This is a great opportunity to openly wonder when Warren Buffett is going to have to come to terms with his dealings with the Chinese on their home turf.
I’ve learned about Chinese fraud the hard way, I encourage you to learn about their style of fraud because it is not the Chinese that you should be afraid of, but you should be made aware of the limitations to ownership and that things are often not what they seem. This is an instance of Caterpillar executives pissing away $500M.
I, for one, have come to the personal understanding that there are many businesses that are in the business of creating and selling financial statements backed by the illusion of actual operations. China has been a great place for these sorts of businesses across the past decade. This is merely people waking up to it. Cautious investing to all.
http://finance.yahoo.com/news/caterpillar-says-uncovers-accounting-misconduct-223918284.html
By Ernest Scheyder
(Reuters) – Caterpillar Inc uncovered “deliberate, multi-year, coordinated accounting misconduct” at a subsidiary of a Chinese company it acquired last summer, leading it to write off most of the value of the deal and wipe out half a quarter’s profits.
Caterpillar, the world’s largest maker of tractors and excavators, said on Friday it would take a noncash goodwill impairment charge of $580 million, or 87 cents per share, in the fourth quarter of 2012.
Analysts had expected the company to earn $1.70 per share in the fourth quarter, according to Thomson Reuters I/B/E/S.
Caterpillar closed the purchase of ERA Mining Machinery Ltd and its subsidiary Siwei last June, paying HK$5.06 billion, or $653.4 million at current exchange rates.
A member of the Caterpillar board during the course of the Siwei deal told Reuters the board was distracted at the time by a larger transaction and paid relatively little attention to the Siwei acquisition.
“It came as a complete surprise to us,” the former board member said of the fraud, speaking on condition of anonymity because of the sensitivity of the situation. “It was presented to us as a pretty straightforward transaction. It’s a shame. It should have been investigated further.”
In a statement, Caterpillar said an ongoing investigation launched after the deal closed “determined several Siwei senior managers engaged in deliberate misconduct beginning several years prior to Caterpillar’s acquisition of Siwei.”
The company said it had replaced several senior managers at Siwei, adding that their conduct was “offensive and completely unacceptable.”
Caterpillar was not immediately available for further comment.
Representatives for Siwei were not immediately available for comment before business hours on Saturday morning in China.
Representatives for Citigroup and Freshfields Bruckhaus Deringer LLP, which served as financial and legal advisers to Caterpillar on the transaction, could not be immediately reached for comment.
Blackstone and DLA Piper, which acted as ERA’s financial and legal advisers, were not immediately available for comment.
(Reporting by Ernest Scheyder; Additional reporting by Soyoung Kim in New York; Writing by Ben Berkowitz; Editing by Gary Hill and Tim Dobbyn)