Thanks again Jenny. The explanation of the change of auditor provided to you at the SGM is consistent with Grant Thornton's letter to the company on November 29 announcing its resignation, contained in http://www.bursamalaysia.com/market/listed-companies/company-announcements/1501157. Quoting from the letter, "We understand that the Company intends to appoint new auditors in our stead with effect from and subject to approval of shareholders being obtained. Accordingly we give notice of our intention to resign as auditors subject to and with effect from the Shareholder's Approval." In other words, based on this letter, it does sound like they were asked to resign by the Company. You would worry if Grant Thornton were the one wanting to terminate the relationship.

You of course have the advantage of seeing them in person, that we don't. As you know it's easier to judge whether someone is lying when you can hear their responses and see their facial expressions.

I was leaning toward avoiding this counter because of the red flags, but because of your comments am now leaning towards buying some. I just wish they hadn't gone public so recently. When you have, say, 5 years or more history as a public company you can get a pretty good idea from the financial statements and from the actions of management and insiders as to how they treat minority shareholders. With this one you don't have that history yet.

Thanks Jenny

My Story
Prostitute for Profit
By Elpinchegringo

Dear Jenny,

Who my mother sleeps with is no business of yours. Just kidding.

Providing an analogy like you did, Mr. Wu, a Chinese man, wined and dined me. He wasn’t the prettiest to look at, his face was scarred with acne and he was fat. But he promised me the moon – dividend yields of 25%, a growing company with low debt, lots of cash, high ROIC and a very, very low P/E. My momma didn’t raise no fool. I checked him out before I jumped into bed with him. I called his chief financial officer (CFO), who was in Hong Kong. I asked him, “Mr. CFO, why is Mr. Wu offering me such a good deal?” He told me it was because Mr. Wu’s brother was recently in Hong Kong, going around getting women like me pregnant. Then instead of staying around and helping with the children, he slipped across the border into the PRC, never to be heard from again. But the CFO told me Mr. Wu was different. Mr. Wu was an honorable man. If he knocked me up he’d certainly stick around, and pay me dividends, year after year.

So I jumped into bed with Mr. Wu. And you wonder what happened? Did he leave me barefoot and pregnant? Absolutely not, elpinchegringo is much too shrewd for that. You see, elpinchegringo is an American girl. And American girls are sluts. Elpinchegringo has boyfriends from Hong Kong, Singapore, Mexico, Brazil, Canada, Australia and the United Kingdom. He has none from the USA, because American boys are cheap, they don’t pay good dividends. Elpinchegringo actually has children with over 50 boyfriends. Yeah, that’s a lot of kids, but it provides good diversification.

So, what happened? Yes, as you suspected, Mr. Wu took the money out of the bank account, stole the company chops (seals) and disappeared into the PRC. And elpinchegringo lost more money to Mr. Wu than he did to any other man. But because he was diversified he lived to see another day. And that, dear Jenny, is why I would encourage you to become a slut like me, if you’re not already. You should not place all your eggs in one basket and depend entirely on one man. Yes, perhaps it makes sense to have several percent of your net worth invested with Mr. CF. But not, say, 50%.

Seriously, this is why I’m shy about this counter. Up until about 3 months ago, when I made an even worse mistake, my biggest loss was in a position a lot like this one. The big difference in my mind is that CF is a Hong Kong citizen. For reasons that you’ve pointed out, Jenny, this is still a tempting proposition for me. I may buy the shares. By virtue of attending the SGM, you are likely in a better position than the rest of us to judge this one, so your comments should be taken seriously. So, honestly, I’d really like to know, what reasons did they provide at the SGM for replacing the auditor? And did one of the insiders actually tell you that Lead Champion has borrowed against the stock, or are you guessing that’s the case?

Respectfully,

EPG

Fam Genny, What were the three reasons the auditor was replaced?

I'm not trying to make you mad. Like you I'm interested in understanding the company and making a profit. You say "the performance of the company is the best of the best in terms of current price." I agree and that's exactly my concern. Why is this company so cheap? Is there something others know that you and I don't? Is this a case of people being paranoid because of many bad experiences with Chinese companies with overseas listings? Is the paranoia justified in view of the insider selling and change of auditor?

The new auditor, RT LLP, is unknown outside of Singapore. They are affiliated with BKR International, which describes itself as a "global accounting association." Looking at their web site, solo practitioners (firms consisting of single accountants) are members of this "global accounting association." Price WaterhouseCoopers it ain't. Yes it's headquartered in the USA. My educated guess is that Bernie Madoff's accountant could have jointed this association if he had wanted to.

I'm curious, has CF or another insider actually told anyone here that Lead Champion Group pledged its CSL shares for a loan? Or are we just speculating that's the case?

This is an example, unfolding right now, of why people are worried about counters like this one: http://infopub.sgx.com/FileOpen/Eratat_Update_of_Events.ashx?App=Announcement&FileID=276130

A holding company incorporated in a tax haven owns Chinese subsidiaries. It lists in Hong Kong or Singapore or the USA or Malaysia and raises money. The controlling shareholder disappears with the assets and the minority shareholders are left holding the bag.

I'm encouraged that CF isn't a Chinese citizen that can disappear into the PRC with the cash and other assets. I'm discouraged to see lots and lots of insider selling and the resignation of the auditor. It will be interesting to see which way this goes.

Fam Jenny, Thanks again

Fam Genny and wahaha, Thanks! I think I understand, that Lead Champion Group pledged its shares to the bank and was forced to sell. Fam Genny, thanks for sharing info from the SGM. If I understand correctly, Lead Champion pledged its CSL shares and a 1.6 billion Renminbi cash deposit as collateral for a loan? And Lead was forced to sell when the value of the collateral dropped? His comment that the shares might have been owned by the demised MD is strange, since Lead Champion owned the shares, not the ex-MD. You have a good point, the company has lots of cash in the bank (which the auditors should be able to easily verify) and good free cash flow. This company is either dirt cheap or a fraud, and I guess time will tell. At the risk of sounding prejudiced, the fact that Mr. Chan Fung is a Hong Kong citizen instead of from the PRC is somewhat comforting. The one time I was burned in a fraud, the Chinese insiders of a listed Hong Kong holding company took the chops of the Chinese subsidiaries and the holding company was bankrupted.

I just started looking at this one and read the last few pages in this forum. Lead Champion Group (i.e. insiders) seems to have sold like a bat out of hell in the second half of 2013 at prices from 0.20 to 0.30. A couple here have speculated that insiders were selling with the intention of buying back later at lower prices. This doesn't make sense to me, selling 25% of the outstanding shares at those kind of prices, unless this is (a) a fraud or (b) the insiders were buying shares back at the same time they were selling. I note that they sold one block of 120 million shares at 0.30 on 12/7/2013 and another 160 million at 0.30 on 15/8/2013. Both these sales were above the market, which was trading around 0.25 to 0.28, and far in excess of the trading volume on those days. And issued shares are around 1.2 billion so that each of these blocks were close to or in excess of 10% of the total shares. Any opinion as to my theory, that insiders or entities controlled by them could have been buying back shares at the same time Lead Champion was selling? Also, does anyone know anything about RT LLP, their new auditor? They don't appear to be heavyweights.