We never expected to be talking about Wins Finance Holdings (NASDAQ:WINS) after its ridiculous debacle in 2017. That year, the tiny China-based small business lender spiked 4,500% on no news, leaving a wave of befuddled analysts and journalists trying to figure out what on earth had happened.
It was later discovered that WINS fraudulently claimed to own a U.S. office in order to qualify for FTSE/Russell index inclusion, according to a lawsuit filed in 2017 (Wins settled the complaint in 2018).
The stock had spiked on the inclusion, but FTSE/Russell ultimately removed WINS from its indices, sending it crashing back down.
The 4,500% spike in WINS still serves as the classic example of a passive index forced-buying bonanza (followed by a passive index forced-selling bonanza), a process that played out several times over the history of Wins:
On June 10th, WINS stock mysteriously spiked to as high as $64.35, a 758% gain from the prior day’s close, on absolutely no news whatsoever. On the day of the surge, the stock traded 428,000 shares, compared to 2,800 in the prior day, a 151x increase in volume.
The sudden spike managed to draw in retail momentum traders. RobinHood account holders owning WINS increased to over 8,000 from only 259 prior to the spike, according to RobinTrack.
The company commented on the move publicly on June 11th, disavowing any role in the oddity and claiming to have no idea why the stock was up on such significant volume:
“…in view of the recent high trading volume and significant price increase of the Company’s ordinary shares, Wins Finance wanted to confirm to the market that it is not aware of any material corporate developments that could account for this unusual trading activity.”
Wins Finance’s operating entity in mainland China is Jinshang International Financial Leasing Co., Ltd. 晋商国际融资租赁有限公司 (also referred to as “Jin Shang”), according to company filings. [Pg.29]
Following Wins’ massive stock move, we reviewed Chinese Court and legal filings to see if there was any local news that might have justified the spike.
Much to our surprise, we found that Chinese Courts had frozen assets of Wins’ operating subsidiary the day prior to the spike. Per QCC and court records, two judgments were rendered against Wins’ subsidiaries as part of the same case:
As we can see, the date of the freeze was June 9th, 2020:
Beyond the above, in November 2019, two enforcement orders totaling RMB 35 million (USD 4.9 million) were filed against Jinshang, according to court records. One month later, the creditor agreed to extend the payment deadline to December 2021, according to the same records. It is unclear how Jinshang has handled these enforcement orders yet.
We have seen no disclosure from the company on any of these court ordered judgments. We have asked the company for more information and have not yet received a reply.
Given the above, we think the company is likely functionally insolvent.
Recent Hong Kong filings that show that Freeman FinTech was suspended from trading and entered into liquidation on February 28th 2020, according to a court order. This followed almost a year of insolvency petitions and creditors declaring the company to have been in default. [1,2]
Freeman Fintech’s financials also show that substantially all of its WINS stake had been pledged to creditors in advance of the liquidation, suggesting that the ownership of the company had been in precarious hands well before recent events. [Pg. 46-47]
Our investigator visited Wins’ headquarters during working hours and reported to us that the building seemed mostly empty. There was no one at the front desk, so the investigator continued into the main working area.
In total, our investigator saw about 30 cubicles and numerous offices, which were almost entirely empty. They counted 4 individuals in the facility that did not appear to be doing much.
Our investigator approached one of the individuals under the grounds of seeking a loan (the business Wins purportedly operates in.)
When asked about the company and whether it was still engaged in business and to what extent, the woman simply stated “we do professional work” repeatedly. She had no business card and provided no contact information for her or anyone else at the company.
She seemed to provide no insight on the purported business at Wins and our investigator viewed her answers as highly evasive. The stance was not one would not expect for an active business seeking new customers, but is fitting with a company facing an asset freeze and potential insolvency.
We emailed the company to ask whether COVID has impacted its employee’s ability to show up to its headquarters, and have not heard back as of this writing. We also asked about the judgments in an effort to understand whether the business is still operating as a going concern, and have not heard back thus far.
In addition to WINS headquarters, we also found a location listed on the operating entity’s corporate records through its QCC profile:
Jin Shang International Financial Leasing Co., Ltd. 晋商国际融资租赁有限公司
Our investigators took the following photographs from our visit to this address. Here are several photos of the building from the outside:
Here is a photograph of the B2 entrance, which is listed on the entity’s address:
Here are some photos of the signage in the lobby, which still lists the operating entity for Wins, Jin Shang International Financial Leasing Co. (alternately spelled Jinshang International Financial Leasing Co., Ltd. in company filings):
Our investigators took photos of the hallway where the offices are located. It is not what we would expect from a $600 million NASDAQ-listed company, but rather perhaps a low budget motel:
There were two doors listed on the address, “B18G” and “B18J”, both shown side by side in the photograph below (and corroborated by the lobby signage).
We knocked on the door for “B18G” at 11AM local time during a normal June workday and no one answered. Neighbors told us that no one had been seen there for “maybe a year or two”. The second door appeared to our investigator to now belong to a different business altogether (as marked).
We found that Wins’ (now-former) CFO Junfeng Zhao had previously been appointed a board director of two of Wins’ operating subsidiaries in China, but found that he resigned from those directorship roles in November 2019, according to Chinese online corporate records. We also noticed that he disappeared from the company’s website.
We found that tremendously odd, and e-mailed Wins yesterday to inquire whether its CFO was still in fact its CFO. Our e-mail to the company asked:
“I saw that your CFO withdrew from Wins’ Chinese operating entities. Can you please share the reason for that and confirm whether he still currently the acting CFO of the company?”
The company did not e-mail us back but appears to have responded this morning with a 6-K announcing that its CFO resigned, claiming he resigned two days ago on June 15th. We think there is a chance he may have actually resigned in November but the company simply didn’t disclose it until prompted.
Regardless, the company did not announce a replacement for Zhao. What are the odds that Wins files an annual report and maintains NASDAQ compliance now that it has no CFO?
The release this morning also announced the resignation of a board member with no replacement.
WINS former CFO, Junfeng Zhao, previously served as financial controller at Agria Corporation immediately prior to joining WINS in 2010.
Agria was investigated by the NYSE in 2016 for alleged stock manipulation. The NYSE had “identified evidence indicating that the Company (i) through a top executive and other intermediaries engaged in trading intended to artificially inflate Agria’s stock price.”
It was charged by the SEC in 2019 over allegations of accounting fraud and manipulative trading. Agria was delisted by the NYSE, settled the SEC charges, and eventually terminated its securities registration.
Though the unraveling of Agria took place after Zhao’s departure, we found it an alarming resume item to immediately precede his assumption of the CFO role of a different public company.
Wins doesn’t have a great track record with regard to its financial reporting.
The company has disclosed a material weakness in its financial controls for the past 2 annual reports it filed in 2017 and 2018. Namely, the weakness was that the company had a lack of qualified accounting personnel. [Pg. 6, Pg. 6] The SEC noted this weakness in a letter to the company on May 2nd, 2019, and it has clearly not been remediated (given the lack of financials). Nonetheless, Wins remains listed (for the time being.)
Centurion recently merged with Dominic KF Chan & Co. [Pg. 1] The last Public Company Accounting Oversight Board (PCAOB) report we could find for Dominic KF Chan was from 2011 and it did not inspire our confidence. Per the report:
“The inspection team identified what it considered to be audit deficiencies. The deficiencies identified in two of the audits reviewed included deficiencies of such significance that it appeared to the inspection team that the Firm did not obtain sufficient competent evidential matter to support its opinion on the issuer’s financial statements.”
Another Hong Kong auditor called Albert Wong & Company (AWC) was banned by the PCAOB for ignoring flagrant red flags among China-based companies listed on U.S. exchanges. Prior to the PCAOB handing down its ban however, AWC merged with Dominic KF Chan, in early 2016.
We view this is a red flag bordering on absurdity.
Centurion may be known to some of our readers, given that it was also auditor of Yangtze River Port & Logistics, a once $2 billion market cap NASDAQ-listed firm that we wrote about in late 2018. We found that the company’s key asset didn’t appear to exist and seemed to be a total fabrication.
That company was later delisted by NASDAQ and has since lost 99% of its value following an investigation by both NASDAQ and FINRA that found signs of manipulative trading and other irregularities.
While WINS stock was spiking, its financials were disintegrating spectacularly. The company saw its net revenue crash from $9,726,685 in 2017 to just $102,763 in 2018.
In the 6-month period ending December 31st 2018, the company reported net revenue of negative $916,671 and net income of $2,985,734, a 67% year over year decline for the same 6-month period. [Pg. 6]
The company disclosed in January 2020 that it is late to file its annual report in part due to uncertain treatment of $83 million in missing assets entrusted to an opaque Chinese entity that the company is no longer certain it can recover.
Wins’ parent entity stated that it hired an independent firm to assess whether the money was siphoned out by a related party and unsurprisingly found that the company was unaware of the circumstances around the missing funds.
The company provided an almost comically brief summary of the independent findings, stating that there were “some additional documents” that led to the disappearing funds, and declared the company absolved of responsibility.
Wins announced it received a delisting notice from NASDAQ on November 18th 2019 for failure to file a timely 2019 annual report for its fiscal year ending June 2019. The company submitted a plan to file its report and regain compliance, which bought it another 180 days, until May 13, 2020. In the same announcement, the company announced the appointment of a new Chairman and a new Chief Operating Officer.
The May 13th deadline passed with no financial report, and on May 22nd, the company announced it had received another delisting notice from NASDAQ. The same announcement disclosed at the newly appointed Chairman and Chief Operating Officer both resigned.
The company requested a hearing with the listing panel, which will allow the company to remain listed until July 2nd while the panel makes its determination.
Investors often view a listing on NASDAQ, one of the U.S.’s most prestigious exchanges, as a sign of legitimacy.
Despite this perception, Wins is currently listed on NASDAQ despite having (1) no current financials (2) no CFO (3) undisclosed legal judgments (4) a headquarters that is almost entirely empty (5) a history of major trading irregularities and alleged fraud (6) an auditor that has a history of ‘auditing’ China-based total blow ups, and (7) a parent in undisclosed insolvency.
Meanwhile, as the company with no CFO’s July 2 deadline to file financials approaches, we believe it is simply putting off the inevitable – disclosing the precarious position it is in – while the stock pumps one last time to perhaps help stakeholders exit on the way out.
In sum, we think WINS is a company that is already worthless and the market will soon figure that out.
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