Caterpillar (CAT) Investigation Finds More Roaches in China
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On Friday, Caterpillar (NYSE: CAT) told investors that several senior managers at a recently acquired China Company, Siwei, a subsidiary of ERA, engaged in deliberate misconduct. As a result, Caterpillar took a non-cash goodwill impairment charge of approximately $580 million, or $0.87 per share. The announcement raised several red flags for investors and has the potential to exacerbate long-standing fears that data coming out of China is "dubious".
In an interview this past January, outgoing SEC Chairman Mary Schapiro said China has done little to help the SEC investigate a string of Chinese public company frauds. In November, Carson Block, founder of Muddy Waters Research took it one step further when he said China's government has taken the side of the frauds.
Caterpillar first became concerned about an issue when discrepancies were identified in November 2012 between the inventory recorded in Siwei's accounting records and the company's actual physical inventory. Keep in mind that prior to being acquired by Caterpillar, Siwei was a publicly traded company with audited financial statements.
Needless to say, the fact that it was running a "multi-year" "coordinated" accounting fraud is raising eyebrows. Among other questions, investors want to know how many other China companies have bloated inventory, or to be blunt, how many more roaches can be found under the massive stone otherwise known as China's economy.
In an interview this past January, outgoing SEC Chairman Mary Schapiro said China has done little to help the SEC investigate a string of Chinese public company frauds. In November, Carson Block, founder of Muddy Waters Research took it one step further when he said China's government has taken the side of the frauds.
Caterpillar first became concerned about an issue when discrepancies were identified in November 2012 between the inventory recorded in Siwei's accounting records and the company's actual physical inventory. Keep in mind that prior to being acquired by Caterpillar, Siwei was a publicly traded company with audited financial statements.
Needless to say, the fact that it was running a "multi-year" "coordinated" accounting fraud is raising eyebrows. Among other questions, investors want to know how many other China companies have bloated inventory, or to be blunt, how many more roaches can be found under the massive stone otherwise known as China's economy.
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