HONG KONG -- Having made a name for itself with high-profile cyberattacks on government offices and businesses, international hacker network Anonymous is now taking on the role of investment adviser.
Anonymous Analytics, the network's research report site, examines companies' financial statements and recommends investors sell their shares when irregularities or inconsistencies are uncovered. Recently, their targets have included a growing number of Chinese companies.
The opinion of these hacktivists-cum-advisers apparently carry weight with investors. Though targeted companies deny problems raised by Anonymous, they often see their stock prices plunge.
Hong Kong-listed lottery service provider REXLot Holdings found out firsthand how devastating an Anonymous Analytics report can be.
In a report on June 24, 2015, Anonymous Analytics questioned the accuracy of financial information REXLot had submitted to the Hong Kong Stock Exchange. The report claimed that revenue from the company's lottery business was only one-third the announced figure, and that the amount of cash on its balance sheet was exaggerated given the amount of interest earned. Dividend and corporate acquisition plans were also questionable, it added.
REXLot stock ended at 0.485 Hong Kong dollar before the analytical report was released, but Anonymous Analytics rated the company a "strong sell" with a target price of HK$0.12. As a result, the share price plunged 9% and trading was suspended.
On April 18 of this year, REXLot belatedly submitted a 53-page report to the exchange refuting Anonymous Analytics' allegations. In it, the company set out to clarify various points, citing different data for its online lottery business and explaining the way it calculates interest earned. The rebuttal stressed that Anonymous Analytics' report was unfounded and had misled investors.
This put an end to the 10-month trading suspension but drew derision from Anonymous Analytics.
"After 10 months, REXLot publishes a confused clarification announcement. We read it and endless laughs were had," it said on its Twitter page the same day.
The rebuttal also failed to convince investors. That day, REXLot's share price tumbled 50% from its level just before the suspension of trading.
Anonymous Analytics has lowered the target price further to "delist," essentially saying the stock is worthless.
The research report unit of Anonymous was reportedly founded in around 2011. While the network used to focus on attacking computer servers and websites, these activities, while not boring, were becoming a bit too predictable, according to Anonymous Analytics, which thus decided to flex its muscles on the stock market. On its website, Anonymous Analytics introduces itself as a group that uses its "unique skills to expose fraud and corruption among public companies."
In compiling its reports, Anonymous Analytics says it uses information from whistleblowers and other sources, which it verifies using publically available data.
The group's reports carry a disclaimer similar to those found on analyst reports issued by securities companies. It says Anonymous Analytics is not in a position to benefit from its own reports and that it is not involved in short-selling tactics.
Anonymous Analytics primarily issues reports on U.S. companies, but it targets Chinese businesses as well. This is not because they
commit fraud more often than their Western counterparts, the group says, but because they are not as good at covering it up.
In autumn 2011, Anonymous Analytics accused Chaoda Modern Agriculture (Holdings), a leading Chinese producer of agricultural products, of falsifying its financial statements. Insider trading by Chaoda Modern executives subsequently came to light, and trading of the company's shares was suspended for nearly three and a half years until February 2015.
Anonymous Analytics also rated Chinese aroma chemical maker Huabao International Holdings a strong sell and concluded security software house Qihoo 360 Technology is not qualified to list on a stock market. It raised questions about financial data of Tianhe Chemicals Group in September 2014, and shares of the Chinese specialty chemicals manufacturer have been unable to trade for about a year after a series of trading suspensions and resumptions.
Businesses respond to allegations with statements or, as a last resort, suspension of share trading. But as long as Anonymous Analytics continues to target them, Chinese companies will find themselves in a tug of war that is difficult to win.