China Metal Recycling Holdings Limited: Scrap King Gets Scrapped Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

China Metal Recycling Holdings Ltd ("CMR" or "the Company") was reported to be the largest scrap metal recycling company in mainland China. For a couple of years after its initial listing, the Company reported exceptionally high revenue and profit growth. Many investment houses assigned its stock "buy" or "strong buy" recommendations.

This affirmative situation continued until January 2013, when California-based Glaucus Research Group issued a report pointing out that, in comparison with other publically accessible industry data, CMR's reported sales figures were unlikely to be accurate. The regulatory alarm bell rang. The Securities and Futures Commission of Hong Kong ("SFC") conducted an investigation and found reporting fraud. On July 29, 2013, the SFC obtained court orders appointing provisional liquidators to take over the Company. CMR was suspended from trading on primary board of the Hong Kong Stock Exchange. Several of the Company's crucial managers and officers were arrested in the following number of weeks. The info supplied in the annual reports of the Company complied with financial reporting standards and Hong Kong listing requirements.

It seemingly had sound corporate governance structures. For three plus a half consecutive years, it’s outside auditor, a top international accounting firm, had given its financial statements "accurate and honest" marks. With all these positive signs, investors were easily misled. How can investors uncover such camouflaged fiscal fraud? What are the key danger areas one should focus on when examining a company? How can the financials of a company be double checked using advice that is publically accessible?

PUBLICATION DATE: December 15, 2014 PRODUCT #: HK1051-PDF-ENG

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