One of my investor friends also claimed QIN was a ponzi scheme. He claimed an accountant friend had reached that conclusion and warned him against investing in QIN.
The facts are different.
QIN charged MIS investors (including me) an upfront payment to establish the scheme and plant the trees. It then charged the MIS investor an annual management fee. QIN made a margin on the establishment of the scheme and on its yearly management of the scheme. This was the source of the cash through the door and its cash profit. This is standard business practices and not a ponzi.
QIN would have - if it had survived - earned revenue and thus a margin when the trees were harvested.
QIN also planted trees in its own capacity. It raised equity from shareholders and borrowed money to do this. It also had to fund the ongoing management of its trees. The trees had minimal value when planted and gradually acquired value as they grew. But, they did not produce cash until harvested. Each year QIN revalued the trees based on a mathematical model and transferred the increase in value (or decrease) to the P&L. This was a non cash profit. Some investors and most of QIN's critics claim this was wrong. I suspect they think it is better to record the trees at historical cost (zero) and then report a one off large gain when harvested.
It could be argued that QIN should not have paid cash dividends until it was receiving cash from its harvests. QIN management also engaged in some questionable practices to boost sales revenues (the granting of the put option to wholesale investors so they would invest in more plantations). There was also the non disclosure of the cancelled Nestle's contract. Management were also fooled, or did no undertake adequate due diligence, on the Chinese sales contract.
All of these factors may have not been an issue if the short and distort attack had not occurred.
The secured creditors that acquired the business from us poor shareholders are running the business. The MIS investors still have our trees and are still paying the same annual management fee. The sale price for the harvested timber is a lot less than under the previous QIN management. However, the business itself is operating and demonstrates it was not a ponzi scheme.
QIN Price at posting:
29.5¢ Sentiment: Hold Disclosure: Held
