Oil producer China North East Petroleum (CNEP) listed in the US via a 2004 reverse merger. In March 2010, the company was forced to restate its FY08 and 9M09 financials following a review instigated by the SEC. Although these restatements were non-cash in nature, the review appears to have uncovered the illegal transfer of US$59m to bank accounts of the CEO and his relatives. The subsequent SEC litigation focused on embezzlement charges; however, we suspect that CNEP was a fraud given that the company triggered our Fake Cash Flow Fraud model for most of its listed history. We think fake profits were parked in fabricated receivables. As such, it looks as if the CEO made up profits in order to raise and embezzle capital raised from outside investors. As such, while not a proven fraud, it is highly likely.
Last updated December 2021
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