Note: A video presentation can be found here.
A Chinese version of the report can be found here.
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Our research demonstrates that Pingtan Marine (PME) has engaged in fraudulent and illegal activities that conceal the reality that its shares likely have zero value.
Instead, most of the value appears to have already been transferred for the benefit of Pingtan’s Chairman and his family. The Chairman is using an alias to cloak his real identity from investors while sitting atop a syndicate of companies that use Pingtan to finance international crimes of fraud, poaching, and even human trafficking.
In what appear to be largely phony transactions, Pingtan has paid $910 million to the Chairman’s companies purportedly in exchange for fishing ships and fishing services. But substantial evidence shows that a significant portion of Pingtan’s fishing fleet actually consists of rusting hulks decaying inside abandoned fishing bases.
Farcically, Pingtan has paid the Chairman’s companies an average of $9 million per ship when the cost of new builds is only $1 million. Although Pingtan claims the majority of the embedded value comes from fishing licenses, our research shows that most of the licenses simply don’t exist. Even worse, many ships appear to have never even been transferred to shareholders to begin with.
To keep the funds from investors flowing, Pingtan has crafted a fictitious narrative and paid promoters to entice retail investors into buying its shares. The stock price has surged by a factor of 4x as management has fomented speculation that its fleet will soon be redeployed in Indonesia.
But Pingtan’s “growth story” is a hoax. Pingtan is specifically banned from Indonesia and a senior government minister has said she would report Pingtan to the NASDAQ upon suspicion of an “international fraud case.” Indonesian Armed Forces raided Pingtan’s key fishing base and the Government implicated Pingtan and its affiliates in serious crimes that include human trafficking, forced labor, illegal fishing, forgery, and bribing corrupt officials.
Numerous false statements have concealed the irreparable damage from investors. With large undisclosed impairments, Pingtan is already indebted, losing money, and burning cash. The company claims to have a small fleet outside of Indonesia, but evidence shows that many of those ships are owned by the Chairman’s companies, not Pingtan. This leads us to conclude that PME shares are likely worthless.
The nature of Pingtan’s fraud strikes as being especially egregious because investor capital has financed widespread illegal activity. Indonesian Supreme Court documents describe violent “torture ships” that implicate Pingtan in the modern-day slavery that has infected pockets of South East Asia’s fishing industry.
Photos, documents, and drone footage provide irrefutable evidence of systematic poaching of endangered species. Pingtan-financed vessels have variously been detained by foreign governments with one “mother ship” even being added to an Interpol list in 2015.
Each day that Pingtan continues to trade on the NASDAQ, its stain on the US capital markets grows. Ultimately, we believe that shareholders are likely to be left with total losses.
About This Research Report
We conducted a four-month international investigation of Pingtan and its affiliates. Our Chinese and Indonesian investigators pulled hundreds of pages of source documents concerning Pingtan and the Chairman’s syndicate of family controlled companies. We conducted in-depth financial and forensic analysis to document the flow of funds and understand the true nature of Pingtan’s activities.
This report focuses primarily on our research opinion of Pingtan’s fraud and the likelihood that shares have zero value. But because the fraud has been used to finance crimes that include human trafficking and widespread poaching of endangered species, there are also important public interest issues at stake. The final sections of the report provide evidence of these crimes.
Pingtan Marine is a NASDAQ listed Chinese-headquartered ocean fishing business that claims to own a 140-ship fleet primarily located in Indonesia. After reporting $83 million in FY 2014 profits, financial results fell precipitously following anti-illegal fishing measures instituted by the Indonesian Government.
Pingtan has told investors that much of its fleet is “temporarily” idled as part of an Indonesian fishing license moratorium. Pingtan claims it is an advocate for illegal fishing enforcement with strong government relationships and a “fully licensed” fishing fleet. Shares have recently surged by a factor of over 4x as management has fueled speculation that its fleet will soon be redeployed to generate windfall profits.
The stock’s rise has been fomented by an aggressive promotional campaign reminiscent of several previously exposed Chinese frauds (here). Pingtan has filed to raise fresh capital while paying cash to promoters who are specifically targeting Chinese retail investors through social media, Youtube, and infomericals featuring the CFO.
Pingtan’s Fraud Starts At The Top
Pingtan displays obvious red flags. The company’s origins trace to a blank check company underwritten by a group that included Rodman & Renshaw, an investment banking outfit that helped raise capital for numerous US-listed Chinese frauds. Pingtan’s CFO, Roy Yu, was previously the CFO of Liwa International (LIWA), a fraudulent equity that was rendered worthless after the CEO stole company assets.
Pingtan has had three auditors in the past four years while engaging in a byzantine number of related party transactions. Serious accounting problems surfaced in a massive 2014 restatement that wiped out $187 million in equity.
Most glaringly, we discovered that Pingtan’s Chairman & CEO is using an alias that conceals his identity from investors.
Pingtan claims its Chairman & CEO is a Hong Kong national named “Xinrong Zhuo” who purportedly surrendered his Chinese identity card in 2005. But this is contradicted by a number of Chinese documents which demonstrate that Pingtan’s Chairman is a Chinese national named Longxiong Zhuo.
Lonxiong Zhuo’s biography photo matches the photos of “Xinrong” that Pingtan has included in promotional materials (below). Furthermore, Chinese Hukou records (household registration documents) show that Ping Lin, the woman that Pingtan’s SEC filings name as the Chairman’s wife, is married to Longxiong Zhuo. The documents specifically name Longxiong Zhuo and Ping Lin as the parents of all three of the children that Pingtan names as the sons and daughters of its Chairman (example below).
Above: Chinese Hukou records name Hong Hong Zhuo as the daughter of Longxiong Zhuo and Ping Lin, directly contradicting Pingtan’s claims.
The principal problem is the Chairman is not who he says he is. Importantly, our research shows that the Chairman and his family sit atop a syndicate of related party companies that variously engage in international crimes of fraud, poaching, and even human trafficking.
As this report examines in detail, Pingtan is used as a financing mechanism that has already funneled $910 million from investors to the syndicate though related party transactions that appear to be largely fraudulent. To keep the funds flowing, Pingtan has crafted a false narrative to entice investors into its stock. But this fraud conceals the reality that PME shares likely have no value.
Source: Pingtan SEC Filings
The Truth About Pingtan’s “Premier” Fishing Fleet
Pingtan has engaged in numerous related party transactions to assemble a purported fleet of 140 Fu Yuan Yu fishing ships. These ships are specifically listed on Pingtan’s website and we tried to locate them by consulting with experts from two leading maritime databases that track ocean fleets. While we found over 150 other Fu Yuan Yu ships owned by different companies, we were unable to verify the existence of most of Pingtan’s fleet.
Pingtan claims in its March 2017 10-K filing (page 2) that it has “a license to operate 104 of these vessels in the Arafura Sea of Indonesia.” However, the Indonesian Minister of Marine Affairs and Fisheries, Susi Pudjiastuti, publicly declared that Pingtan has never had any Indonesian fishing licenses and “there is no such company in Indonesia.” In fact, the Minister declared she would report Pingtan for “providing false reports to the NASDAQ stock exchange”, explaining that “this case could be our first international fraud case involving NASDAQ.”
Source: KKP News
So where are Pingtan’s ships?
Considerable evidence indicates that Pingtan is deceiving investors by taking credit for vessels titled under related party Indonesian companies controlled by the Chairman’s family, principally PT Dwikarya Reksa Abadi (“Dwikarya”) and PT Avona Mina Lestari (“Avona”). Pingtan’s SEC Filings name Avona and Dwikarya as being essential to its operations and disclose tens of millions in payments for items such as “vessel maintenance service” and fishing supplies.
The head of Indonesia’s Illegal Fishing Task Force has publicly named Avona and Dwikarya as Pingtan’s Indonesian proxies while Minister Susi has said that Dwikarya has “hundreds” of Chinese vessels. Pingtan’s own promotional video features many Indonesian flagged fishing vessels with names matching its affiliates, such as KM Avona 23 and Dwikarya 25, as if they were its own (below).
Source: Pingtan’s Promotional Video
Pingtan has clearly misrepresented its fleet to investors and the facts suggest it may not even own the ships it claims. Indonesia has prohibitions on foreign ownership of fishing interests and one media report explains that “foreign firms have set up shell companies to get around the restrictions.” Thus, its possible that Pingtan used Dwikarya and Avona to try and conceal its involvement from the Indonesian government while retaining an economic interest. But even if this is the case, Pingtan’s economic claims appear to have been rendered largely irrelevant because a significant portion of the Indonesian fishing fleet is now in a severe state of decay.
Pingtan Purported Fishing Fleet Decays Inside Abandoned Fishing Bases.
Pingtan’s 10-K explains that “a large portion of our operations are conducted from a base owned by our related party PT. Avona Mina Lestari.” Pingtan specifically features Avona’s base in its promotional video (below left, see 0:55 mark) and has continued to highlight the base in marketing presentations as providing “barriers to entry” by way of an “Indonesian fishing permit.”
But a 2016 video (here) shows Indonesian Armed Forces raiding Avona’s base and seizing ships (Below right).
As we later discuss in more detail, the raid came after the Indonesian Government implicated Pingtan and its affiliates in crimes including human trafficking, ocean poaching, forgery, and bribing corrupt officials.
Pingtan is banned from Indonesia, its key affiliates have closed, and the fishing bases now appear to be abandoned.
None of these obviously material developments have been disclosed to investors. Instead, in a December 2016 interview (filed as an 8-k here), the CFO, Roy Yu, falsely told investors that the company has “a good relationship” with the Indonesian government and that “we are confident that the operation in Indonesian waters will restore to normal in 2017.”
Mr. Yu also twice repeated that “our vessels are still berthed in our base in Indonesia”, creating false hopes that the ships can be quickly re-deployed. When asked on the most recent earnings call if Pingtan’s Indonesian fleet would resume fishing this year, “Xinrong Zhuo” replied that “I invoke confidence”, hinting that “I hope that in May I could give everyone good news in this regard.”
But we discovered that the ships are decaying inside now abandoned fishing bases.
Some of the rusting hulks are pictured in a June 2016 DetikNews report (below) that show 15 seized vessels covered in police tape. The article (certified translation here) says the police found the ships were “already in a dilapidated state”:
“the nets used during the heyday of the boats’ operation were scattered all over. Rotting wood and wild shrubs were spreading all over the bodies of the boats”
Source: Detik News
Similarly, CNN Indonesia’s June 2016 tour of the shuttered Dwikarya base turned up “dozens” of Chinese vessels beginning to submerge after rusting for over two years (certified translation here). The CNN reporter described that:
“Once we reached the edge of the port, we could see many boats with different sizes from 200 to 300 gross tonnes docking at the port. The boats once owned by Chinese companies lined up neatly. The boat structures were beginning to rust since they had not been used for the past two years. The bodies of some of the smaller boats had even submerged halfway down in the ocean.”
CNN included photos of crumbling ships identical to those featured in Pingtan’s promotional video, with the Dwikarya 22, specifically pictured below. Other footage (here at 4:45 mark) shows scores of the now-dilapidated vessels.
The principal problem for shareholders is that Pingtan’s promotional “growth story” is a hoax. Even if Pingtan owns the Indonesian fleet, many of the ships appear to have decayed to near-worthlessness. Because 104 of Pingtan’s 140 ships are located in Indonesia, the majority of the company’s stated assets have clearly been impaired.
Management’s false statements have concealed the irreparable damage from investors. Pingtan’s business is almost entirely driven by its purported fleet and many of the ships can no longer earn an income. Similarly, the closed fishing bases and Pingtan’s ban from Indonesia eliminates the possibility of future deployments there.
Pingtan has $60 million in debt and the financials show the company is both losing money and burning cash. As we later examine, Pingtan’s non-Indonesian assets either have little value or appear to not even be owned by shareholders. This leads us to conclude that PME shares are likely worthless.
And yet, Pingtan has filed to raise fresh capital from investors and financed a stock promotion premised on the fictitious notion that its Indonesian fleet will soon be redeployed. This deception strikes us as being especially egregious, but it underpins a fraud that has funneled hundreds of millions from shareholders to Chairman Zhuo and his family.
Pingtan’s Fraud Has Sent $910 Million To Related Parties
Pingtan’s fraud has sent $910 million since 2013 to Zhuo family companies. $720 million of this total represents purchases of ships, principally from Fuzhou Honglong Ocean Fishery Co., Ltd (“Honglong”). The facts show that most of the purchased ships either do not exist as described, had little value at the time of purchase, or appear to have never even been transferred to Pingtan to begin with.
Source: Pingtan SEC Filings
The transaction prices are farcical on their face. Pingtan has paid an average of $9.3 million per vessel, an amount that totals 9x the “approximately $1 million” management has said it costs to build brand new fishing vessels (Page 19). Said another way, Pingtan could have built 720 new fishing ships but instead purchased 77 ships from the Zhuo family, many of which date to the 1970s-80s.
Pingtan says the transactions were made at fair market value “based on third-party appraisal reports prepared by BMI appraisals limited.” But the appraisals are baseless because they admit to being entirely premised on inputs from Pingtan’s management (below). These inputs, in turn, are irrefutably false.
Source: BMI Appraisal Report
Pingtan has asserted that “the predominant portion of the total asset value” comes from the fishing licenses the ships supposedly hold. Some appraisal reports are “intangible asset valuations” based entirely on the estimated fishing license values. Yet our research shows that most of Pingtan’s fishing licenses do not even exist.
The bulk of the purchased vessels are located in Indonesia but, as previously discussed, Indonesian officials have made clear that Pingtan never held any licenses there. Pingtan’s Indonesian affiliates also appear to have operated without licenses for substantial portions of their fleet. Dwikarya was specifically found to have bribed officials (page 3) while Avona made “gross falsifications of the boats certificates” (page 2).
In 2015, Pingtan paid $56 million to related parties for six ships it claimed were “internationally licensed.” Pingtan posted links on its website to the Western & Central Pacific Fisheries Commission (“WCPFC”) as supposed evidence of the licenses (Fu Yuan Yu 001, 002, 008, 009, 010, 525).
But all the WCPFC links are now inaccessible and two of the ships (009, 010) have been deleted in their entirety from Pingtan’s website. However, as recently as two weeks ago, the WCPFC pages had stated that the licenses were expired and that the ships were owned by Zhuo family companies, not Pingtan (below).
We contacted the WCPFC to ask about the ships and why they were recently deleted from the WCPFC website. A WCPFC representative explained that “we can only remove a vessel from our records if we’re told to do so by the country [China].” The deletion signifies that “there is no vessel on the RFV [Registered Fishing Vessels List] with that name” and ships must be on the list to have authorization to fish in the WCPFC area. Curiously, the 2016 proxy states that these six ships were “dismantled” (page 21), a bizarre disclosure that implies shareholders have suffered a total loss on this transaction.
Evidence shows other purchased vessels also have not been transferred to Pingtan’s shareholders. In fact, Pingtan’s massive 2014 restatement came after the company admitted the ships it claimed to have purchased from related parties actually had not been legally transferred and/or were just being leased.
Pingtan says it owns only 36 ships outside of Indonesia, most of which are newly built vessels that shareholders have paid tens of millions to construct. Management has touted the deployment of 13 of these ships, Fu Yuan Yu 9607-9621, to fish in Timor Leste pursuant to a fishing license it claims to have been awarded. Yet egregiously, the Timorese government confirmed to our investigators that the ships are actually owned by the Zhuo family’s Honglong company.
Furthermore, evidence shows the Timorese fishing licenses were awarded to Honglong, not Pingtan. This is corroborated by a Chinese Embassy news release as well as a Timorese government official, who told the Sydney Morning Herald that the government had even “sought and received a written assurance Pingtan was not involved.”
Source: Sydney Morning Herald
On top of the fraudulent ship purchases, Pingtan has disclosed paying $190 million to seven Zhuo family companies for fishing services, fuel, and vessel maintenance (below). We suspect these payments are largely fraudulent because they include obviously illegitimate entries such as fees to Avona and Dwikarya to “renew Indonesian fishing licenses” (which appear to be non-existent). More broadly, since the related parties themselves appear to own many of the ships, Pingtan shareholders seem to be paying to maintain fishing vessels that they don’t even own.
Source: 2015 10-K
How Investor Capital Finances Human Trafficking
Pingtan’s fraud has used investor capital to finance illegal activity. Documents we obtained from the Indonesian Supreme Court reveal that Pingtan’s Indonesian affiliate, Dwikarya, was specifically found by the Indonesian Government to have committed “major crimes among which are forced labor and human trafficking” (We hired professional translators to complete certified translations of relevant sections cited below. An approximate translation of the entire 296 page document can be found here).
Source: Certified Translation Page 5
Although Pingtan is not specifically named in the Indonesian court documents, Minister Susi has said that Pingtan’s “ownership, trade and management dealings” with Dwikarya, Avona and two other Indonesian affiliates “had violated the law to a serious extent.” The Dwikarya 25, a vessel clearly highlighted in Pingtan’s promotional video (pictured earlier in this report), was even specifically named in the court documents alongside a fleet of other similarly named vessels (page 16). Additionally, Pingtan’s own filings admit to making millions in payments to Dwikarya.
Dwikarya denied the accusations and appealed to Indonesia’s Supreme Court, but the judges upheld the Indonesian Government’s determination that serious crimes occurred and ruled against Dwikarya who was ordered to pay the Government’s legal fees (certified translation here).
Modern-day slavery infects pockets of Southeast Asia’s Ocean fishing industry. Last year, the Associated Press won a Pulitzer Prize for its series, Seafood from Slaves, which revealed how boat laborers are lured into captivity, locked in cages on remote Indonesian islands, beaten, and forced to work grueling hours on the high seas.
Ian Urbina of The New York Times authored an in depth series, The Outlaw Ocean, which documented the nexus between illegal fishing, human trafficking, ocean murders, money laundering, and drug smuggling.
Men and children from poor families are tricked by traffickers with false financial promises and then “drugged, kidnapped, and enslaved” on fishing boats with “horrific violence; the sick cast overboard, the defiant beheaded, the insubordinate sealed for days below deck in a dark, fetid fishing hold.” Similar accounts of sea-slavery, including “fellow workers shot and killed by the captain” have been reported by the South China Morning Post and The Guardian.
Referred to as “torture ships” in court documents, judges heard testimony that Dwikarya deployed violence to force the crews to work. One worker testified that he “was once tortured for standing up [for] his Indonesian co-worker who was gang-beaten by the Chinese” (page 8) while another testified that he saw a senior official beat a crew member (page 7). An Indonesian government investigator also testified that a boat laborer was severely beaten in the head with a piece of steel by a superior (page 6).
Evidence indicates that some Dwikarya boat laborers were imported from the Philippines (certified translation here), a hotbed of the illegal “manning agencies” that traffic unsuspecting villagers into bondage. In an Indonesian media interview, Dwikarya’s local Director admits to using hundreds of foreign boat laborers but denies allegations that they are disguised by fake passports. However, the Indonesian government argued in court documents that Dwikarya had admitted to bribing immigration officials (page 3).
Pingtan Finances The Widespread Poaching of Endangered Species
Photos, court documents, and drone footage demonstrate that Pingtan and the affiliates it finances also engage in widespread illegal fishing and poaching of endangered species.
The Indonesian Supreme court documents describe a variety of “fishing crimes” enabled by Transhipment, whereby fishing vessels are supplied by a refrigerated “mother ship” that allows them to stay fishing at sea for months, even years. The mother ship, in turn, takes possession of the illegal catch and brings it to market. This process is used by poachers to launder ill-gotten and/or slave caught fish into the global food chain.
We discovered that Pingtan-affiliated mother ships include the Danfeng Mariner, Fu Yuan Yu 80, and the MV Hai Fa. According to the Indonesian government, each of these ships has engaged in illegal transshipment (here, here, here).
Chief among these vessels is the Hai Fa, a Panamanian flagged vessel owned by a company named Hai Yi Shipping. Pingtan’s filings show that it has paid millions in cash to Hai Yi, named as an affiliate owned by the Zhuo family, in exchange for “transportation service.”
Interpol issued a Purple Notice on the Hai Fa during 2015, the equivalent of adding it to the “Most Wanted” list. In fact, The New York Times has reported Purple Notices were reserved for only four other ships in the world during 2015.
The Indonesian Navy caught the Hai Fa with its Vessel Monitoring System switched off and holding 900 tons of illegally caught fish, including a large amount of protected sharks. As the largest illegal fishing bust in Indonesia’s history Minister Susi declared:
“I will not be happy before the ship is sunk in the Indonesian Ocean.”
Above: An Indonesian official poses near the detained MV Hai Fai (left). Hai Fa’s cargo hold (right) is shown full of illegally caught fish and protected sharks destined for an address matching Pingtan’s headquarters.
The activities of the Hai Fa appear closely intertwined with Pingtan and Chairman Zhuo’s syndicate of companies. An Indonesian General told the Jakarta Post there was a “strong indication” that the suppliers of the fish were Dwikarya and Avona, an assertion which was made evident in court documents. Indonesian investigative journalists tracked the intended recipient of the Hai Fa’s illegal cargo to Fuzhou Hao You Li Fishery Development, an entity registered to Pingtan’s address. Hao You Li is named in Pingtan’s SEC filings as being an affiliate owned by the Zhuo family and Pingtan has even guaranteed Hao You Li’s debt (page 149).
Court documents (page 4) include testimony that Dwikarya vessels would load their cargo holds with dolphins, sea turtles, and sharks. Sharks are particularly valuable because their fins can be sold in China for a premium to make prized “Shark Fin Soup” (a primary reason why many shark species are nearing extinction). Shark poachers often engage in Shark Finning, a practice where the fins are sliced off while the shark is still alive before it is then thrown back into the ocean to die.
Pingtan appears to be part of a giant shark poaching ring. We discovered a nexus between Pingtan, Honglong, and an organization called the China Shark Product Cooperative. The Cooperative claims to be the “biggest shark supplier in China” and traffics in endangered species such as Hammerheads. The Cooperative frequently promotes the activities of Pingtan and Honglong in news releases that include an interview with Longxiong Zhuo.
In addition to fish and marine animals, court documents reveal that protected animals including endangered birds and reptiles were regularly shipped by boat to China.
Source: Supreme Court Documents
Recently, Pingtan and its affiliates have begun to poach new waters. Irrefutable evidence of poaching recently surfaced in Timor Leste where, as previously explained, vessels Pingtan falsely claims to own were deployed.
In February 2017, the Sydney Morning Herald reported that “Pingtan vessels were discovered a fortnight ago with a cargo hold stuffed with sharks” as well as illegally caught Rays from Timorese waters. We found drone footage (available here) taken during the inspection that makes Pingtan’s poaching undeniable.
Above: Drone footage confirms Pingtan’s poaching.
Just last month, Pingtan trumpeted its purchase of five squid fishing vessels from Honglong for $38 million. Yet one of the vessels named in Pingtan’s press release, Fu Yuan Yu 7880, was arrested along with two other vessels by the South African Navy last summer for suspected poaching after a “dramatic sea chase” in which they attempted to flee (the ships were later fined after being found guilty of several offenses).
Each day that Pingtan continues to trade on the NASDAQ, its stain on the US capital markets grows.
Our research demonstrates that Pingtan Marine (PME) has engaged in fraudulent activities that conceal the reality that its shares likely have zero value. The nature of Pingtan’s fraud strikes as being especially egregious because investor capital has indisputably financed widespread illegal activity.
Ultimately, we believe that shareholders are likely to be left with total losses.
All investors are encouraged to conduct their own due diligence