Value Investing - Making it work in China and Asia by Mr. Cheah Cheng Hye

[Qiaofeng]

In the case of Peace Mark it was not necessary to know that the accounts were fake, nor that the majority owners had pledged their shares.

The official published accounts were already highly suspicious as I pointed out. An investor cannot hope to avoid ALL the crooks. But most of them can be avoided by doing due diligence.

My 1c Gibberish on the events

The banks, the auditors, the investors (VP included) must have done their due diligence on PM’s B/Ss, just as you did. Even if they had suspicions, it would only remain as hunches and suspicions. It is not possible to connect the dots looking forwards; it is only possible to connect the dots looking backwards. Hindsight is 20/ 20.
Originally, PM had intended to keep Sincere listed with approx. 50% stake. IMHO, PM unraveled becos PM decided to go for a delisting of Sincere and upped the ante to a complete takeover. In doing so, it had to go to a consortium to get a syndicated loan. The rumor on the collateral pledge and the association with Eganagoldfeil made the banks wary at a time when banks were looking in the eye of the GFC storm. Credit should be given to Stan chart, whom it appears was the first to pull out of the consortium of banks when they smelled something fishy. Subject to a different set of prevailing opinions & circumstances at that time; it is possible that PM management could have pulled the whole thing off if the banks had been willing and the Webb Report; which totally destroyed PM credibility thru its analysis of PM’s accounting record, was not published. The triggers that mattered were the undisclosed pledging of the shares and the similarities with Eganagoldfeil pointed out by the shorts.