China IPO and RTO Case
3. Longtop Financial Technologies Ltd.
Financial Frauds
 Price/Sales.
From 2007 to 2010, the price/sales ratios were keeping much higher than the benchmark, which were 15.46, 13,86, 10.2 and 10.34 respectively. This red flag showed that the investors’ psychological expectation is higher than the company’s real value. What’s else, the declining trend of the ratio demonstrated the market value is getting closer to its real value.
 Large amount of cash.
Cash was always a big part of the Longtop’s total assets. Through 2007 to 2010, cash to total assets percentage were 66.39%, 75.65%, 70.41% and 54.78% respectively. Meanwhile, the cash flow liquidity was keeping low since 2007, which was 0.625, 1.03,0.95 and 0.72 respectively. Cash flow liquidity indicates whether the company gets enough to pay off its short-term debt. Longtop hold plenty of cash but lack the ability to pay the short-term loan, which was very unreasonable. This exception illustrates that there is possibility that the Longtop made up the cash amount.
 Profit margin.
Profit margin showed significant red flag at 2007, 2009, and 2010. The ratios were 18.60%, 6.06%, 40.57% and 34.91% respectively. The ratio has decreased 12.54% from 2007 to 2008, which mainly caused by the increase of the cost. There was a dramatically increase from 2008 to 2009, and the reason of the increase is the rising of the revenue. A small drop was happened from 2009 to 2010, and the ascend of the cost is the key factor. No-financial Frauds
 Unconventional staffing model.
Most of the workers were not hired by the Longtop directly but through an independent human resource company. The human resource company had the same name with the Longtop, and the same work place. Besides, the Longtop is the only customer of the human resource company.
 Corporate governance
A． Older Directors
Mr. Ka is the chairman of the board of directors, and he is over 60 years old, so that increase the possibility of leading the company to a wrong direction.
B． Board of directors and CEO entrenchment
Mr. Ka has been taking the chairman position for 15 years, Longtop should re-elect the chairman of the board of directors at 2006. The similar situation happened to Mr. Lin and Ms. Chen, so the company should also re-elect chief executive officer and the director of business division at 2006.
 Nontransparent management transactions.
The chairman of Longtop claimed he gave out $80 million in stock to his employee, but there is no evidence to confirm this transaction. The company also claimed that the biggest expense ($30,000) is the payment of epiboly human resources, and this transaction still needs proof to be confirmed.
 Inventing mendacious cash and concealing of loan. Longtop made Deloitte assure it had large amount of cash and little bank loan by bribing the managers of local bank branches.
 Falsification of fake revenue. The chairman of Longtop admitted that they invented fictitious revenue in the past year, which caused the fake cash.

China MediaExpress Holdings, Inc.
Financial Frauds
 The significant red flag of China MediaExpress is the unreal fast growth happened at the third quarter of 2010, the company earned 54.39% of the revenue for the total year.($31 million out of $ 57 million)
No-financial Frauds
 Inventing fictitious revenue. The company invented fictitious revenue on its 10-K report to the SEC, which is 78.9 million higher than the revenue booked at the report for SAIC.
 Falsification of business trading. The company made up business trading with Apple, which had no reliable evidence.
 Fake cash confirmations. Fake cash confirmations were made by Chinese branch bank managers.
 Misrepresentations of cash. In 2009, the company reported their cash of $57 million instead of the real $141,000. In the third quarter of 2010, the company reported their real cash $10 million at $170 million.