We thought long and hard about the title of this report, which is the first in a series evidencing endemic fraud at ANTA. We kept coming back to “Turds in the Punchbowl.” ANTA is a real business, and in terms of operations and marketing, there’s much to be admired. Presumably, this is why accomplished sportswear entrepreneur Chip Wilson recently agreed to invest in it.[1] But within all this goodness, there’s a distinctly awful truth. Investors cannot rely upon ANTA’s financials. We believe that ANTA posts industry-leading operating margins not because it’s so well operated; but, rather because ANTA uses numerous secretly controlled Tier 1 distributors to fraudulently boost its margins.

“Mens rea” is Latin for “guilty mind”, and is a foundational legal concept in many jurisdictions. Simply put, it’s the intention to commit a crime. Often, when a PRC-based company is accused of fraud, management and their supporters try to brush the accused conduct aside as innocently following local business practices. (See for example, former Sino-Forest chairman Allen Chan’s “odd is not fraud” defense.) ANTA undertook a series of transactions shortly after its IPO that convince us that ANTA insiders always intended to defraud outside investors, and enrich themselves at investors’ expense. In 2008, insiders stripped the company of a valuable asset, its international brand retail business, and attempted to conceal this fact. Similar to how ANTA controls its distributors, the insiders utilized proxies.

Fila. Su Weiqing (苏伟卿). By the time Chairman Ding has gotten this far in this report, he will undoubtedly be quite agitated. By the end of this report, investors maintaining faith in ANTA should be too. In Part 1 of our reports on ANTA (July 8, 2019), we discussed Su Weiqing at length. We showed that he is a proxy for ANTA insiders at major distributor Beijing Jiyuan Shengbao International Trading Company (北京吉元盛宝国际贸易有限公司) and two other distributors. ANTA responded that Mr. Su and all of the other proxies we identified are indeed independent parties. So if Mr. Su is an independent party, then there’s nothing to worry about, right? Wrong. Companies belonging to “independent party” Mr. Su own 46 Fila stores in Beijing. But ANTA has always maintained it owns all of its Fila stores!

We resume our campaign to expose ANTA’s fraud, and have several more pieces planned that will expose other inconsistencies and lies. In this piece though, we first take stock of the lies in ANTA’s responses to our pieces last week. Muddy Waters has been exposing frauds for nine years, and never once have we been accused by a regulator of lying. Yet, in almost every single instance of our accusing a company of fraud, the company denied our conclusions. Regardless, of the 14 PRC-based companies we have previously shorted due to research conclusions of fraud published on our website, six have been de-listed, one has been halted for almost five years, two have been later acquired by managements at premiums (one subsequently paid a significant regulatory settlement), two are down over 90%, two more are down significantly, and only one other stock is up. That’s 11-3 by our reckoning. Nine of these wins are knockouts (down over 90%, de-listed, or in suspended animation).

In this report, we also reveal Peng Qingqi’s ownership of four online stores, including two called ANTA Ruidong and Jinjiang Dingdian. This revelation shows yet another bald-faced lie about ANTA’s operations, and reinforces that ANTA’s financials and Fila’s numbers cannot be relied upon.