Sunday, June 12, 2016
Follow up thoughts on "I would never say...(Part Deux)....."
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Wednesday, May 25, 2016
I would never say.....(Part Deux)
....I told you so......(again).....
Today, Alibaba announced that the SEC has opened an investigation regarding accounting practices and possible violations of US Securities Laws. (i.e. "crimes").
As you, my dear readers know, I've commented, within this blog, on the IPO, and every subsequent investor call and significant 6-K & 20-F. I've been describing these "accounting practices" in detail for a year and a half:
9/30/14 Q2 - My Posts Re: Alibaba on Laura Logan's CBS News Page....Enjoy!
12/31/14 Q3 - Once upon a time...
3/31/15 Year End - Alibaba....a year in review
6/30/15 Q1 - Alibaba....the odyssey continues...
9/30/15/ Q2 - One of these things is not like the others...
12/31/15 Q3 - Oh what a tangled web we weave....
3/31/16 Year End - It's like Deja Vu....all over again....
Today, Alibaba announced that the SEC has opened an investigation regarding accounting practices and possible violations of US Securities Laws. (i.e. "crimes").
As you, my dear readers know, I've commented, within this blog, on the IPO, and every subsequent investor call and significant 6-K & 20-F. I've been describing these "accounting practices" in detail for a year and a half:
9/30/14 Q2 - My Posts Re: Alibaba on Laura Logan's CBS News Page....Enjoy!
12/31/14 Q3 - Once upon a time...
3/31/15 Year End - Alibaba....a year in review
6/30/15 Q1 - Alibaba....the odyssey continues...
9/30/15/ Q2 - One of these things is not like the others...
12/31/15 Q3 - Oh what a tangled web we weave....
3/31/16 Year End - It's like Deja Vu....all over again....
As reported by Aaron Back of the WSJ: "As the adage goes, where there’s smoke, there’s usually fire. And the smoke is growing thicker around Alibaba." Closing with "Alibaba has enticed investors with the prospect of staking a claim to the Chinese e-commerce gold rush. With so many questions about governance at the company, it is doubtful they will be the ones to actually cash in." (Entire Article)
Specifically, the SEC is investigating:
"I'm shocked, shocked to find that gambling is going on in here!" ....as a croupier hands Renault his winnings.....
Many of us already know where this investigation is headed. ("know" as in the sense that we've seen this movie before and understand what's happening...not that we are privy to any insider information.) As is all too common nowadays, the only question remaining,is:
Who will be left holding the bag when the dust clears?
As investors, we can only hope that this time, the "Renault Defense" just won't hold up in court.
CNN Link:
http://money.cnn.com/2016/05/25/investing/alibaba-sec-investigation/index.html
WSJ Article - (Subscription required)
http://www.wsj.com/articles/alibaba-sec-probe-the-red-flags-fly-higher-1464208194?mod=yahoo_hs
- The accounting for Alibaba’s part-owned logistics joint venture Cainiao.,
- Its treatment of related party transactions in general.
- Its reporting of data on the annual Singles Day sales bonanza.
"I'm shocked, shocked to find that gambling is going on in here!" ....as a croupier hands Renault his winnings.....
Many of us already know where this investigation is headed. ("know" as in the sense that we've seen this movie before and understand what's happening...not that we are privy to any insider information.) As is all too common nowadays, the only question remaining,is:
Who will be left holding the bag when the dust clears?
As investors, we can only hope that this time, the "Renault Defense" just won't hold up in court.
CNN Link:
http://money.cnn.com/2016/05/25/investing/alibaba-sec-investigation/index.html
WSJ Article - (Subscription required)
http://www.wsj.com/articles/alibaba-sec-probe-the-red-flags-fly-higher-1464208194?mod=yahoo_hs
Tuesday, May 17, 2016
I would never say......
....I told you so.
Shortly after the Lending Club IPO, on December 23rd of 2014, I wrote the following post: re: same.
Lending Club (NYSE:LC) - Standing on the tracks waiting for the train......a case study
Yesterday, the DOJ & SEC opened an investigation. Just once I'd like to see the SEC proactively ask a few questions about these shams......preferably before the media reports the monkey business, executives resign or confess and investors have lost all of their money....isn't that what a "regulator" is supposed to do?
True, true that the SEC and DOJ are staffed with thousands of accountants, lawyers and financial forensic experts (one would imagine), so it might be surprising that it took them 18 months to figure out what an insurance agent in Cleveland (Deep Throat) publicly wrote about in his (my) sideline hobby, doing research in his (my) spare time.
But really, as a taxpayer what do you expect? It's the U.S. regulatory environment at its finest. At least since the day they stumbled across the Bernie Madoff fraud.......well....after years of discussions with Harry Markopolos and eventually, I guess, reading Bernie's confession on the front page of the New York Times, they were all over it. The SEC took the time to write a 457 page report describing their fifteen year effort to "find the real killers". I strongly urge anyone who has any faith at all in the integrity of the US Securities Regulatory System to read the report. It's "comedy gold"......I'll skip ahead.....the conclusion (pg. 457) is priceless:
"The OIG also recommends that the Chairman carefully review this ROI and share with OCIE and Enforcement management, the portions of this ROI that relate to the performance failures by those employees who still work at the SEC (Authors note: Many have since retired at full pension since the investigation started back in 1992), so that appropriate action (which may include performance based action, as appropriate) is taken on an employee by employee basis, to ensure that future examinations and investigations are conducted in a more appropriate manner and the mistakes and failures outlined in this ROI are not repeated."
So that's it? Nobody did anything wrong? After being "tipped off" for more than fifteen years they just "missed it"?....ooopppsss? Apparently it's not a crime or even much of a ding on your career at the SEC to be labeled an imbecile? Anyone involved in this mess might not get a bonus?....or maybe get a note in their personnel file, discounting the chance of promotion? On the other hand, perhaps these scarce SEC resources might have been put to better use?. The SEC could have used some of the resources deployed to produce this 457 page comedy of errors and redeployed them to look at a business like .....Oh....I don't know.....just thinking out loud here........how about a business like LENDING CLUB!..... wouldn't we all be better off?....but I digress.
Seriously, investors lost billions because of Lending Club. ($8 Billion loss of Market Cap from peak as of today with about $1.5 Billion to go.) It was an obvious sham. There are many more out there. The theme is always the same: Under-price risk, dress it up and sell it to naive, Pollyanna Investors who are ready, willing and able to lose billions more on the next big thing. If we're not going to throw people in the pokey after these frauds go bad (a wonderful, proven deterrent) at least, as investors, we should at a minimum, expect to have someone/anyone at the SEC actually read the filings and prevent these dog-shit businesses from becoming publicly traded companies. Let Private Equity firms, sophisticated investors and Hedge Funds lose their shirt on private placements if they so choose. Is that really too much to ask? Apparently, it is.
By the way, did I mention that I've been writing about Alibaba for more than a year and a half as well? Mary Jo White, if you're reading this.....I'm just sayin'......
Today's WSJ Article - Saying the same things I'd said a year and a half ago. Aaron, if you're reading my blog, how about a citation/quote reference or two?....it's all good...
http://www.wsj.com/articles/lendingclubs-loans-come-home-to-roost-1463511780
Admittedly, I used slightly stronger language to describe the LC business model than "fragile", but this article is from the family-oriented WSJ, after all. More importantly, some of the points Aaron makes are very consistent with what I wrote back then - including that LC was bleeding badly in "one of the most favorable interest rate environment in history".
Additional Link To FORTUNE Article:
http://fortune.com/2016/05/16/lending-club-gets-subpoena/
SEC - Madoff Report.....what could possibly go wrong?
http://www.sec.gov/news/studies/2009/oig-509.pdf
Shortly after the Lending Club IPO, on December 23rd of 2014, I wrote the following post: re: same.
Lending Club (NYSE:LC) - Standing on the tracks waiting for the train......a case study
Yesterday, the DOJ & SEC opened an investigation. Just once I'd like to see the SEC proactively ask a few questions about these shams......preferably before the media reports the monkey business, executives resign or confess and investors have lost all of their money....isn't that what a "regulator" is supposed to do?
True, true that the SEC and DOJ are staffed with thousands of accountants, lawyers and financial forensic experts (one would imagine), so it might be surprising that it took them 18 months to figure out what an insurance agent in Cleveland (Deep Throat) publicly wrote about in his (my) sideline hobby, doing research in his (my) spare time.
But really, as a taxpayer what do you expect? It's the U.S. regulatory environment at its finest. At least since the day they stumbled across the Bernie Madoff fraud.......well....after years of discussions with Harry Markopolos and eventually, I guess, reading Bernie's confession on the front page of the New York Times, they were all over it. The SEC took the time to write a 457 page report describing their fifteen year effort to "find the real killers". I strongly urge anyone who has any faith at all in the integrity of the US Securities Regulatory System to read the report. It's "comedy gold"......I'll skip ahead.....the conclusion (pg. 457) is priceless:
"The OIG also recommends that the Chairman carefully review this ROI and share with OCIE and Enforcement management, the portions of this ROI that relate to the performance failures by those employees who still work at the SEC (Authors note: Many have since retired at full pension since the investigation started back in 1992), so that appropriate action (which may include performance based action, as appropriate) is taken on an employee by employee basis, to ensure that future examinations and investigations are conducted in a more appropriate manner and the mistakes and failures outlined in this ROI are not repeated."
So that's it? Nobody did anything wrong? After being "tipped off" for more than fifteen years they just "missed it"?....ooopppsss? Apparently it's not a crime or even much of a ding on your career at the SEC to be labeled an imbecile? Anyone involved in this mess might not get a bonus?....or maybe get a note in their personnel file, discounting the chance of promotion? On the other hand, perhaps these scarce SEC resources might have been put to better use?. The SEC could have used some of the resources deployed to produce this 457 page comedy of errors and redeployed them to look at a business like .....Oh....I don't know.....just thinking out loud here........how about a business like LENDING CLUB!..... wouldn't we all be better off?....but I digress.
Seriously, investors lost billions because of Lending Club. ($8 Billion loss of Market Cap from peak as of today with about $1.5 Billion to go.) It was an obvious sham. There are many more out there. The theme is always the same: Under-price risk, dress it up and sell it to naive, Pollyanna Investors who are ready, willing and able to lose billions more on the next big thing. If we're not going to throw people in the pokey after these frauds go bad (a wonderful, proven deterrent) at least, as investors, we should at a minimum, expect to have someone/anyone at the SEC actually read the filings and prevent these dog-shit businesses from becoming publicly traded companies. Let Private Equity firms, sophisticated investors and Hedge Funds lose their shirt on private placements if they so choose. Is that really too much to ask? Apparently, it is.
By the way, did I mention that I've been writing about Alibaba for more than a year and a half as well? Mary Jo White, if you're reading this.....I'm just sayin'......
Today's WSJ Article - Saying the same things I'd said a year and a half ago. Aaron, if you're reading my blog, how about a citation/quote reference or two?....it's all good...
http://www.wsj.com/articles/lendingclubs-loans-come-home-to-roost-1463511780
Admittedly, I used slightly stronger language to describe the LC business model than "fragile", but this article is from the family-oriented WSJ, after all. More importantly, some of the points Aaron makes are very consistent with what I wrote back then - including that LC was bleeding badly in "one of the most favorable interest rate environment in history".
Additional Link To FORTUNE Article:
http://fortune.com/2016/05/16/lending-club-gets-subpoena/
SEC - Madoff Report.....what could possibly go wrong?
http://www.sec.gov/news/studies/2009/oig-509.pdf
Friday, May 6, 2016
It's like Deja Vu....all over again....
Alibaba released it's quarterly and year end financial statements today and of course, as expected, they were astounding.
Here are the links:
Press Release
http://www.alibabagroup.com/en/news/press_pdf/p160505.pdf
6K Filing
http://www.sec.gov/Archives/edgar/data/1577552/000110465916118194/a16-10677_1ex99d1.htm
Conference Call & Presentation -
http://www.alibabagroup.com/en/ir/earnings
Presentation
http://www.alibabagroup.com/en/ir/presentations/pre160505.pdf
If you'd like to re-live the Alibaba journey, feel free to track their financial progress in my prior posts listed in chronological order by Investor Call:
9/30/14 Q2 - My Posts Re: Alibaba on Laura Logan's CBS News Page....Enjoy!
12/31/14 Q3 - Once upon a time...
3/31/15 Year End - Alibaba....a year in review
6/30/15 Q1 - Alibaba....the odyssey continues...
9/30/15/ Q2 - One of these things is not like the others...
12/31/15 Q3 - Oh what a tangled web we weave....
They've also just posted a really nice video clip showing us what a wonderful company they are building. For a change of pace, I've attached an Ernst & Young training video discussing how Ernst & Young personnel got caught up in the WorldCom fraud. It's kind of dry....like most CPA training videos are known to be, but it's relevant here and illustrates how something like this can happen. It's always heartbreaking when wonderful, well meaning people, who just want to make their boss happy and collect a nice paycheck, end up in jail.
GMV!...It's Everywhere!
Compare the eCommerce figures to the relatively consistent revenue and earnings streams of the two telecom ADRs. (China Mobile and China Telecom) 5% +/- consistent growth rates with managed, predictable earnings. According to Alibaba, everyone in China is is banging away on their smart phones buying "stuff" on-line yet the telecoms aren't seeing any appreciable usage/revenue increases.
Hmmmmm....that's odd.
Moreover, Apple just announced that it saw a "26% decline in Greater China Revenue". It's also odd that a brand like Apple is unable to make any headway in China when, according to Alibaba's metrics, more than 70% of their business is done on a mobile platform now. Smart phones have become an integral part of the eCommerce growth story and they should be flying off the shelves. Maybe all of the Apple knock-offs on Taobao and Tmall (These vendors don't look like authorized Apple distributors to me!) have something to do with the Apple shortfall?....who knows?
China's NBS data reflects a similar disparity. The Annual growth rate (YOY) for Retail Sales of All Physical Consumer Goods is only 8.5%. As we've already discussed, based on my prior "Anonymous" post, Alibaba has established that its GMV is actually more than the entire retail sales of all relevant retail categories in China. Per the NBS, the online retail sales of physical goods, in all of China, was 824.1billion RMB for the quarter ended March 31st 2016, increasing 25.9 percent from the same period last year.
Interestingly, if we add the the March Quarter GMV together for just three of the businesses above, we get the following:
As you can see, the GMV reported by these three businesses alone exceeds the National Bureau of Statistics (NBS) figure for all of China by roughly RMB350 Billion, or US$53 Billion.
Either the NBS data is incorrect, or we've run into the phenomenon I had discussed in my "Anonymous" post, that all of the other eCommerce businesses in China must be selling "anti-matter" in order to get these figures back down to the the aggregate level reported by the NBS. Of course, this is simply not possible.
"Questionable Assets" (Goodwill, Intangibles, Investment "Securities" and Investments in "Investees" etc.) grew during the quarter, recording a write up of US$471 Million (about half of Net Income) on "Gain on deemed disposals/disposals/ revaluation of investments and others" reported on page 28 of the press release. Apparently this is managements way of disclosing that "we wrote up the value of a bunch of money losing dog-shit businesses we own to window-dress our financial statements". The total increase comes in at a whopping US$22.4 Billion since June 30th, 2014, the last quarter prior to the IPO. Dozens of "acquisitions/partnerships/joint-ventures" and "deals" are reported by the financial press and in the company's own press releases, yet again, there is no detail, discussion or any reference as to the operating metrics of any of these businesses....Just big, fat unidentified write-ups.
Losers
In the interest of full disclosure, management was forthright enough to provide a schedule of their money losing acquisitions. They've incurred losses of US$397 Million on Koubei, Youku Tudou, Cainiao Network and others. (Page 18) This was partially offset by another US$129 Million of dilution gains (asset write-ups) for Evergrande FC (the soccer club Jack bought one night in a drunken stupor) and Cainiao, their fake logistics/distribution "ecosystem". My understanding is that "ecosystem" is eCommerce code for other people doing all the work.
Since Alibaba actually disclosed the profitability (or lack thereof) of these businesses, like so many of their other metrics, can we assume that these losers are the cream of the crop? Food for thought.
Interestingly, there was another schedule in the presentation that wasn't included in the Press Release or 6k
The gist of the schedule indicates that they've got plenty of value in these investments (Even though by their cryptic disclosures all of the above are currently unprofitable.) Here's a humorous footnote from the above schedule:
So now we are basing a US$60 Billion asset valuation on a Bloomberg media report?.....Really? Don't get me wrong, I love the media, I just don't think a news outlet should be valuing businesses.
Now, here's the same schedule from the June 30th, 2015 Presentation. Keep in mind that these valuations were prior to the July 2015 market crash.
Here's the line by line comparison:
So, in only 9 months, $15.8 Billion in value was created out of thin air. Most of the value was again, assigned based on an Ant Financial "media valuation" and a step up valuation in Cainiao Network because of a minority share purchase/financing round. To be clear, only the pro-rata ownership values if at all accurate, would inure to Alibaba, but they are responsible for the accuracy of these valuations since they are making these representations.. Again, I find it odd that this schedule, (like the June schedule) was not included in the 6K......Hmmmmm.
To repeat myself, all of this value was "created" after the 40% market crash in July, and for the most part have yet to recover. Here are a few more points to ponder:
Other income or loss, net – In the quarter ended March 31, 2016, we booked other loss, net of RMB529 million (US$82 million), compared to other income, net of RMB496 million in the same quarter of 2015. The loss was incurred primarily because of foreign exchange losses related to U.S. dollar obligations in connection with our M&A activities and net loss sustained by Ant Financial during the quarter as a result of its marketing and promotion activities to drive user growth and engagement, especially during the Chinese New Year holiday. Ant Financial’s net loss in the quarter, in turn, resulted in our reversal of income recognized in respect of royalty fees and software technology services fees from Ant Financial under our profit sharing arrangement. The reversal of income amounted to a charge of RMB207 million (US$32 million) in the quarter ended March 31, 2016, compared to income of RMB266 million recognized in the same quarter of 2015 and income of RMB502 million in the prior quarter. Despite a quarterly loss at Ant Financial, we believe we will derive long-term value from our economic interest (and our right, subject to regulatory approval, to convert into 33% equity) in Ant Financial, which recently completed a US$4.5 billion round of financing from third parties at a post-money valuation around US$60 billion.
Does anyone even know what that paragraph even means? Why are they discussing the possible equity conversion, and the financing round and valuation here?
So, Ant Financial, their US$60 Billion baby, lost money because of additional marketing and promotion costs on Chinese New Year sales? Really? According to the filings Alipay has 900 Million Registered Accounts. Who are they marketing to? They ARE the entire market. They have no competition. They shouldn't have to spend a nickle on marketing and promotion. This business should be an annuity....it should be printing money! How could they possibly incur a loss just because they peed away some money on advertising during Chinese New Year??
My guess is that there were actually some "off the books" expenses that absolutely had to be taken care of. Perhaps some money found it's way to a few of the Caribbean Shell Corps? Maybe a few government officials needed to get some crates of cash to Panama? Just label the boxes "kitchen utensils". Unfortunately, we may never know what happened for sure. But as JoeTsai begged us in his opening remarks, we need to be patient.
Taking Care of your Friends....
Speaking of crates of cash, Share Based Compensation remains at incredible levels; 19% of Revenue for the quarter and 16% for the year. Alibaba has about 36,000 employees. To my knowledge, there is no other business on the planet that has ever issued US$2.5 Billion in share based Comp in the last year.
The schedule on pg. 16 of the press release describing the share/comp distribution is as odd as anything else in the filing. Roughly a third of the shares go to employees of Ant Financial. Do employees of Alibaba get shares of Ant? Perhaps this construct is common in China, I've been told it is, but the idea of giving shares away to employees of another related company baffles me. It would be like Jeff Immelt deciding to give GE shares to Jamie Dimon and a few JPM employees because they did a nice job on some M&A. Again, call me old school, but I just don't get it.
Flying Blind.....
Lack of Transparency: Again, there is no breakdown of the various business units or 300+/- separate businesses, shell companies, partnerships, joint ventures and contractual arrangements consolidated/rolled-up into this VIE. Management continues to harp that they don't manage their business units independently and don't manage to a gross margin. From my perspective, I really can't tell what, if any, metrics they actually manage to. Things just seem to happen. For the year, Alibaba reported one giant blob of revenue entitled "China Commerce Retail Marketplace". This giant blob contained 76% of total reported revenue, yet a significant portion of the call was spent discussing Cloud Computing and mobile "stuff". I also have to say that if I hear Daniel Zhang give another talk about coat sales and the related cold/warm weather in China (minute 44:00 of the Investor Call) when asked about product mix, I'm going to puke all over my lap-top. In the words of my slightly more abrupt money manager friend:
"I don't want to hear about the weather in China....I just want to know how many billions of %#&#!! coats, TVs, appliances and phones they sell...."
Summary....Ugggghhhh
Now it's just a matter of time before this mess implodes taking the China eCommerce ADR dream, and a good chunk of the US Capital markets with it. As I write this, BABA is up $3.00/share, proving to me that there is a surplus of "dumb money" in America and/or a number of the money managers, entrusted to handle our hard earned savings, simply don't do any analysis or real work. Any third year auditing student could see that the Alibaba books are cooked. The probability of these financial statements being accurate and truly reflective of Alibaba's financial condition is rapidly approaching zero. It's a pretty disturbing development for the "Greatest IPO in History". Perhaps if all of those Investment Bankers, Accountants and Lawyers just would have watched that E&Y training video, none of this ever would have happened. As David Meyers said in the video (minute 11:50 of the clip) "I'd never seen an accountant go to jail...."
Remember the rules: First insider contacting the SEC stays out of the Gray Bar Hotel..
Ready....Set.....Go....
You just can't make this stuff up......
More reading:
Presumed Fake/knock-off - iPhones on Tmall
https://list.tmall.com/search_product.htm?q=iphone&type=p&vmarket=&spm=875.7931836.a2227oh.d100&from=mallfp..pc_1_searchbutton
Presumed Fake/knock-off - iPhones on Taobao
https://world.taobao.com/search/search.htm?_ksTS=1462483949759_20&spm=a21bp.7806943.20151106.1&_input_charset=utf-8&navigator=all&json=on&q=iPhone&callback=__jsonp_cb&abtest=_AB-LR517-LR854-LR895-PR517-PR854-PV895_2461
Evergrande FC - Drunken Sailor
http://www.bloomberg.com/news/articles/2014-06-05/evergrande-rises-on-alibaba-soccer-stake-report-hong-kong-mover
NBS Data
http://www.stats.gov.cn/english/PressRelease/201604/t20160418_1345156.html
http://www.stats.gov.cn/english/PressRelease/201604/t20160418_1345135.html
China Mobile - 4.9% YOY Revenue Increase in March 31, 2016 Quarter.
http://www.sec.gov/Archives/edgar/data/1117795/000119312516549028/d180736d6k.htm
Here are the links:
Press Release
http://www.alibabagroup.com/en/news/press_pdf/p160505.pdf
6K Filing
http://www.sec.gov/Archives/edgar/data/1577552/000110465916118194/a16-10677_1ex99d1.htm
Conference Call & Presentation -
http://www.alibabagroup.com/en/ir/earnings
Presentation
http://www.alibabagroup.com/en/ir/presentations/pre160505.pdf
If you'd like to re-live the Alibaba journey, feel free to track their financial progress in my prior posts listed in chronological order by Investor Call:
9/30/14 Q2 - My Posts Re: Alibaba on Laura Logan's CBS News Page....Enjoy!
12/31/14 Q3 - Once upon a time...
3/31/15 Year End - Alibaba....a year in review
6/30/15 Q1 - Alibaba....the odyssey continues...
9/30/15/ Q2 - One of these things is not like the others...
12/31/15 Q3 - Oh what a tangled web we weave....
They've also just posted a really nice video clip showing us what a wonderful company they are building. For a change of pace, I've attached an Ernst & Young training video discussing how Ernst & Young personnel got caught up in the WorldCom fraud. It's kind of dry....like most CPA training videos are known to be, but it's relevant here and illustrates how something like this can happen. It's always heartbreaking when wonderful, well meaning people, who just want to make their boss happy and collect a nice paycheck, end up in jail.
You can follow along with the history and get more detailed discussion of the development of this saga from my prior posts, but here are the bullet points of today's wonderfully entertaining conference call, press release and filing:
GMV!...It's Everywhere!
GMV - RMB742 Billion (US$115 Billion) for the quarter and growing at 24% YOY.....Revenue growing at 39% YOY. Earnings through the roof at 22% of revenue (US$824 Million), growing at 85% YOY. This is incredible! Oddly, no other large eCommerce business in China (JD.com, VipShop, 58.com) is showing anything close to earnings metrics on this scale. Here are the March 31st, 2016 Quarter, YOY growth metrics (Analyst Revenue & Earnings estimates per Yahoo! Finance) for other relevant ADRs in China. Actual numbers will be available next few weeks and I'll update the schedule as time permits.
The point of the above schedule is, for Internet and eCommerce businesses in China, it's the Wild West out there. Gigantic revenue increases, dramatic fluctuations in income and expenses with meager earnings, combined with acquisitions, financing rounds and deals du jour. Their accounting and finance departments must be a whirlwind of activity trying to accurately report and value this unfettered entrepreneurial spirit, all with the expectation that these businesses are investing for the future, spending huge amounts of money and anticipating that the sky is their only eventual limit. Note that these businesses are also occasionally rumored to be puffing up their financial performance using Alibaba-like accounting gimmicks as well, but from what I can see, none of them can hold a candle to Alibaba's tom-foolery. Remember, like your mother always said, it's all fun and games until somebody gets hurt.
Compare the eCommerce figures to the relatively consistent revenue and earnings streams of the two telecom ADRs. (China Mobile and China Telecom) 5% +/- consistent growth rates with managed, predictable earnings. According to Alibaba, everyone in China is is banging away on their smart phones buying "stuff" on-line yet the telecoms aren't seeing any appreciable usage/revenue increases.
Hmmmmm....that's odd.
Moreover, Apple just announced that it saw a "26% decline in Greater China Revenue". It's also odd that a brand like Apple is unable to make any headway in China when, according to Alibaba's metrics, more than 70% of their business is done on a mobile platform now. Smart phones have become an integral part of the eCommerce growth story and they should be flying off the shelves. Maybe all of the Apple knock-offs on Taobao and Tmall (These vendors don't look like authorized Apple distributors to me!) have something to do with the Apple shortfall?....who knows?
China's NBS data reflects a similar disparity. The Annual growth rate (YOY) for Retail Sales of All Physical Consumer Goods is only 8.5%. As we've already discussed, based on my prior "Anonymous" post, Alibaba has established that its GMV is actually more than the entire retail sales of all relevant retail categories in China. Per the NBS, the online retail sales of physical goods, in all of China, was 824.1billion RMB for the quarter ended March 31st 2016, increasing 25.9 percent from the same period last year.
Interestingly, if we add the the March Quarter GMV together for just three of the businesses above, we get the following:
Either the NBS data is incorrect, or we've run into the phenomenon I had discussed in my "Anonymous" post, that all of the other eCommerce businesses in China must be selling "anti-matter" in order to get these figures back down to the the aggregate level reported by the NBS. Of course, this is simply not possible.
Moreover, the NBS isn't exactly known as a bastion of conservative reporting when it comes to proselytizing the China Dream, there's a good chance the NBS numbers are actually overstated as well. Not withstanding, even the NBS politically motivated reporting methods can't produce growth rates anything near Alibaba's.
Value From Thin Air..."Questionable Assets" (Goodwill, Intangibles, Investment "Securities" and Investments in "Investees" etc.) grew during the quarter, recording a write up of US$471 Million (about half of Net Income) on "Gain on deemed disposals/disposals/ revaluation of investments and others" reported on page 28 of the press release. Apparently this is managements way of disclosing that "we wrote up the value of a bunch of money losing dog-shit businesses we own to window-dress our financial statements". The total increase comes in at a whopping US$22.4 Billion since June 30th, 2014, the last quarter prior to the IPO. Dozens of "acquisitions/partnerships/joint-ventures" and "deals" are reported by the financial press and in the company's own press releases, yet again, there is no detail, discussion or any reference as to the operating metrics of any of these businesses....Just big, fat unidentified write-ups.
Losers
In the interest of full disclosure, management was forthright enough to provide a schedule of their money losing acquisitions. They've incurred losses of US$397 Million on Koubei, Youku Tudou, Cainiao Network and others. (Page 18) This was partially offset by another US$129 Million of dilution gains (asset write-ups) for Evergrande FC (the soccer club Jack bought one night in a drunken stupor) and Cainiao, their fake logistics/distribution "ecosystem". My understanding is that "ecosystem" is eCommerce code for other people doing all the work.
Since Alibaba actually disclosed the profitability (or lack thereof) of these businesses, like so many of their other metrics, can we assume that these losers are the cream of the crop? Food for thought.
Interestingly, there was another schedule in the presentation that wasn't included in the Press Release or 6k
The gist of the schedule indicates that they've got plenty of value in these investments (Even though by their cryptic disclosures all of the above are currently unprofitable.) Here's a humorous footnote from the above schedule:
So now we are basing a US$60 Billion asset valuation on a Bloomberg media report?.....Really? Don't get me wrong, I love the media, I just don't think a news outlet should be valuing businesses.
Now, here's the same schedule from the June 30th, 2015 Presentation. Keep in mind that these valuations were prior to the July 2015 market crash.
Here's the line by line comparison:
So, in only 9 months, $15.8 Billion in value was created out of thin air. Most of the value was again, assigned based on an Ant Financial "media valuation" and a step up valuation in Cainiao Network because of a minority share purchase/financing round. To be clear, only the pro-rata ownership values if at all accurate, would inure to Alibaba, but they are responsible for the accuracy of these valuations since they are making these representations.. Again, I find it odd that this schedule, (like the June schedule) was not included in the 6K......Hmmmmm.
To repeat myself, all of this value was "created" after the 40% market crash in July, and for the most part have yet to recover. Here are a few more points to ponder:
- Cainaio Networks lost $46 Million last year. Nine months ago it had no value (per the schedules) Now it's worth $6.2 Billion,
- Do any of these businesses have earnings? My understanding is that they don't. But it would be nice for management to discuss it.
- Presumably, Youku Tudou was absorbed and now consolidated in the Alibaba financials. We have no idea what the impact of this business is on the consolidation. Presumably it's either just a part of the giant blob of "China Commerce Marketplace" or part of "Other Revenue". Again, we have no way of knowing.
Other income or loss, net – In the quarter ended March 31, 2016, we booked other loss, net of RMB529 million (US$82 million), compared to other income, net of RMB496 million in the same quarter of 2015. The loss was incurred primarily because of foreign exchange losses related to U.S. dollar obligations in connection with our M&A activities and net loss sustained by Ant Financial during the quarter as a result of its marketing and promotion activities to drive user growth and engagement, especially during the Chinese New Year holiday. Ant Financial’s net loss in the quarter, in turn, resulted in our reversal of income recognized in respect of royalty fees and software technology services fees from Ant Financial under our profit sharing arrangement. The reversal of income amounted to a charge of RMB207 million (US$32 million) in the quarter ended March 31, 2016, compared to income of RMB266 million recognized in the same quarter of 2015 and income of RMB502 million in the prior quarter. Despite a quarterly loss at Ant Financial, we believe we will derive long-term value from our economic interest (and our right, subject to regulatory approval, to convert into 33% equity) in Ant Financial, which recently completed a US$4.5 billion round of financing from third parties at a post-money valuation around US$60 billion.
Does anyone even know what that paragraph even means? Why are they discussing the possible equity conversion, and the financing round and valuation here?
So, Ant Financial, their US$60 Billion baby, lost money because of additional marketing and promotion costs on Chinese New Year sales? Really? According to the filings Alipay has 900 Million Registered Accounts. Who are they marketing to? They ARE the entire market. They have no competition. They shouldn't have to spend a nickle on marketing and promotion. This business should be an annuity....it should be printing money! How could they possibly incur a loss just because they peed away some money on advertising during Chinese New Year??
My guess is that there were actually some "off the books" expenses that absolutely had to be taken care of. Perhaps some money found it's way to a few of the Caribbean Shell Corps? Maybe a few government officials needed to get some crates of cash to Panama? Just label the boxes "kitchen utensils". Unfortunately, we may never know what happened for sure. But as JoeTsai begged us in his opening remarks, we need to be patient.
Taking Care of your Friends....
Speaking of crates of cash, Share Based Compensation remains at incredible levels; 19% of Revenue for the quarter and 16% for the year. Alibaba has about 36,000 employees. To my knowledge, there is no other business on the planet that has ever issued US$2.5 Billion in share based Comp in the last year.
The schedule on pg. 16 of the press release describing the share/comp distribution is as odd as anything else in the filing. Roughly a third of the shares go to employees of Ant Financial. Do employees of Alibaba get shares of Ant? Perhaps this construct is common in China, I've been told it is, but the idea of giving shares away to employees of another related company baffles me. It would be like Jeff Immelt deciding to give GE shares to Jamie Dimon and a few JPM employees because they did a nice job on some M&A. Again, call me old school, but I just don't get it.
Flying Blind.....
Lack of Transparency: Again, there is no breakdown of the various business units or 300+/- separate businesses, shell companies, partnerships, joint ventures and contractual arrangements consolidated/rolled-up into this VIE. Management continues to harp that they don't manage their business units independently and don't manage to a gross margin. From my perspective, I really can't tell what, if any, metrics they actually manage to. Things just seem to happen. For the year, Alibaba reported one giant blob of revenue entitled "China Commerce Retail Marketplace". This giant blob contained 76% of total reported revenue, yet a significant portion of the call was spent discussing Cloud Computing and mobile "stuff". I also have to say that if I hear Daniel Zhang give another talk about coat sales and the related cold/warm weather in China (minute 44:00 of the Investor Call) when asked about product mix, I'm going to puke all over my lap-top. In the words of my slightly more abrupt money manager friend:
"I don't want to hear about the weather in China....I just want to know how many billions of %#&#!! coats, TVs, appliances and phones they sell...."
Summary....Ugggghhhh
Now it's just a matter of time before this mess implodes taking the China eCommerce ADR dream, and a good chunk of the US Capital markets with it. As I write this, BABA is up $3.00/share, proving to me that there is a surplus of "dumb money" in America and/or a number of the money managers, entrusted to handle our hard earned savings, simply don't do any analysis or real work. Any third year auditing student could see that the Alibaba books are cooked. The probability of these financial statements being accurate and truly reflective of Alibaba's financial condition is rapidly approaching zero. It's a pretty disturbing development for the "Greatest IPO in History". Perhaps if all of those Investment Bankers, Accountants and Lawyers just would have watched that E&Y training video, none of this ever would have happened. As David Meyers said in the video (minute 11:50 of the clip) "I'd never seen an accountant go to jail...."
Remember the rules: First insider contacting the SEC stays out of the Gray Bar Hotel..
Ready....Set.....Go....
You just can't make this stuff up......
More reading:
Presumed Fake/knock-off - iPhones on Tmall
https://list.tmall.com/search_product.htm?q=iphone&type=p&vmarket=&spm=875.7931836.a2227oh.d100&from=mallfp..pc_1_searchbutton
Presumed Fake/knock-off - iPhones on Taobao
https://world.taobao.com/search/search.htm?_ksTS=1462483949759_20&spm=a21bp.7806943.20151106.1&_input_charset=utf-8&navigator=all&json=on&q=iPhone&callback=__jsonp_cb&abtest=_AB-LR517-LR854-LR895-PR517-PR854-PV895_2461
Evergrande FC - Drunken Sailor
http://www.bloomberg.com/news/articles/2014-06-05/evergrande-rises-on-alibaba-soccer-stake-report-hong-kong-mover
NBS Data
http://www.stats.gov.cn/english/PressRelease/201604/t20160418_1345156.html
http://www.stats.gov.cn/english/PressRelease/201604/t20160418_1345135.html
China Mobile - 4.9% YOY Revenue Increase in March 31, 2016 Quarter.
http://www.sec.gov/Archives/edgar/data/1117795/000119312516549028/d180736d6k.htm
Wednesday, April 27, 2016
"Short" & Sweet.....and my favorite SEC filing....
As we get emotionally prepared for Alibaba's annual work of fiction (aka their Annual Report) due out May 5th, I thought I'd keep this post short and sweet. Based on current events, for example, Apple's 26% decline in Greater China revenues, I'm sure that whatever numbers they are able to conjure up, Alibaba's results will be "astounding". Perhaps they will claim that they are single-handedly putting Apple out of business in China?....who knows?
People are starting to figure this out.....
On April 13th at Grant's, Conference in NYC, Anne Stevenson-Yang, partner and co-founder of JCAP, and in my humble opinion, the foremost expert on what's really going on in China's economy today, gave a relatively detailed presentation to a room full of money managers, bankers and analysts, describing just how in the world, among other things, that a share of Alibaba is actually worth $36 rather than the $78 it's currently trading at. Author's Note: Although we usually think along the same lines, my price target is slightly lower than Anne's ("Strong Buy" at $7.00/share from my November of 2015 post), but if you know Anne, since she's lived in China for more than 20 years, is an expert in her field and the go-to authority for all that is China, she's occasionally a bit more optimistic than I am on some of these topics, thus the deviation in our valuations.
Anyway, it was a great presentation, so good as a matter of fact that the slides were posted anonymously by the Value Walk Staff. (Link below) Ironically, her slot on the agenda was right before Jamie Dimon, so she spent a good part of her talk calling Alibaba, JP Morgan's baby, butt-ugly. I would have found the schedule juxtaposition uncomfortable to say the least, but she apparently pulled it off, as always, without a hitch. Her main points re Alibaba were:
Text of Jackie Reses' Resignation Letter from the Alibaba Board of Directors - 9/16/14 - just prior to the IPO:
http://www.sec.gov/Archives/edgar/data/1577552/000000000014048770/filename1.pdf
I, Jacqueline D. Reses, am writing to inform you that I hereby resign as director of the company effective immediately prior to the effectiveness of the Company's registration statement on Form F1 and that I will not be responsible for any part of such registration statement.
Text of the Skadden Arps Cover Letter filed with the SEC along with Jackie's Resignation Letter.
Ladies and Gentlemen: We represent Yahoo Inc. ("Yahoo!"). Yahoo!'s Chief Development Officer, Ms. Jacqueline D. Reses, was previously a member of the board of directors of Alibaba Group Holding Limited ("Alibaba"). Enclosed please find a letter of resignation from Ms. Reses that has been delivered to Alibaba informing it that she has resigned as a member of the board of directors effective immediately prior to the effectiveness of the Alibaba's registration statement on Form F-1 and that Ms. Reses will not be responsible for any part of such registration statement.
This letter is being furnished to the Securities and Exchange Commission pursuant to Section 11(b) of the Securities Act of 1933, as amended, on behalf of Ms. Reses to disclaim any responsibility by Ms. Reses for any part of Alibaba's registration statement filed on Form F-1 (including any amendments thereto). Yahoo! can be reached by writing to Yahoo! Inc., 701 First Avenue, Sunnyvale, California, 94089, Attention. General Counsel or calling (408) 349-7853.
Note that the letter did not say Ms Reses is resigning to "Pursue other interests", "Spend more time with family", Hike the Appalachian Trail or to rededicate her life to Yahoo!, fly fishing or an Ashram somewhere. She said, and it was repeated twice in the Skadden Arps Cover Letter that she is resigning from the board and will "not be responsible" for any part of the Registration Statement, citing Section 11(b) of the Securities Act of 1933.
For those of you who are not experts in securities law, and I'd include myself in the non-expert group. Section 11(b) refers to defenses available against claimants for Securities Fraud. I've attached a nice Summary of Sec. 11 from the Washington Legal Foundation. What Jackie's letter is really saying, in layman's terms, as interpreted by my Dick Fuld Banker Speak Translator (BST) , is:
"I Jackie Reses am aware of material misstatements, and possible securities fraud in this IPO and I am refusing to be a part of it....so please don't sue me or send me to jail....I'm establishing my 11(b) defense by stepping down as a director and refusing to sign the Registration Statement."
Note in my prior post that Marissa Meyer, Jackie's boss at the time, and Maynard Webb, presumably had access to the same/similar information that prompted Jackie's resignation, or at least asked some questions about it upon her resignation, as described in my "Breaking News....Marissa Meyer to Resign" post, but Marissa and Maynard, for whatever reason, chose to stick it out. Perhaps because of the strict construction of Sec 11, they might not be considered part of the "defined class of defendants"? At this point, Yahoo! is simply a shareholder and Sec 11 would probably not apply to non-insider (as defined) shareholders. (Again, this will be for the lawyers to hash out). It's safe to say that Marissa and Maynard are probably aware, at least to some degree, of the Alibaba shenanigans, but are choosing to straddle the fence and collect a paycheck rather than come clean and step down. On the other hand, as unlikely as it might be, perhaps they are oblivious to the entire mess and aren't very wise to such things? Perhaps they don't understand Section 11(b) and are just dithering along with Starboard Funds trying to keep their jobs and "maximize shareholder value"? In any case, I doubt that you'll hear Marissa and Maynard making any joint statements or representations re: Alibaba's awesome financial condition/potential anytime soon.
Just thinking out loud here, but many of the underwriters and banks involved are US Citizens and may indeed be considered part of the "defined class of defendants" for the purposes of Sec. 11. All of you class action lawyers out there might want to make note of that.
That said, based on her resignation letter alone, Ms. Reses is one of my all-time heroes in American Business. She did the right thing. It's just a shame that the other signers of the F1 didn't take the same path. Except for Tim Steinert and Don Puglisi, the other signers, accountants and lawyers are foreign citizens, safe overseas and presumably immune from US/SEC prosecution. (Authors Note: Don might want to make sure his China Visa is current and check the flight schedules. I believe there's a direct from Newark to Beijing that he can get on short notice.) It's also a shame that Alibaba Investors apparently didn't read, or perhaps don't understand what Jackie's resignation letter is really saying.
Today's Thesis:
Question: Why would anyone resign from the board of directors of the biggest, most ballyhooed IPO of all time, forfeiting the presumed fortune, glory and wealth that most of us can only dream of, while citing Securities Fraud defenses in her resignation letter, on the very eve of the filing?
Hypothetical Answer: (To be tested over time) Because Ms Reses, at the advice of counsel, wanted to make absolutely sure that there was no possibility that she would ever end up in jail.
When I explained my reasoning to my new friend, the L.A. Money Manager, his response was:
"Holy.....(rhymes with duck)"
PS: I would like to personally invite Jackie to comment on my blog, and perhaps set the record straight as to what her thinking was at the time of the above referenced letter. Maybe it was all a mistake or a bad dream? If there's a better reason for the resignation letter than "the avoidance of jail time" that I might be unaware of, it would be enlightening and restore my faith in humanity to hear about it. If any of you journalists following my blog would like to reach out to her, feel free, it would make a great article, but I'm guessing that you'll get a "no comment" based on the advice of her counsel.
Grant's Interest Rate Observer - Conference Info
http://www.grantspub.com/conferences/index.cfm
Washington Legal Foundation - Securities Act of 1933 Sec. 11
http://www.wlf.org/upload/0106CLNSpehr.pdf
SEC - Securities Act of 1933 - Current (as Amended)
https://www.sec.gov/about/laws/sa33.pdf
Alibaba Final/Amended F1 - Signers Listed on the last few pages
http://www.sec.gov/Archives/edgar/data/1577552/000119312514341794/d709111df1a.htm
People are starting to figure this out.....
On April 13th at Grant's, Conference in NYC, Anne Stevenson-Yang, partner and co-founder of JCAP, and in my humble opinion, the foremost expert on what's really going on in China's economy today, gave a relatively detailed presentation to a room full of money managers, bankers and analysts, describing just how in the world, among other things, that a share of Alibaba is actually worth $36 rather than the $78 it's currently trading at. Author's Note: Although we usually think along the same lines, my price target is slightly lower than Anne's ("Strong Buy" at $7.00/share from my November of 2015 post), but if you know Anne, since she's lived in China for more than 20 years, is an expert in her field and the go-to authority for all that is China, she's occasionally a bit more optimistic than I am on some of these topics, thus the deviation in our valuations.
Anyway, it was a great presentation, so good as a matter of fact that the slides were posted anonymously by the Value Walk Staff. (Link below) Ironically, her slot on the agenda was right before Jamie Dimon, so she spent a good part of her talk calling Alibaba, JP Morgan's baby, butt-ugly. I would have found the schedule juxtaposition uncomfortable to say the least, but she apparently pulled it off, as always, without a hitch. Her main points re Alibaba were:
- As an ecommerce platform, it’s maxed out
- A terrible investor of shareholders’ money.
- Likely using investor capital to generate its own revenues.
- The Chinese e-commerce story is exceedingly unlikely.
http://www.valuewalk.com/2016/04/alibaba-group-holding-ltd-baba-jcap/
Anne also did a deep-dive into many of the things I've been discussing in this blog since it's inception a year and a half ago. Misleading GMV, "brushing", reciprocal purchases, dubious assets, constantly growing goodwill, outrageous share-based compensation expense and investments that look like loans to friends.
Anne also did a deep-dive into many of the things I've been discussing in this blog since it's inception a year and a half ago. Misleading GMV, "brushing", reciprocal purchases, dubious assets, constantly growing goodwill, outrageous share-based compensation expense and investments that look like loans to friends.
Through the magic of Al Gore's Internet, somehow, a few of the folks who attended the presentation found my blog and phone number and have been giving me the occasional call. Of course, I am always happy to share my thoughts on the future of Alibaba (or just about anything) with my readers. The discussions were informative, insightful and a welcome exchange of ideas. Anytime really smart people take the time out of their day to call me, I'm flattered. One particular money manager from L.A. was intrigued by Anne's presentation, as well as my blog..., yet clearly skeptical....as most investors are. It was as though he had just heard a rumor that the world might not actually be flat and he was grasping for hard evidence to rebut the suggestion. I call it the "how can this be possible?" reaction. It's understandable.
After discussing the impossible GMV; staggering Shareholder Compensation; an unbelievable, odd, $20 Billion acquisition spree; the 300 +/- "related" shell companies; and the lack of legal standing US Investors might have when this whole thing hits the crapper, I referred him to my favorite SEC filing of all time, which I've referenced several times over the last year and a half in this blog. This brief two page memo is the most (and perhaps only), accurate, direct, clear, un-equivocating, ethical document submitted to the SEC as a as part of, or since, the Alibaba IPO. I'm referring, of course, to the Jackie Reses, Yahoo! Chief Development Officer's amazing 9/16/14 Resignation Letter . (Text and Link below) I'm posting it again here since some of my newer readers (e.g. the L.A. Money Manager) may be unaware of its existence.
After discussing the impossible GMV; staggering Shareholder Compensation; an unbelievable, odd, $20 Billion acquisition spree; the 300 +/- "related" shell companies; and the lack of legal standing US Investors might have when this whole thing hits the crapper, I referred him to my favorite SEC filing of all time, which I've referenced several times over the last year and a half in this blog. This brief two page memo is the most (and perhaps only), accurate, direct, clear, un-equivocating, ethical document submitted to the SEC as a as part of, or since, the Alibaba IPO. I'm referring, of course, to the Jackie Reses, Yahoo! Chief Development Officer's amazing 9/16/14 Resignation Letter . (Text and Link below) I'm posting it again here since some of my newer readers (e.g. the L.A. Money Manager) may be unaware of its existence.
Text of Jackie Reses' Resignation Letter from the Alibaba Board of Directors - 9/16/14 - just prior to the IPO:
http://www.sec.gov/Archives/edgar/data/1577552/000000000014048770/filename1.pdf
I, Jacqueline D. Reses, am writing to inform you that I hereby resign as director of the company effective immediately prior to the effectiveness of the Company's registration statement on Form F1 and that I will not be responsible for any part of such registration statement.
Text of the Skadden Arps Cover Letter filed with the SEC along with Jackie's Resignation Letter.
Ladies and Gentlemen: We represent Yahoo Inc. ("Yahoo!"). Yahoo!'s Chief Development Officer, Ms. Jacqueline D. Reses, was previously a member of the board of directors of Alibaba Group Holding Limited ("Alibaba"). Enclosed please find a letter of resignation from Ms. Reses that has been delivered to Alibaba informing it that she has resigned as a member of the board of directors effective immediately prior to the effectiveness of the Alibaba's registration statement on Form F-1 and that Ms. Reses will not be responsible for any part of such registration statement.
This letter is being furnished to the Securities and Exchange Commission pursuant to Section 11(b) of the Securities Act of 1933, as amended, on behalf of Ms. Reses to disclaim any responsibility by Ms. Reses for any part of Alibaba's registration statement filed on Form F-1 (including any amendments thereto). Yahoo! can be reached by writing to Yahoo! Inc., 701 First Avenue, Sunnyvale, California, 94089, Attention. General Counsel or calling (408) 349-7853.
Note that the letter did not say Ms Reses is resigning to "Pursue other interests", "Spend more time with family", Hike the Appalachian Trail or to rededicate her life to Yahoo!, fly fishing or an Ashram somewhere. She said, and it was repeated twice in the Skadden Arps Cover Letter that she is resigning from the board and will "not be responsible" for any part of the Registration Statement, citing Section 11(b) of the Securities Act of 1933.
For those of you who are not experts in securities law, and I'd include myself in the non-expert group. Section 11(b) refers to defenses available against claimants for Securities Fraud. I've attached a nice Summary of Sec. 11 from the Washington Legal Foundation. What Jackie's letter is really saying, in layman's terms, as interpreted by my Dick Fuld Banker Speak Translator (BST) , is:
"I Jackie Reses am aware of material misstatements, and possible securities fraud in this IPO and I am refusing to be a part of it....so please don't sue me or send me to jail....I'm establishing my 11(b) defense by stepping down as a director and refusing to sign the Registration Statement."
Note in my prior post that Marissa Meyer, Jackie's boss at the time, and Maynard Webb, presumably had access to the same/similar information that prompted Jackie's resignation, or at least asked some questions about it upon her resignation, as described in my "Breaking News....Marissa Meyer to Resign" post, but Marissa and Maynard, for whatever reason, chose to stick it out. Perhaps because of the strict construction of Sec 11, they might not be considered part of the "defined class of defendants"? At this point, Yahoo! is simply a shareholder and Sec 11 would probably not apply to non-insider (as defined) shareholders. (Again, this will be for the lawyers to hash out). It's safe to say that Marissa and Maynard are probably aware, at least to some degree, of the Alibaba shenanigans, but are choosing to straddle the fence and collect a paycheck rather than come clean and step down. On the other hand, as unlikely as it might be, perhaps they are oblivious to the entire mess and aren't very wise to such things? Perhaps they don't understand Section 11(b) and are just dithering along with Starboard Funds trying to keep their jobs and "maximize shareholder value"? In any case, I doubt that you'll hear Marissa and Maynard making any joint statements or representations re: Alibaba's awesome financial condition/potential anytime soon.
Just thinking out loud here, but many of the underwriters and banks involved are US Citizens and may indeed be considered part of the "defined class of defendants" for the purposes of Sec. 11. All of you class action lawyers out there might want to make note of that.
Today's Thesis:
Question: Why would anyone resign from the board of directors of the biggest, most ballyhooed IPO of all time, forfeiting the presumed fortune, glory and wealth that most of us can only dream of, while citing Securities Fraud defenses in her resignation letter, on the very eve of the filing?
Hypothetical Answer: (To be tested over time) Because Ms Reses, at the advice of counsel, wanted to make absolutely sure that there was no possibility that she would ever end up in jail.
When I explained my reasoning to my new friend, the L.A. Money Manager, his response was:
"Holy.....(rhymes with duck)"
PS: I would like to personally invite Jackie to comment on my blog, and perhaps set the record straight as to what her thinking was at the time of the above referenced letter. Maybe it was all a mistake or a bad dream? If there's a better reason for the resignation letter than "the avoidance of jail time" that I might be unaware of, it would be enlightening and restore my faith in humanity to hear about it. If any of you journalists following my blog would like to reach out to her, feel free, it would make a great article, but I'm guessing that you'll get a "no comment" based on the advice of her counsel.
Grant's Interest Rate Observer - Conference Info
http://www.grantspub.com/conferences/index.cfm
Washington Legal Foundation - Securities Act of 1933 Sec. 11
http://www.wlf.org/upload/0106CLNSpehr.pdf
SEC - Securities Act of 1933 - Current (as Amended)
https://www.sec.gov/about/laws/sa33.pdf
Alibaba Final/Amended F1 - Signers Listed on the last few pages
http://www.sec.gov/Archives/edgar/data/1577552/000119312514341794/d709111df1a.htm
Thursday, April 7, 2016
Alibaba's Cayman Islands Headquarters...
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