Chapter 334: Shadow of Supervision
Chapter 334: Shadow of Supervision
Yu Xing had a vague impression of the U.S. IRS, but it was not until this time that he suddenly realized its clear existence.
There is a saying in the United States that the only things that are eternal in this world are death and taxes.
This is actually what Franklin said.
Now that I have been contacted by the IRS, even though it is so-called informal, there is a black box behind it. We have no idea what purpose or goal they have for conducting this investigation.
Guoshanfeng is registered in Hong Kong. It is just a research institution that does not mobilize any funds. All financial operations around it are carried out in the form of completely unrelated trusts, offshore companies, etc.
Many of the financial operations here are indeed not subject to tax, but as an offshore company, it is legal in itself.
Because there is no actual connection with trade and business in the United States, and there is no physical presence such as offices and employees, and short selling is only done through brokerages, this type of profit is non-ECI and is not subject to federal taxes.
Specifically in different states in the United States, California and New York will impose capital gains tax, while Texas and Florida are tax-free states.
Many of the companies operating the funds behind Guoshanfeng are registered in tax-free states in the United States.
When Liu Wanying tried to short sell for the first time, she registered a company in Nevada. At that time, she did not put the tax issue first. Instead, she considered its policies such as protecting the anonymity of the company's actual controller and not requiring the company to disclose shareholder information publicly. Later, she needed to pay attention to the 400% business tax applicable to the financial industry with annual total revenue exceeding US$0.3 million.
As for whether there is any risk of non-compliance under this operation...
Insider trading and market manipulation, these two issues leave a lot of room for negotiation.
Yu Xing remembered that he had shorted his former boss’s Citron, which was banned from entering the Hong Kong market because of this.
Judging from the performance of Guoshanfeng so far, all companies whose market value has evaporated have problems, which is also the main reason for its rapid expansion of influence, but the determination of compliance or not is made by official agencies.
“We may need an excellent team of lawyers.” After Liu Wanying finished talking about compliance risks, she glanced at Yu Xing who was listening attentively and changed the subject, “Or, we can quit after making a few big deals.”
Yu Xing had been listening to talks about compliance, risk, and gaming for a while, and when he suddenly heard this attitude, he looked at Xiaoying in surprise.
"The bad news is over, now it's the good news." Liu Wanying pointed with her fingertips and said with mixed emotions, "We received a lot of enthusiastic feedback on the email address we made public this time. Many clues that were difficult to distinguish between true and false were sent to us. According to logical reasoning, most of them should be false, but it is not ruled out that there will be some real and valuable revelations. This requires the team to screen and investigate."
Yu Xing thought for a moment and asked, "Are you saying that we are closer to insider trading?"
"Yes." Liu Wanying looked at Yu Xing's surprised expression and for some reason couldn't help laughing. "The core of insider trading is to use non-public material information. Ours is not only non-public, but also material if it is valuable."
She added: "Also, one thing is worth noting. Last year, Obama passed a FATCA provision that will be formally implemented in 14. The purpose is to prevent American taxpayers from using offshore companies to evade taxes, but this has enhanced the penetration of our offshore companies in some cases."
"You said, we released the email channel this time, and the IRS investigation happened to occur. Could there be a connection? Even my first reaction was insider trading..." Yu Xing said carefully.
Liu Wanying nodded and said, "It's hard for us to figure out the situation, but we can't rule out that this is how he got involved."
Yu Xing understood Tsai Ing-wen's proposal: "We need to do two big things... We really need to do two big things."
"NetQin's revenue is close to $1.3 million, which is already considerable compared to its size. Its IPO price in May was $5, but it had fallen to $11.5 this month before we shorted it. Many institutions are holding on to their stocks and waiting for a rebound, which has led to fewer shares in circulation on the market." Liu Wanying talked about this shorting and pondered, "We may consider targeting more small-cap stocks at one time. It is difficult to target large companies."
As she said this, she handed some operational materials for the short selling of NetQin to Yu Xing.
Yu Xing took it and took a look. NetQin has limited circulating shares. Its total share capital after the IPO is 4521 million American Depositary Shares (ADS). However, institutions such as Jinshajiang Venture Capital and United Venture Capital did not reduce their holdings after the listing. The actual circulating shares in the market are only 2915 million ADS.
Guo Shanfeng amplified his short position by trading leveraged contracts in the OTC market, circumventing the restriction of insufficient outstanding shares, and used a combination of options for volatility arbitrage, ultimately making a profit of nearly $1.3 million. Liu Wanying saw Yu Xing's eyes move away from the documents, motioned him to put them all into the shredder, and then said: "There is another question, should this part of the funds be transferred into China or kept abroad? If Guo Shanfeng is really noticed, it would be a good idea for us to do asset management or investment in the future."
It is relatively easy for funds to come in, as there have been many operations through Red Falcon Capital, but it is more troublesome to get funds out.
Yu Xing came here today with the intention of sharing the money, but after listening to a series of questions, he felt a headache starting to hurt.
He thought about it and said, "Let's think about it again. If it really doesn't work out, we can still find a group of people to run a hedge fund."
Liu Wanying was silent for a while and then asked, "It's easy to do, but it's harder to hide. Remote control is a problem, and mistakes in remote control are also a problem. Have you ever considered being labeled as a short seller?"
Yu Xing briefly thought about this question, and suddenly felt that all kinds of eyes were looking at him. Among them, Xu Xin's eyes seemed to be the most complicated.
He laughed inexplicably and waved his hands, saying, "No, no, this matter needs to be handled with extreme caution. It's best not to let anyone know about it for the rest of my life. My family won't even know that I'm doing this."
This kind of thing still requires more professional opinions to identify and fill in the gaps.
Liu Wanying has examined the financial operations behind the mountain through multiple third-party institutions, but further consideration is indeed needed.
She shook her head slightly: "If it really doesn't work, we have already made a lot of money, and it can also guarantee the use of Carbon Silicon Group to a certain extent."
The Carbon Silicon Group obtained a total of US$2 million in financing from Yu Xing and Hongshun, all of which were transparent funds from the sale of WeChat. The previous profit of nearly US$2 million from shorting Penguin has been lingering overseas and is still operating around the mountain peak.
According to Yu Xing's idea, a portion of the funds from short selling profits could be used to cultivate the domestic supply chain. At the same time, continuous short selling could also lead to snowball expansion. However, this time, the short selling of NetQin encountered a problem of scale.
NetQin's market value is just that, which is not enough to support the sucking of all the funds from the top of the mountain.
Moreover, now that there is a suspected regulatory investigation, this idea will undoubtedly be cast a shadow.
However, as Liu Wanying said, even if we stop now, this part of the funds and the leverage it can bring can basically complete the entire process of Silicon Carbon Group to bring at least the first model to the market.
The successful sale of the WeChat project to Alibaba and the accelerated listing of Bai Xiaosheng on the Nasdaq all prove that the profits from going long on commercial projects are no less than those from going short. In fact, if the Carbon Silicon Group can achieve phased success, considering the vastness of the Chinese market, its prospects will also be broader.
Yu Xing thought about Xiaoying's words and considered the operation and future of the mountain.
After a moment, he took out a cigarette, and after smoking half of it, he casually sighed, "Come to think of it, I quite like the feeling of seeing a scam being exposed. What about you?"
Liu Wanying stood by the window and looked at the scenery. She turned around and said with a smile: "I'm different. I'm not as crazy as you."
Yu Xing shrugged and said, "Okay, the risks are increasing, it's indeed a bit crazy."
Liu Wanying's eyes sparkled: "What I like is the late nights after each hands-on, when I can see the numbers jumping as they collapse."
She gave a two-word review: "Charming."
Yu Xing put out his cigarette. There was a madman on the mountain, and he might not be the one.
(End of this chapter)