Longtop Financial Technologies Group (LGFTY US)

Taken from: Longtop Financial Technologies Case Study

Longtop Financial Technologies (LFT) was a software developer and technology services provider based in Xiamen. It provided technology services and creates for banks in China, including three of the four largest state-controlled banks: China Construction Bank, Agricultural Bank of China, and Bank of China. LFT went public on the NYSE in October 2007. In April 2011 Andrew Left of Citron Research published a report accusing LFT of widespread fraud. The stock had margins far higher than its peers, most of its staff were employed by a supposedly unrelated HR company, and there were odd transactions with management gifting stock to employees.

Read this article: The Shorts who Popped a Chinese Bubble:

Reuter: The “Shorts” who popped a China bubble

Citron’s research reports are here:

Citron reports on Longtop Financial, 26 Apr 2011

and

Longtop Financial Final Proof of Undisclosed Related Party Transactions, 9 May 2011

At the time that the reports were released Deloitte was in the process of completing its audits on LFT. Deloitte expanded its procedures related to cash, the largest item on the balance sheet. Cash totalled US$423m or 57% of assets. Irregularities were found, which resulted in Deloitte resigning and the NYSE delisting the stock.

OPM was 37% in 2010 and RoPA was 288%

Deloitte: Letter of Resignation & Legal Documents

Longtop Financial Technologies: Annual Report 2010

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