July 21, 2018

issues in the Chinese reverse mortgage practice

Chinese Company CFO Resignation Du Jour: Qiao Xing Universal Resources Inc.

When is this officially a pattern? Or is it simply a trend? Qiao Xing CFO Jiang Aijun resigned today but have no fear investors! – the company has appointed a financial controller and is on the hunt for a new CFO.

Plus they’re planning to file their fiscal 2010 results a month ahead of schedule. The company’s stock was down 12% for the week prior to today’s announcement and unfortunately, all this fresh news doesn’t seem to have calmed anyone down. [Dow Jones, Earlier, Earlier]

The PCAOB Has Some Thoughts on This Chinese Reverse Merger Trend

In the past few months you may have heard a thing or two about small Chinese companies making their way into the U.S. by virtue of a reverse merger. If you’re not familiar, it was a speciality of the firm formerly known as Frazer Frost who got out of the business altogether because of a “culture clash” and “issues in the Chinese reverse mortgage practice area.”

All this has gotten the attention of the PCAOB who issued a Research Note (full document after the jump) today discussing t–more–>
Recently minted PCAOB Chair Jim Doty sprinkled in some thoughts for the press release but we obtained this statement from the Chairmn in case you anyone thinks they aren’t taking this shit seriously (my emphasis):

“As the PCAOB Research Note describes, small Chinese companies are increasingly seeking access to capital and trading in U.S. securities markets. The PCAOB has inspected the audits of many of these companies, when they were performed by U.S.-based audit firms. In some cases PCAOB inspection teams have identified significant audit deficiencies and, as necessary, made appropriate referrals for enforcement to protect investors’ interests in reliable audit reports.

“Many other such companies are audited by accounting firms in China. To date, the PCAOB has been denied access to determine through inspection whether such firms have complied with PCAOB standards. This state of affairs is bad for investors, companies and auditors alike. If Chinese companies want to attract U.S. capital for the long term, and if Chinese auditors want to garner the respect of U.S. investors, they need the credibility that comes from being part of a joint inspection process that includes the US and other similarly constituted regulatory regimes.”

Depending on how you perceive the role of auditors, this might seem like be a meaningless statement. But since China’s economy is going gangbusters and Big 4 firms are salivating at the thought of the fees associated with their introduction to the U.S. market, the temptation to help these companies comply with the U.S. rules might be high for an ambitious parter, office or firm.

That said, according to Table 8 of the PCAOB’s Research Note, no Big 4 firm had more than three CRM companies as of March 31, 2010 and now after Deloitte’s resignation from CCME, any partners that were entertaining the idea of chasing these companies could be having second thoughts.

Chinese Reverse Merger Research Note

Someone in the Frazer Frost Marketing Department Didn’t Get the Memo RE: No Mas Frazer Frost

Last month we told you about the break up of Frazer Frost, a firm that was born out of the combination of Moore Stephens Wurth Frazer Torbet, LLP and Frost, PLLC. Turns out, the announcement made in November 2009 left out the part that it was just a ‘trial merger’ and after a year, they scrapped it for various reasons that included a) a ‘culture clash’ b) ‘issues in the Chinese reverse mortgage practice’ and c) well, those first two are pretty bad.

While it’s unfortunate when these things don’t work out, it would be assumed that everyone working at the firm would be acutely aware of the situation. A merger doesn’t exactly qualify as a “minor administrative issue” that gets overlooked. Nevertheless, a tipster sent us the following picture that appeared on page 48 of the December issue of Celebrate Arkansas.


Judging by this ad, you might get the impression that Frazer Frost was in fact still a firm and if one visits www.frazerfrost.com that’s when it gets hella-confusing:

Moore Stephens Wurth Frazer Torbet, LLP and Frost, PLLC are moving to resume operations as separate entities, as existed prior to their combination in January 2010. The combined firm, Frazer Frost, LLP, will continue to exist as a legal entity until the separation has been completed. It continues to be the policy of both firms not to comment publicly on client, personnel, or other internal matters.

Maybe we’re a little slow but if the two firms are “moving to resume operations as separate entities” but “The combined firm, Frazer Frost, LLP, will continue to exist as a legal entity until the separation has been completed,” we interpret that as “Frazer Frost is still technically a firm but in reality, it’s only a matter of time until we’re not.” It’s seems like a bad breakup where two people continue living together in a tense, awkward environment where way uglier shit gets said than during the actual break-up but they’re both stuck in this god-awful situation until somebody finds a new apartment.

Regardless, placing an ad in a periodical could be construed as misleading but that’s just us. If someone at the firm can explain it to us, we’ll be here. While we wait, if you’ve got thoughts on whether this ad is perfectly hunky dory or a little dubious, share below.