A Rare Occasion When an Audit Is Good News? (CAST)

Earlier today, ChinaCast Education updated investors on its internal investigation and audit. By so doing, the company enjoyed a gain of nearly 25% in trading on Monday. ChinaCast is a post-secondary education services provider in China, a sector that represents a huge growth opportunity in the Middle Kingdom.

Presently, the education industry is valued at over $240 billion and growing annually at a nearly 15% clip. By 2015, it is estimated that the private education industry will be valued at upwards of $100 billion.

ChinaCast presently offers post-secondary education through its three fully accredited universities, which offer four-year and three-year bachelor’s degree and diploma programs in business, finance, economics, law, IT, engineering, hospitality and tourism management, advertising, language studies, art and music.

Additionally, ChinaCast offers online learning for K-12 schools, businesses, and government agencies through interactive distance learning applications, multimedia education content delivery and vocational training courses. Due to the growing middle class and the traditional value placed on education in China, along with the “one-child” policy, this growing middle class spends nearly 10% of their income on education.

This is money well spent, and look for more and more U.S. companies to get involved in what has typically and generously been a rote learning education. Perhaps China will begin to engineer in the future rather than simply reverse engineer.

Today’s huge gains were a result of not only this growing sector, but also a continuing transparency rarely seen behind the red curtain of Chinese accounting practices.

ChinaCast has filed lawsuits against 11 people, including a number of former employees regarding the attempted illegal equity transfer of Wuhan Jiyang Education Investment Co., one of the holding companies that ChinaCast uses. The illegal transfer of Jiyang was initially transferred through the hands of prior employees, Mr. Jiang Xiangyua, former President-China, and Mr. Shi Shicheng, a former Vice President of the company. While others were involved, the company perceives these two as the biggest culprits in the scam.

Perhaps the biggest piece of news surrounding the scandal was the fact that ChinaCast has been granted an injunction that forbids these employees from removing assets from Hong Kong, up to a value of $125 million. This injunction will remain in effect until at least November 27, 2012. It is, however, believed that this number is only a fraction of the money that they bilked from ChinaCast.

The press release on the audit also showed the brazenness of the perpetrators. The company, with the help of a Shanghai-based forensic accounting firm, found daily transfers of money unrelated to the company’s normal business operations that continued for nearly a year.

Derek Feng, ChinaCast’s current CEO, comments, “We are pleased that our disciplined and persistent efforts to combat the wrongdoing and unauthorized actions of Ron Chan, Mr. Jiang and his accomplices are gaining traction. In addition, we have been in dialogue with the universities affiliated with CAST’s three private colleges in Wuhan, Chongqing and Guilin and it is clear that they do not wish to be associated with potential criminals like Ron Chan, Mr. Jiang, Mr. Shi or their accomplices.  It is extremely fortunate that the management of the three private colleges has maintained the stability of the colleges. Based on preliminary indications total student enrollment in our schools for the upcoming September 2012 term is up compared to the September 2011 term.”

Beyond all this double speak, it is clear that ChinaCast fully intends to clean up its act and do so publicly.

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Published by Brendan Byrne

While studying economics, Brendan found himself comfortably falling down the rabbit hole of restaurant work, ultimately opening a consulting business and working as a private wine buyer. On a whim, he moved to China, and in his first week following a triumphant pub quiz victory, he found himself bleeding on the floor based on his arrogance. The same man who put him there offered him a job lecturing for the University of Wales in various sister universities throughout the Middle Kingdom. While primarily lecturing in descriptive and comparative statistics, Brendan simultaneously earned an Msc in Banking and International Finance from the University of Wales-Bangor. He's presently doing something he hates, respecting French people. Well, two, his wife and her mother in the lovely town of Antigua, Guatemala. You may contact Brendan via his email (brendanbyrne@wallstreetpr.com) or his Google+ page (https://plus.google.com/u/0/116608759701551457422).