Among the almost countless reasons investors should be wary of investing in taste of the moment or “hot” Chinese stocks, we may now have solid confirmation of a new one: a complete and utter lack of personal responsibility/accountability of/by those running these firms. This flies in the face of the many critics and short sellers who loudly proclaim the majority of these firms are merely examples of management getting rich while the shareholders get poor.
In an article translated into English, “The president of a delisted high-tech firm in northern China, who prefers to remain anonymous, has shared his views of the whole process of being listed and delisted. The president claims his company was dragged into the listing process and naively trusted a host of exploitative government officials, bankers, and auditors, only to be torn apart later.”
As far as I can tell, the anonymous executive is none other than Mr. Zou Dejun, CEO of alleged fraud Rino International, at least from similarities mentioned in the article to RINO’s regulatory filings.
Remember, this is the firm whose auditors (questionable firm, Fraser Frost) resigned for lack of reliance in mangement’s representations, and whose stock was de-listed by the NASDAQ in April.
I have not followed RINO’s plight in enough detail to comment on the fraud allegations and/or “proof” offered-up by the likes of Muddy Waters, however, from this executive’s account, there is a far more fundamental concern. The executive assigns blame for his firm’s misfortunes to literally everyone except himself: auditors, investor relations firms, China and US-based “capital markets” firms, Chinese politicians, his own employees, really everyone EXCEPT himself.
To be sure, a reluctant CEO unprepared and uneducated in matters that come with the title is an unenviable position in which to find one’s self, but there are numerous and extraordinarily simple ways of dealing, for instance, resigning, or better, doing your job and putting your foot down when outsiders try to tell you how to run your firm. I don’t buy for a second that cultural issues such as pride and honor are acceptable reasons for failure to do so. This is true in every country – sure to varying degrees – but no CEO anywhere on the planet wants to admit he needs help or can’t handle the task with which he is faced. Nor do I buy that this executive was so painfully naive and so disconnected from the circles of professional businessmen that he lacked the wherewithal to see what was happening, nay, to see what he was signing-off on. His sole tangential admission of blame is in saying “if I had to do it all over again, I would have done it differently.” Great, I’m sure all the shareholders who relied on you to look out for their best interests feel much better now.
This is the job of CEO, to be able to politely dismiss the interests of others which are not necessarily in the interest of the firm and its stakeholders. To say to the politician, we absolutely plan on going public, but only when we are ready to show the World how great our firm and our Country are, to say to the lawyers, bankers, and brokers and high-priced auditors thanks, but no thanks. To allow all of these people to dictate to you – the CEO – what the company is going to do is cowardice. Man up and do your god damn job. And if you don’t feel like stepping up, don’t run your mouth and complain about it when the only person you really have to blame is yourself.
The experiences of this executive are hardly unique to China (how many failed executives in the U.S. blame “the markets” or some other outside force for their shortcomings?), however especially in the reverse merger space, I would not be surprised if they are relatively wide-spread and shared by a great many of his peers. Again, in this executives defense (assuming he is who I believe he is), the risk factors were largely stated in regulatory filings. I doubt anyone except the lawyers who drafted them actually read that far, though.
As I’ve said dozens if not hundreds of times at this point: