answers to these questions, will substantial change occur.

Saturday, August 27, 2011

The other Sarah Palin movie

Sarah Palin (aka Caribou Barbie) and her entourage of semi-literate Alaskan troglodytes are now the subject of another movie. Unlike the celebrated bizzaro-land movie called "The Undefeated" (apparently no one has told her that she lost 2008 election), there is a documentary at this year's Toronto International Film Festival (TIFF) documenting the actions of everyone's favorite candidate/beauty contestant.  The documentary is called "You Betcha!" which sounds just about right.

It doesn't surprise me that the dismally educated people in middle-America still gravitate to her beauty pageant veneer and fixate on her "us against them" nostrums.  After all, these populist shibboleths have existed since popular uprising have existed (yes... what the Romans have done for us lately!) and have a constant fan base regardless of who is in office. The problem with this half-wit, is that she actually thought being a politician was just a little more than being a B-rated celebrity and all those fans of hers, weren't just buying a ticket to indulge in the latest Republican merry-go-round ride.  She has zero policy credentials on any subject of relevance, whether that be foreign policy, America's global hegemony, the financial industry, or cost structure and delivery of social services like Medicare.

As a candidate Palin was so dismally incompetent on a national level that within a few weeks of the public becoming aware of this hockey-mom with lipstick, the McCain-Palin ticket started to tank with independent voters, women, and moderate Republicans.

While she was a positive force leading up to the 2010 mid-term elections for the Tea Party crowd, the problem that arose was that Palin wasn't always willing to follow the Republican script and would too often improvise. An example of her idiocy was her over-the-top media retort that erupted subsequent to Congresswoman's Giffords' attempted murder earlier this year. Since that incident Palin's numbers have been in decline. 

My take on the great American grifter is that she would really love to run for president, but isn't too keen on all that policy stuff and book-learning; like most of her fans.  She clearly loves the attention and the not insignificant pocket change that her and first-dude Todd have managed to pull in since abandoning the Alaska people for a staring role in this week's TLC re-run.  However, the media has already moved on to observe the craziness of Michele Bachmann (R-MN) and almost as verbally irresponsible Gov. Rick Perry (R-TX).

So like any good huckster she now moves from state to state, trying to locally re-invent herself, while trying to boost her flailing popularity nationally.  I think she will self destruct at some point and hopefully she will take as many Republicans with her in the process.

Dick Cheney unrepentant in having destroyed America

Richard Cheney, the 46th vice-president of the USA, is about to release his memoirs next week titled, "In My Time: A Personal and Political Memoir. 
According to a CBS News/New York Times poll conducted when Dick Cheney left office in January 2009 his approval ratings (13%) were less than that of George W. Bush's (22%).  At their departure both men received historic disapproval ratings and continue to be considered by the majority of Americans as having failed to improve America.  The Bush presidency is highlighted by some of the following:
  • advancing the unconstitutional notion of a unitary presidency
  • repeated and consistent withdrawal from international treaties and agreements
  • pushing through the civil rights destroying PATRIOT act
  • massive and illegal wiretapping and spying on American citizens
  • using torture upon seized enemy combatants and prisoners of war
  • the failure to prevent the 9-11 attack on New York City and the Pentagon
  • failing to adequately neutralize Osama Bin Laden and Al Qaeda's terrorist network
  • pursuing the Iraq war under bogus pretenses and then failing to contain the regional civil war
  • the abandonment of New Orleans and its citizens after Hurricane Katrina
  • allowing the housing bubble to expand and eventually cause the financial collapse of 2008
  • promoting corporate-written legislation that bolstered special interest profits
  • promoting a laissez-faire regulatory framework that allowed corporate crime to exponentially grow throughout his two terms
  • advancing the interests of oil and gas companies and rejecting sustainable and renewable forms of energy production
  • denying climate change was occurring
  • doubling the national public debt
  • cut taxes for the richest Americans, while expanding the deficit
  • cut national science and engineering budgets to pay for his wars and tax cuts
  • limited scientific investigations on subjects deemed controversial for religious supporters, such as stem cell studies and environmental assessment studies
  • preventing any international agreement that would prevent rises in global warming gases, which in the end may possibly be his greatest failure if even conservative predictions about climate change prove true
Cheney undoubtedly represented the very worst elements of the Bush administration.  Although Bush's approval didn't collapse until after Katrina, Cheney's approval amongst most Americans was in the gutter early into his first term.  His approval was constantly in the twenty-percent area and never improved.  He represented to his base an unapologetic statist who wanted to project American hegemony to its fullest level.  Cheney famously stated that "deficits don't matter!"  He was responsible for pursuing an energy policy that promoted America's addiction to foreign fossil fuels.  And as former Secretary of Defense, he was very familiar with the nature of the Pentagon machinery and sought to project America's military power domestically and across foreign shores.

To the rest of America, Cheney represented a Machiavellian operator.  With his over-the-top rhetoric, war making bravado, riddiculous claims that 3rd world nations with 2nd rate militaries were a threat to America, and his continuous scowl, the public turned on this crypto-fascist.

Reviews of Cheney's memoirs indicate a man who controlled both the president and policies of the Bush presidency in it early years. During the infamous 9-11 attack, Cheney states, despite clear lines of command set forth in the constitution, that it was him and neither Bush nor Rumsfeld who was in command of immediate operations.  At that moment in history, Cheney made it clear that the president of the United States had been unofficially deposed and that he had assumed all the controls of commander-in-chief.

The NY Times review of the book further highlights a man who is completely unrepentant of his actions.  The Times describes the book as being
often pugnacious in tone and in which he expresses little regret about many of the most controversial decisions of the Bush administration — casts him as something of an outlier among top advisers who increasingly took what he saw as a misguided course on national security issues.
So it is clear that as Cheney's policy failures mounted, George W. Bush and others in the Bush administration became progressively unwilling to accept Cheney's worldview and provocations.  In the end, the rift was so great that Bush himself was unwilling to even grant full pardon to Cheney's Chief of Staff I. Lewis Libby for his acts of lying to prosecutors in order to protect Mr. Cheney.

What we know is Mr. Cheney is on his last legs and death is hunting him. This book is an attempt by a dying man to justify his evil by throwing sand in our collective faces. I'm sure Ozymandias would have done the same.

Sino-Forest just another example of Chinese fraud

According to news reports (NY Times and Toronto Star), the once highly traded Chinese forestry company Sino-Forest has come under the examination by the Ontario Securities Commission for "fraudulently inflating its revenue and exaggerating the extent of its timber holdings."

The story follows a general trend that has become all too normal. Corporations attempt to inflate their earnings and value through shady accounting and off-sheet intermediaries.  The purpose, just as in other notable cases, is to exploit ignorant investors into the next so-called big thing. 

In Canada, the obvious comparison is Bre-X, a Canadian mining company that claimed that it discovered copious reserves of gold within Indonesia, during the mid-90's.  Independent investigations into the company's claims found that their initial findings were falsified.  The collapse of Bre-X lead to billions of dollars in losses for institutional investors, including $45 million for the Ontario Municipal Employees Retirement board, $70 million of the Quebec Public Sector Pension fund, and $100 million for the Ontario Teachers Pension Plan.  No criminal charges have ever been laid in this debacle.

The American corollary is of course Enron, the company that defined the roaring 90's and the incipient corporate crime wave that has made a complete mockery of Anglo-American capitalism.   It was discovered that the company had created numerous offshore entities that were used "for planning and avoidance of taxes, raising the profitability of a business."  The totality of the expansive fraud committed by management and energy-traders resulted at the time the largest Chapter-11 bankruptcy in the history of the USA, the collapse of the accounting firm Arthur Anderson, and the introduction of the Sarbanes-Oxley Act of 2002.

In the case of Sino-Forest, in June 2011 it was described by Muddy Waters Research, an investment research firm, that the company was a “multibillion-dollar Ponzi scheme” that was “accompanied by substantial theft.”  In addition,
A reporter for The Globe and Mail of Toronto subsequently spent two weeks visiting various properties ostensibly owned or controlled by Sino-Forest and its subsidiaries. It proved to be a trek that frequently led him to nonexistent addresses and empty offices. Like Muddy Waters, the newspaper also found evidence that Sino-Forest had greatly inflated the size of its forestry assets.
The accountants of Sino-Forest, Ernst Young Canada, at this moment are conveniently being given distance from the fiasco, by being allowed to claim "geographical and cultural differences" in understanding the Chinese market.  Given that Sino-Forest's management and operations are all in China, it raises the question whether Canadian accountants and regulators have the competence and ability to protect investors from unscrupulous foreign operations.

According to Forbes magazine, the SEC and PCAOB have been reviewing companies that operate in China but are traded in American markets and have found similar situations.
In the past six months alone, more than 25 New York-listed Chinese companies have disclosed accounting discrepancies or seen their auditors resign. In the process, questions have been raised about the strength of governance and financial oversight at many small-cap Chinese companies. In the past year, Nasdaq and NYSE Euronext have halted trading in the shares of more than 20 small and micro-cap Chinese companies. Five Chinese companies have been de-listed.
As bad as corporate governance is in North America, the Chinese are considerably worst in providing independent and qualified directors.  In the case of Sino-Forest, none of the directors had any experience in the forestry industry or competentence in risk management.

As for Canada, it is obvious that the Ontario Securities Commission is clearly incapable to adequately investigating all the corporate crime that potentially exists under its mandate.  Richard Powers, a business law professor at the University of Toronto, has stated that situations like Sino-Forest will force regulators to evaluate the, "practice of letting companies acquire dormant shell companies to list on the stock exchange."  Until governments get serious about giving teeth and muscle to financial regulators, fraud -whether it emanated domestically or via foreign nationals- will only continue to persist to the detriment of the market as a whole.