Breaking News Huge Stock Fraud, Efforts to Cover it up & judicable Failure
In the time of the aftermath of the Madoff case, regulatory failure, and systemic Capture of oversight, here is an opportunity, to have a reporter present when some major revelations will be revealed in the Federal District Court of Delaware, A case involving a multi-level scam and regulatory failure and a consorted effort By those involved to silence the efforts the truth from being revealed at that session Judge Brendan Shannon will respond to a filing requesting that he recuse himself.
The request pertains to :
- The judges failure to reveal a conflict of interest from the onset, that he as an attorney was a Former employee of the plaintiff, the hedge fund (Silver Point), and coworker of Silver Points’s Surrogate the Interim CEO of the company filing for bankruptcy protection, Greg Rayburn.
- The judges rulings protected his former employee from and Greg Rayburn from scrutiny or Penalty in there filing of a false Declaration of Bankruptcy. Which made no mention of pervasive Fraud. The cover up, if successful would have enabled a company with a projected value of 1 Billion for 2007 to be swindled from shareholders for a no money down deal of 60 million dollars To pay off Silver Point.
The basic facts are:
It would be breaking news to have a reporter present to hear how the Judge responds to The documented allegations.
- 406, 000,000 dollars fleeced from some 20,000 investors through the illegal conveyance of Assets to phony shell off shore companies.
- A hedge fund posing as a lender, taking over the company with the intention of hiding the Fraud and taking the company into bankruptcy so as to seize the remaining assets from the Defrauded shareholders. Also trading evidence for trading irregularities were forwarded to the SEC and FINRA for almost a year supporting the need for an investigation into insider shorting naked Shorting and stock manipulation. The stock holders never received a meaningful response from regulators which give the appearance that the case Was buried.
- A judge with a conflict of interest, being a former employee of this very hedge fund, who, Having failed on his own, to disclose this fact, constructed all of his rulings to shelter the hedge Fund, and their surrogate, from scrutiny for their association any association with the fraud and For their perjury in filing a false Declaration of bankruptcy which, in failure of the obligation of full Disclosure, failed to mention the pervasive fraud within the company. On January 7 in the Federal District Court in Wilmington Delaware Judge Brandon Shannon is going to respond to a filing recommencing that he recuse himself, given his failure From the onset to disclose his former employment by the plaintiff, and his rulings to date which Protect his former associates from scrutiny in their role in the role in the fraudulent bankruptcy Declaration and cover up of the fraud within the Syntax-Brillian company while they were Essentially in control of the company at the board meetings through their surrogates for months.
Considering the multiple counts of fraud revealed in the Independent Examiner report, Presented by Mr. James Feltman’’s and corroborated by the findings of John Orenstein who was The 'in-house' examiner, it is clear that the fraud that occurred at Syntax-Brillian was pervasive And well documented in the court Dockets. Considering that Greg Rayburn, the certified fraud examiner had been working for months at SBC , Than he was put in the role of acting CEO. He was hired by FTI Palladium on behalf of Silver Point who has full access to SBC’’s financial's since September of 2007. It is incredible That he was allowed to avoid appearing in court when confronted with his deceptive and false Statements made on is original declaration of Bankruptcy. In that declaration which, under Penalty of perjury, he was by law required to be truthful and complete, Rayburn totally omitted The fraud which all evidence suggests he had clear knowledge of while pursuing a sweet deal to Acquire 350,000,000 dollars of assets for his bosses by misrepresenting the facts, while fleecing shareholders.
Re: Judge Brendan Shannon...Questions of judicial misconduct and a violation of ethics have been raised as a result the judges failure to disclose until it was revealed in court that the as an attorney was a former lead attorney for the Hedge fund Silver Point and a co-colleague of Greg Rayburn the interim CEO company which was now filing for bankruptcy. Also court dockets reveal the judges attempt to settle on an examiner chosen by the plaintiff. of the of the Judge’’s persistent refusal to hold Greg Rayburn to accountable for perjury for a false filing of a declaration of bankruptcy, that did not mention the pervasive fraud in the company to which he privy and failed to reveal to shareholders of the authorities This judge refused to put Mr. Rayburn under oath regarding his intentional omittions nor did he requiring him to amend his fairytale declaration and to give a credible account of what transpired at SBC.
Judge Shannon’s rulings protecting Mr. Rayburn and Silver Point form scrutiny gives the appearance of biased considering his personal history as counsel to Silver Point in the aaiPharma Inc Case and his association as a a colleague of Mr, Rayburn in that case. His Honor should have recused himself from these proceedings to avoid even the appearance of any impropriety.
The Case to Date
Syntax-Brillian filed for bankruptcy was filed on 7/11/2008. It was a voluntary bankruptcy filed by Silver Point, a hedge fund that had loaned the company 150 million dollars. At the time the bankruptcy was filed, the company management was under Gregory Rayburn, an interim manager from FTI.
A conference call, was held in late November, 2007 to discuss the result of the September 2007 Quarter. This is how the numbers looked at the end of the September quarter as reported to the SEC on November 14, 2007.
James Li, the CEO, reported that units were flying off the shelves on black Friday. He said he expected that accounts receivables from SCHOT, the company's distributor in the Far East, would be paid in full by year end.
SBC’s balance sheet contained in that Form 10-Q/A listed assets with a book value of $550.7 million, liabilities of $227.5 million and total stockholder equity of $323.2 million. Of the $550.7 million of total book value, $266.2 million were accounts receivables, $56.4 million in inventories and 123.3 million in ““tooling deposits with a Taiwan company called Kolin, identified in the filings as an SBC supplier and ‘‘strategic partner.’’ See SBC SEC Form 10-Q/A dated November 15, 2007.
Because of all this misinformation, investors expected the December Quarter numbers to be dazzling. Those numbers were supposed to be reported on February 11, 2008. But they never did get reported. They were delayed and delayed until we woke up one morning to find they had filed for bankruptcy.
The CEO of the company at the time of the filing, Gregory Rayburn, claimed that the company had failed because its business model no longer worked. Costs of Goods were too high and the company didn't control its own technology. He had arranged for the assets of the company to be sold to a TCV, a Taiwan company that used to be a supplier to Syntax-Brillian. The shareholders were out of luck and their stocks were worthless.
The disappearance of so much equity so fast and the complete absence of information on how that came to be resulted in a mini-uprising by the shareholders. Complaints were filed with the US Trustee demanding an independent examiner. As a result of shareholder pressure, an independent examiner was finally appointed in September, 2008. The court did not order a written report from the examiner. The court did not allow the examiner to be cross-examined. The examiner's customer was the judge. The examiner was not there to serve any constituency. His legal role was to provide his findings to the court - period.
The examiner was given two weeks and a limited budget to look over the books. Before we go into what he discovered, it should be noted that the examiner, James Feltman, wanted to continue with his examination and he recommended that current officers of the company be deposed. But the examination was terminated and no depositions or testimony under oath were taken.
As to what the examiner discovered.
That was a brief summary of how this racket operated. An additonal factor to keep in mind is that not all insider selling by officers were properly filed with the SEC. About 30 million dollars worth of sales were recorded. The rest is undetermined as far as I know.
- Syntax-Brillian was run for the benefit of Kolin not for shareholders. It was effectively a subsidiary of Kolin, a Taiwan company, a 'strategic partner' that was supposedly part of the supply chain for some of the TV components.
- Funds were illegaly conveyed to Kolin under the guise of 'tooling deposits.' There was nothing contractual to justify these transfers which amounted to 140 million.
- The sales to SCHOT, a Hong Kong Company, supposedly accounted for nearly half the sales. It turns out that they were phantom sales. SCHOT itself was a company that was also effectively a subsidiary of Kolin.
- To cover up the phantom sales, James Li, the CEO of Syntax-Brillian concoted this story about how the TVs had been originally ordered by the Chinese Olympics Committee and then returned. As it turned out, the so-called returned inventory from SCHOT were not the same product that was shipped to SCHOT. The examiner concluded that shipments from Kolin to SCHOT appears to be components and parts. The returned merchandise was fully assembled TVS.
The examiner determined this by noticing that the weight of the individual units being shipped from Taiwan to SCHOT in Hong Kong weighed only a small fraction of the fully assembled units returning to Taiwan.
- The examiner, in his oral presentation, presented bills of lading to prove his point. The interesting thing is that the number of units on the original purchase orders matched the number of units on the returned merchandise orders.
- The fact that the exact same number of units going out matched the units returned means that SCHOT didn't sell any of the merchandise. Not a single unit.
- Basically this was how it worked. Kolin, Syntax-Brillian, SCHOT, Olevia Far East, the Nanjing assembly joint venture and Digimedia were essentially one company. Each had a purpose. The examiner put it this way - it looks like one company that was essentially trading with itself.
- Digimedia was the technology center, Kolin produced certain components, the molds were from TCV and everything was apparently assembled in Nanjing. The Syntax-Brillian branch operation was just a money siphoning operation to fleece American investors and open marketing channels for the Olevia Brand.
- SCHOT was the 'pass through operation' - a supposedly independent company that ordered phantom assembled TVs from Syntax-Brillian. But it also had a real business function. It was an intermediate transit point where Kolin shipped parts on their way to Nanjing. The assembled TVs went to SCHOT and made their way back to Kolin.
- Don't confuse Kolin's real business with the phantom TVs booked as 'Brillian-Syntax' sales to the Chinese Olympics Committee. It's important to keep in mind that Kolin had a real business.
- When you consider these phantom sales, keep your eyes on the money. When the SCHOT phantom sales were booked, they become account recievables on Syntax-Brillian's 10-k - almost 200 million at one point. These receivables were almost half of the assets claimed by the company. But, of course, there were phantom Cost of Goods associated with these phantom sales. Phantom sales or no phantom sales, all the 'supply chain strategic partners' got paid for the alleged components used in these phantom TVs. That money - real money - went out the door to Kolin and its other subsidiaries.
- So, you get two results out of the phantom sales. The first is it makes it look like Syntax-Brillian's Asian sales are going through the roof and inflates the performance of the company.
And incidentally, it allowed them to book whatever margin they wanted on these phantom sales. Because you can precisely calibrate the amount of money going out the door for the phantom components - the so called Cost of Goods. You can put whatever tag you want on them and pass real money to Kolin. All they had to do is make sure that the phantom sales numbers they booked where greater than the phantom cost of goods that they booked to create fantasy margins of 17 or 18 percent on their Asian sales.
- the phantom sales make your books look great and allows you to siphon money out of the company for cost of goods. And because the performance of the company appears so fantastic, the stock goes up - a perfect time for a little insider sales. The examiner reported 30 million dollars in insider sales reported to the SEC. He also reported that an undetermined number of shares were sold by insiders and not reported.
When the SCHOT accounts receivables become suspiciously late, over 120 days, the company developed a 'new business model.' They created a dummy corporation called Olevia Far East and start selling to them and work out a royalty agreement. Olevia Far East had no place of business - not even a phone number.
- The examiner's report was followed by a report by John Orenstein on 10/16/2008. Orenstein was an 'in-house' examiner. It should be noted that the debtors counsel kept promising this report and not producing it. He reported his findings 10 days after the the examiner's gave his oral presentation before the court. John Orenstein affirmed the conclusion of the examiner that Syntax-Brillian was run for the 'benefit of Kolin.'
- The culture of corruption at Syntax-Brillian was mind boggling. Orenstein reported that 11 million dollars went out the door for a clean-room (The E-POC) deal that was apparently not needed because the company already had a clean room. Besides, from what I understand, the assembly was contracted out to Solar Link.
- Another 17 million reportedly vanished into thin air. The money also went straight to Kolin.
- The examiner also presented information to the court on the price protection scam. Here is how it worked. Syntax-Brillian would give guidance for the quarter. At the end of the quarter, Kolin would figure out exactly how much 'price protection' money was needed to cook the books to make it look like Syntax had met guidance.
- The price protection racket was designed to dupe investors into believing that Syntax had met guidance. Good for the stock price. Great time for a little insider selling.
What the Orenstien and Feltman reports failed to mention were purchases and sales by entities that were not defined as insiders.
It's fair to assume that TCV, Silver Point, Kolin and other players knew exactly what James Li and company were up to.
- TCV purchased and sold shares in December of 2006 and April 2007 and prompltly sold out their entire position.
- Silver Point filed to sell nearly seven million shares on 12/11/2007, barely six weeks after signing the loan agreement.
- Westech, a Singapore supplier that did the bulk of its business (65%) with Kolin and Syntax Brillian also purchased and promptly disposed of its shares in April, 2007 - in coordination with TCV.
- As we all know there was a large short position in this stock and plenty of manipulation. One of the things I'd like to see is how much short selling originated in Taiwan, Hong Kong and Singapore and, last but not least, I'd like to see if Silver Point or any of its affiliates sold BRLC short.
- As many of you know, I have documentation on suspicious options trading that I provided the company prior to the bankruptcy when I thought that the management was serious about warding off short attacks. They said they would report it to the SEC. They did no such thing. As it turns out, the shorting probably involved parties very familiar with the company's cooked books.
None of this was represented to the court in the bankruptcy filing. Gregory Rayburn and Silver Point and their counsel, Greenberg Traurig, gave a simple narrative of a failed business plan and hard to collect receivables. End of story.
Now moving on to the players.
- James Li and Christopher Liu, Roger Kao, Shih-Jye Cheng, Thomas Man Kit Chow, Max Fang and Stanley Chan have misteriously disappeared.
- Vincent Sollito is still in the States as far as I know. If you read the examiner's report carefully, you will see that Mister Sollito is apparently claiming he was duped. Basically, he is claiming that all the irregularities escaped his notice because the money was being handled by the folks in the City of Industry (Read that as 'the guys from Taiwan.) Poor Vince, who was CEO from the time of the merger until September, 2007 was an innocent victim of the scam.
- TCV and Michael Wu and his father, John Wu, are also out of town. If they show up, they will be incarcerated if they don't make good on the OIG deal - 60 million plus a 3 million/week in fines until they honor their contract.
- Gregory Rayburn, the fraud expert, had no idea what was going on. In fact, even at the time he filed for bankruptcy, he didn't have a handle on what was going on. The poor chap thought he had a 'failed business plan' on his hand. He didn't have a clue that he was being taken in by James Li. That's why he kept him around on the board until a few days before the filing.
- Silver Point was also duped. This predatory hedge fund, with vast experience in distressed equities, also didn't have a clue. They did their due diligence, picked up an eight million dollar fee as administrator for a citi bank loan and filed to sell seven million shares - unaware that the company was being looted by the Taiwan Cabal.
- The people you really have to shed tears for are the innocent legal counsel at Greenberg Traurig. They were already on the scene when the company went public in November, 2005. In the year preceding the bankruptcy filing, they got 5 million dollars in legal fees for services rendered. Since the filing, they have billed about a million a month in additional legal fees. This is the outfit that spared no effort to prevent the appointment of an independent examiner and to limit the scope of his investigation.
Michael Kushner D.M.D. call me for a card copy of the book at 2675497163
for further information call Amed at 425 672 1307
This is Enron, Madiff, and systemic regulatory failure all rolled into one.