Exposing Jack Ma, Big Pharma, and Chinese Fraud (w/ Carson Block)
Real Vision・44 minutes read
Short selling by activist short sellers exposes fraudulent practices in companies like TAL Education and Manulife, emphasizing the need to address immoral behavior and create a more ethical investment culture to prevent harm to society. The private sector's technological dominance and lack of understanding of risks, along with urgent calls to introduce morality in investment decisions, highlight the challenges of regulating companies exploiting individuals in sectors like healthcare.
Insights
- Activist short sellers like Carson Block focus on uncovering fraudulent practices in companies by analyzing financial statements for discrepancies, aiming to provide transparency to investors and exploit information asymmetry.
- The speaker emphasizes the importance of targeting companies engaging in unethical practices, advocating for a shift towards moral investing to prevent harm to society and create a more ethical investment environment, highlighting the need to address bad actors in the business world.
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Recent questions
What do activist short sellers aim to uncover in companies?
Activist short sellers focus on uncovering fraudulent or financially engineered practices in companies to provide transparency to investors. They analyze red flags in financial statements and look for provable issues rather than predicting future performance.
What was the potential risk Manulife faced due to a lawsuit?
Manulife faced a potential risk due to a lawsuit that could have led to significant financial pressure if the plaintiff won. The lawsuit involved a fund seeking the right to deposit unlimited sums with a guaranteed return into Manulife, potentially affecting the company's balance sheet.
What approach does Carson Block take in analyzing companies?
Carson Block's approach involves looking for situations that seem too good to be true and conducting thorough forensic analysis of companies. He aims to uncover fraudulent activities and has been successful in exposing fraud in companies like TAL Education.
What fraudulent activities were highlighted in TAL Education's case?
The report highlighted TAL's fraudulent activities, including covering up the weakening core business of Payo. TAL engaged in deceptive practices like transferring contracts to give the appearance of no longer owning a business and lying about investments to avoid scrutiny.
Why does Carson Block advocate for targeting immoral companies?
Carson Block advocates for activist short sellers to target companies for moral reasons, urging investors to sell toxic companies that are harmful to society. He emphasizes the importance of changing the culture of investing to prevent unethical outcomes and create a more ethical investment environment.
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Summary
00:00
Activist Short Sellers Expose Financial Deception
- Short selling is a niche within investing, with activist short sellers focusing on companies where management may be hiding information from investors.
- Activist short sellers aim to uncover fraudulent or financially engineered practices in companies to provide transparency to investors.
- Activist short sellers look for provable issues in companies' financial statements rather than predicting future performance.
- Activist short sellers analyze red flags like significant discrepancies between GAAP and non-GAAP earnings or income and free cash flow statements.
- Manulife faced a potential risk due to a lawsuit that could have led to significant financial pressure if the plaintiff won.
- The lawsuit involved a fund seeking the right to deposit unlimited sums with a guaranteed return into Manulife, potentially affecting the company's balance sheet.
- Manulife did not disclose this lawsuit to investors, leading to an information asymmetry that activist short sellers exploited.
- The Saskatchewan government's sudden regulation regarding policyholder deposits added complexity to the lawsuit's outcome.
- Carson Block's approach involves looking for situations that seem too good to be true and conducting thorough forensic analysis of companies.
- Block's involvement in exposing fraud in Chinese companies like TAL Education highlights the sophisticated forms of fraud present in some Chinese firms.
14:16
TAL's Deceptive Business Practices and Fraud
- TAL did not sell the business but transferred some administrator contracts, not teacher or student contracts, to give the appearance of no longer owning the business.
- TAL bought DFRL in 2011, an overseas education intermediary business, which helped Chinese students with research and applications, recognizing revenue upon students receiving visas.
- TAL disposed of DFRL to an investee and invested in Shunshun, another overseas education intermediary business, making significant profits from transactions with Shunshun.
- TAL lied about the timing of its investment in Shunshun to avoid scrutiny as a related party transaction.
- TAL bought additional equity from a straw counterparty related to Shunshun, possibly diverting shareholders' money for personal gain.
- The report highlighted TAL's fraudulent activities, including covering up the weakening core business of Payo.
- TAL's response to the allegations was deemed inadequate and lacking substance.
- The complexity of TAL's fraudulent activities made it challenging to uncover but indicated a systemic issue.
- The speaker believes in the cockroach theory, suggesting that once a line is crossed, further fraudulent activities are likely.
- The Chinese market's history of fraudulence and manipulation, coupled with US investors' gullibility, has led to a cycle of fraud and valuation manipulation.
27:42
"Activist Criticizes Jack Ma's Unethical Actions"
- Jack Ma transferred ownership of Alipay from Alibaba without informing board members from Yahoo and SoftBank, citing Chinese regulations on foreign ownership of payment processors.
- Ma's actions raised questions about his credibility and suitability to run a public company, with concerns about his lack of transparency and leverage tactics.
- The speaker, Carson Block, criticizes Ma, calling him a scumbag and questioning his honesty, highlighting Ma's questionable track record.
- Block discusses the challenges of shorting Alibaba due to its complexity and the lack of aversion to risk in the US market.
- Block advocates for activist short sellers to target companies for moral reasons, urging investors to sell toxic companies that are harmful to society.
- Block emphasizes the role of long investors in providing financial incentives for unethical behavior in companies like INSYS Pharmaceuticals and American Addiction Centers.
- Block calls for a shift in focus from regulatory actions to directly addressing immoral behavior in companies, urging investors to stop supporting such companies.
- Block mentions companies like Medifast, Health Innovations Insurance, and Acadia Healthcare as potential targets for activist campaigns due to alleged immoral practices.
- Block highlights the importance of changing the culture of investing to prevent immoral outcomes and create a more ethical investment environment.
- Block expresses a desire to target and expose companies engaging in unethical practices, aiming to have a broader impact on the investment culture.
41:58
Private Sector Dominance: Risks and Responsibilities
- Technological supremacy shifted from government to private sector in the late '90s, leading to the private sector having more power.
- Humans innovate faster than they can adapt to their creations, resulting in a lack of understanding of risks and how to manage them.
- Creation of complex systems like financial derivatives, offshore drilling, and nuclear power plants without full comprehension of their implications.
- Private sector's influence on modern life is at its peak due to the factors mentioned.
- In 2017, there were 63,000 overdose deaths in the US from opioids and heroin, surpassing the total American soldiers killed in the Vietnam War.
- Urgent need to introduce morality into investment decisions, especially concerning businesses that can cause significant harm to individuals.
- Healthcare sector is a prime area to identify and regulate companies that exploit individuals or limit access to healthcare.
- The challenge of addressing bad actors in the business world, considering the potential for new issues to arise or the difficulty in effecting long-term change.
- The speaker's pivotal decision to expose a Chinese fraud company, Orient Paper, despite potential risks and uncertainties.
- Transition from exposing Chinese frauds to realizing global issues of conflicts of interest and dishonesty in financial practices, leading to a broader scope of business operations.
