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Crime & Corruption

Longtop fraud willingly backed by Chinese banks


Longtop Financial, a popular Chinese software company, was exposed as a colossal fraud last year .The “cash balance” on Longtop’s balance sheet, it turned out, was fake;  a fiction created by the company’s managers and helpers.

The Longtop fraud followed other China stock frauds that have made many of Wall Street’s best and brightest look like fools. It has also increased the scepticism of American investors toward Chinese companies.

Unlike some of the more famous American-company frauds in recent years , like Enron and Worldcom, it turned out that Longtop had institutional help in perpetrating its fraud. The reason Longtop was able to fend off sceptics for so long, despite multiple analysts arguing that it was a fraud, was that Chinese banks were complicit in the scam.

According to an extraordinary letter that Longtop’s auditor, Deloitte, sent the company when it quit, Longtop’s banks sent out fake statements attesting to the company’s fake cash balances. It wasn’t until Deloitte’s examiners actually physically visited the banks, and talked to other employees at the banks, that the fraud was discovered. And even then Deloitte employees were restrained at the bank and made to give up all the incriminating files they had unearthed!

The Longtop fraud fooled some of smartest hedge funds and mutual fund investors in the country. It fooled the New York Stock Exchange. It fooled the investments banks that underwrote Longtop’s stock – and defended it until its dying breath, claiming all sorts of “due diligence” designed to set investors’ fears to rest. And, for a long while, it fooled Deloitte.

It serves as a good reminder that all you really may be investing in when you invest in any stock, are just black marks on a page.

eChinacities

About Craig Hill

General Manager at Craig Hill Training Services * Get an Australian diploma by studying in your own country * Get an Australian diploma using your overseas study and work experience * Diplomas can be used for work or study in Australia and other countries. * For more information go to www.craighill.net

Discussion

5 thoughts on “Longtop fraud willingly backed by Chinese banks

  1. Reblogged this on Craig Hill.

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    Posted by Craig Hill | April 11, 2012, 11:11 pm

Trackbacks/Pingbacks

  1. Pingback: re: The Auditors » Blog Archive » Why Is The SEC Pursuing Deloitte Shanghai? Looks Like It’s Personal - May 11, 2012

  2. Pingback: Is Xinyuan Real Estate A Fraud? @ Real Estate news - July 6, 2012

  3. Pingback: Clampdown in China on Corporate Sleuthing « China Daily Mail - July 21, 2012

  4. Pingback: Chinese companies pull out of US stock markets « China Daily Mail - August 15, 2012

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