7 signals for spotting equity scams gives you soe tiops for spotting the next potential equity scam. Hanergy Solar recently slumped in Hong Kiong and was subsequently investigated by the regulators. This presentation will help you avoid the next one.

1. Equity Scams & How to Avoid Them
Stephen Clapham
May 2015

2. South Sea Bubble
• First bubble 1720
• Still happening

3. Reminiscences of a Stock Operator
• Edwin Lefèvre’s wonderful book
• “Nowhere does history indulge in repetitions
so often or so uniformly as in Wall Street.
When you read contemporary accounts of
booms or panics the one thing that strikes
you most forcibly is how little either stock
speculation or stock speculators to-day differ
from yesterday. The game does not change
and neither does human nature.”

4. May 2015 a busy time
• Hanergy collapses in Hong Kiong
• HK regulators rush in
• Goldin – two companies shares collapse
• Then bounce back a little
• Plus500 slumps in London

5. How to detect an Equity Scam?
1. Dislocated Listing
2. Heavy Insider Holding
3. Meteoric Share Price Rise
4. Young/inexperienced founder
5. Isolated industry
6. Accounting restatements
7. No analyst coverage

6. 1 Dislocated Listing
• Crooks are known at home
• Be wary of a company listing in a foreign
jurisdiction
• Unless there is good reason
• Eg domestic market does not understand
sector

7. 2 Heavy Insider Holding
• Sometimes a positive
• But can lead to manipulation
• Can be dangerous if supported by heavy
indebtedness
• Also leads to illiquid stocks, more easily
manipulated

8. 3 Meteoric Share Price Rise
• If it is a scam, it wont be for 10%
• Companies with stratospheric appreciation
should be addressed with care
• Not always sinister of course
• Just a signal to be wary
• Especially if other conditions fulfilled

9. 4 Young/inexperienced founder
• Often happens with web companies
• Not bad of itself
• But again a reason to be wary

10. 5 Isolated industry
• No supply chain?
• In-house supply chain?
• How realistic are the volumes?
• Can you see cash coming in from
customers?

11. 6 Accounting restatements
• Restatements sometimes legitimate
• But always a reason to ask questions
• Plus 500’s 2014 UK accounts saw a
restatement of cash balances –unusual.
• Its other restatements are potentially
explicable, and not necessarily sinister.

12. 7 No analyst coverage
• Or house broker only
• Why is there no independent view?
• Could be company is too small
• Or insufficient volume
• Or could mean City is suspicious

13. One Simple Rule
• If it smells, it’s probably going to cost you
money
• If in doubt, avoid

14. info@behindthebalancesheet.com
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