Trinity Research today published a very detailed 121 page report alleging a massive fraud at NASDAQ listed Chinese company 21Vianet Group Inc (NASDAQ:VNET). Because of the fraud and because 21Vianet Group has over RMB3 billion in debt, Trinity states that VNET will likely trade down to zero and will be delisted in the near future.
Trinity consists of a team of local Chinese accountants, lawyers and industry executives who have consulted with 21Vianet Group Inc (NASDAQ:VNET)’s customers, partners and former employees for over 6 months.
21Vianet Group’s fraud consists of fabricated SEC financials
The fraud consists of fabricated SEC financials (international fraud component) as well as illegal activities being conducted within China (domestic fraud component).
Evidence included by Trinity includes Chinese regulatory and SAIC filings, photos of “ghost offices” and “ghost acquisitions”, original Chinese legal documents, and results of in person visits to all 72 of 21Vianet Group Inc (NASDAQ:VNET)’s reported data centers.
Trinity states that IDC revenues (2/3 of total VNET revenues) are overstated by 27%, while EBITDA is overstated by 100%.
MNS entities (1/3 of total revenues) are conducting illegal activities within China and have also overstated revenues by more than 50%. Trinity shows the existence of multiple unoccupied “ghost offices” which are supposedly functioning 21Vianet Group Inc (NASDAQ:VNET) offices.
iJoy subsidiary’s sole purpose is to inflate reported gross margins
Trinity shows that the iJoy subsidiary is a complete shell company who’s sole purpose is to inflate reported gross margins via round tripping of revenues and cash stuffing. The more recent iPoo acquisition is an even larger vehicle for additional round tripping and is similar to the acquisition of Giantstone by Longtop Financial just prior to its delisting due to findings by auditors of massive fraud following an expose report by Citron Research.
Trinity states that once these findings at 21Vianet Group Inc (NASDAQ:VNET) are confirmed by auditors and regulators, 21Vianet Group will immediately be in violation of the terms of its debt covenants on over RMB3 billion in debt.
Trinity has set a share price target of zero due to the heavy amount of fraud coupled with the large debt balance which could leave equity holders holding nothing.
See full report on A Ponzi Scheme of Acquisitions – 21 Vianet Group Exposed in PDF format here.