SGOCO Group Ltd is an investment holding company based in Hong Kong. The company principally engaged in environmental protection, energy saving technologies, equipment development and applications; money lending business in Hong Kong providing mortgage loans to high quality target borrowers; as well as property investment to generate additional rental income. The company designs, develops and manufactures Phase Change Material (PCM-TES) storage system and applies them on cooling and heating system. The company operates money lending business and investments in real estate properties in Hong Kong.
The company listed on the NASDAQ in April 2008 via a reverse merger with Hambrecht Asia Acquisition Corp. Additional share offerings by the company raised US$8.07m; (December 2010; US$7.07m and April 2017; US$1m).
On 15 July 2021, GMT Research, in a report "Asian Short-Sellers", noted that short sellers of Asian stocks had a good year, so far in 2021. Reviewing a number of companies it believed that SGOCO Group was a likely future short-seller candidate. GMT noted that it was a product of a 2008 reverse merger, had recently bought a blockchain-related business but lost its auditor in the process. Also, GMT pointed to a recent 445% share price rally which only raised suspicions that it was yet another pump and dump.
On 18 August 2021, Wolfpack Research issued a report "SGOC: Multiple Arrests, Financial Fraud and Money Laundering". Wolfpack pointed out that SGOCO Group's major shareholders had reportedly been using the company for years to defraud 260 other investors in Hong Kong and Mainland China. The main issues that its research had uncovered were:
- SGOCO Group was being used as a conduit to drain the assets from the HKIF Fund, which was reportedly controlled by two of SGOCO Group’s largest shareholders. What appeared at first to be constant M&A activity disclosed in SGOCO Group’s SEC filings turned out to be a method for draining the assets of the HKIF Fund sold under AXA Insurance’s name to give it credibility. They appeared to have been defrauding both the investors in the HKIF Fund and the shareholders of SGOCO Group at the same time.
- After analysing and reviewing SGOCO Group’s financials, Wolfpack noted its revenues were negligible and the corresponding expenses simply did not add up. It noted:
- According to SGOCO Group’s 2020 20-F, it recorded only approx. US$4.3m in revenue, had a -24.8% gross margin and a net loss of approx. US$67.9m in 2020;
- SGOCO Group had only approx.US$3m in cash at the end of 2020 and its total assets had decreased by more than 35% from the prior year to only US$90.13m, while its total liabilities were effectively unchanged;
- SGOCO Group had recently dismissed Centurion ZD as its auditor for 2020;
- SGOCO Group narrowly avoided being delisted by filing its 20-F on 7 July 2020 (approx. 3 months late).
- Wolfpack researched the possibility that large scale fund fraud could be SGOCO Group’s only real business and noted:
- Many of SGOCO Group’s subsidiaries, per its 2020 20-F, were incorporated in known offshore tax havens (BVI, Cayman, Marshall Islands, Seychelles). According to China Business Network, many of these entities were used to transfer assets from the HKIF to SGOCO Group. Meanwhile, according to Inspector Fang Hanhao of the Commercial Crime Bureau of the HK Police, the fund premiums were actually transferred to bank and securities accounts controlled by the “fraud group.”
- Certain SGOCO Group’s US and PRC subsidiaries appear to be dormant shell companies;
- Giant Financial Services Limited, a Samoan entity SGOCO Group acquired for US$64.34m, in 2019, from a related party, Victor Or. It was presented as one of SGOCO Group’s main “business lines” in its 2020 annual report. Wolfpack could not findmeaningful data either in SGOCO Group’s SEC filings, or in its other research regarding any noteworthy history, customers or past revenues of GFS to justify such a significant acquisition price. Further, SGOCO Group’s 2020 20-F showed that GFS generated only ~US$1.5m in revenue resulting in a net loss of ~US$57.9m in 2020. Wolfpack believed the true purpose of this acquisition was to funnel cash out of the publicly traded company to a related party.
Wolfpack concluded that with the HK Police investigation still ongoing, it was of the opinion that SGOCO Group had even bigger problems ahead of it. Wolfpack said it wouldn’t touch this stock as an investment with a 100-foot pole.
GMT Research: Asian Short-Sellers, 15 Jul 2021
Wolfpack Research: SGOC: Multiple Arrests, Financial Fraud and Money Laundering, 18 Aug 2021
SGOCO Group: Annual Report, YE Dec. 2020
SGOCO Group: Annual Report, YE Dec. 2019
SGOCO Group: Annual Report, YE Dec. 2018
SGOCO Group: SEC Filings