As expected, the Q1 results of Sino-Forest showed the Company has kept growing fast. CEO and Chairman Allen Chan continued telling beautiful stories about the company's achievements and future, but the subsequent diving in its share price has indicated that many investors see these beautiful stories as mirage.
Before this morning, I saw a likely fraud. After listening to today's conference call, I see the writting on the wall: most standing timber transactions were fabricated.
Why? Two points probably suffice.
1. Mr. Chan stated again that Sino-Forest sells standing trees and thus no issue of quota limitation. But the business model, which he talked in detail, clearly shows the buyers CUT down trees and sell them to end users. Therefore, the quota limitation issue still stands firmly.
2. Mr. Chan said that standing trees are sold to AIs (Authorized Intermediaries), and AIs will pay taxes including corporate income taxes for Sino-Forest's BVI companies. Unless Sino-Forest has organized a massive tax evasion scheme participated by Chinese officials in taxation, there is NO way for the Company to transfer its subsidiaries' tax obligation to the so called AIs.
Apparently the question now is not whether there is a fraud, is how big the fraud is.
Stories are ending!