Analysis of Digital Domain Holdings

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DISCLAIMER
The information contained herein reflects the opinions and projections of Capricious Research.
Opinions and projections contained herein are subject to change without notice. Capricious Research
does not represent that any estimate or projection will be realized. All statements contained herein
are the opinions of Capricious Research and not statements of fact.
The opinions expressed herein are not investment advice and should not be construed as investment
advice or recommendations of any kind. The opinions expressed herein are based upon Capricious
Researchs own reading of exchange filings, annual reports and other public documents. Everyone
should do their own research and consult whatever sources they deem appropriate in order to form
their own opinions on the topics covered herein.
Capricious Research has an economic interest in the decline of Digital Domain Holdings stock price,
but the economic interest of Capricious is subject to change without notice.
This material does not constitute an offer or recommendation to sell or purchase any securities and
should not be construed as such. Capricious is not acting in an investment, tax, legal or any other
advisory capacity.
Capricious Research wishes to be clear that the purpose of this material is to focus on Digital
Domain Holdings in an effort to find and disseminate information that has not been made readily
available to the public but is essential to an evaluation of the company.
The information upon which this material is based was obtained from sources believed to be reliable,
but has not been independently verified. Therefore, Capricious Research cannot guarantee its
accuracy.
Capricious Research makes no representation, express or implied, as to the accuracy, timeliness or
completeness of any information, opinion or projection contained herein, and does not undertake a
duty to update or supplement this material or any of the information contained herein.
Capricious Research explicitly disclaims any liability that may arise from the use of this material.
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CONTENTS:
Digital Domain Holdings ties to Che Fengs Ever Union:
I
II
Ties to Ever Union:

Ties to Ever Union:
Corrupt Financing
________________________ 07
Related-Party Transactions
__________________ 27
Digital Domain Holdings business overview:

III
IV
V
VI
DDHLs Business:
DDHLs Business:
DDHLs Business:
DDHLs Business:
Questionable Subsidiaries
__________________
Scrap Metal Fabricated Financials? ____________
Joint Ventures
_________________________
Visual Effects - Good money after Bad ____________
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51
52
61
66
EXECUTIVE SUMMARY
Our research indicates that Digital Domain Holdings is essentially a publicly traded extension of
Beijing Ever Union Asset Management and Ever Union Capital (collectively Ever Union), two
investment firms controlled by Che Feng, a Chinese princeling who was arrested in 2015 on charges
of corruption and money laundering.
We present documents indicating that Digital Domain Holdings management fabricated financial
statements, systematically engaged in major transactions with shell companies controlled by Ever
Union executives, and continued to do so even after merging its Hong Kong headquarters into the
offices of Ever Union Capital.
Furthermore, this material attempts to provide an answer as to why Digital Domain Holdings shut
down its scrap-metal trading business, the companys only profitable and fast-growing business
segment, without properly disclosing this fact to its investors. We showcase that Digital Domains
reporting on its scrap-metal operation is irreconcilable with publicly available customs data,
indicating accounting fraud.
We can come to no other conclusion than that executives of Digital Domain Holdings have actively
set out to mislead investors, deceive regulators, and make tremendous efforts to obscure the true
nature of Digital Domain Holdings business.
What remains of Digital Domain Holdings business is a majority stake in Digital Domain 3.0, a
structurally loss-making visual effects firm that has seen its revenues slashed by 24.4% since being
acquired by Digital Domain Holdings, as well as a host of joint ventures that are either nonoperational or loss-making, yet all disproportionally rely on Digital Domain Holdings to supply
capital.
Finally, we argue that as a result of the arrest of its de-facto owner and primary financier, Che Feng,
much-needed capital is in short supply for Digital Domain Holdings.
Complicating Digital Domain Holdings situation are the companys recent acquisitions of Immersive
Ventures and the Post Production Office. In both cases, Digital Domain Holdings has deferred the
settlement of the vast majority of the acquisition sum over an extended period of time. The deal
structures currently in place will inevitably result in systematical destruction of shareholder value
through dilutive equity offerings as Digital Domain finds itself without any other source of financing;
Digital Domain itself is unprofitable, overleveraged, cash-strapped and already repeatedly tapped
capital markets in efforts to raise working capital for its own operations.
Accounting for this information, we are bearish on the prospects of Digital Domain Holdings and
deem the companys common stock to be tremendously overvalued. We value the companys stock
at HK$0.01 per share, implying 97.5% downside from current trading levels of ~HK$0,40.
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SUMMARY
I.
Ties to Ever Union: Corrupt Financing

Dinghe Venture Capital and Shenzhen Xince Investment Development, two mainland
Chinese investment firms controlled by Che Feng and managed by Digital Domain
Holdings former Chairman Zhou Jian, were exposed by the New York Times as
being involved in a major corruption case. Che Feng, the son-in-law of a high-ranking
communist party official, acquired shares in prominent Chinese companies from a
state-owned enterprise at unfeasibly high discounts and later sold the shares for
enormous profits. In 2009, Che Fengs investment vehicle Shenzhen Xince
Investment Development cashed out of a majority of its shares, resulting in a
corporate tax bill indicatings an annual profit of roughly US$ 1 billion. Subsequently,
the directors of Shenzhen Xince Investment Development injected tens of millions of
dollars into Digital Domain Holdings (then called Sun Innovation Holdings) through
a web of offshore shell companies in the British Virgin Islands. Upon these
investments, the directors of Shenzhen Xince and other associates of Che Feng gained
control of a large absolute majority of Digital Domain Holdings shares. We deem it
highly likely that Digital Domain Holdings is effectively financed near-entirely with
the proceeds of corruption. Following the concealed takeover, the board of Digital
Domain Holdings was replaced entirely. The majority of the board seats went to
associates of Che Fengs Beijing Ever Union Asset Management, Che Fengs
overarching investment vehicle that exercises control over both Dinghe and Shenzhen
Xince.
In June of 2015, Che Feng was jailed on suspicions of corruption and money
laundering. His associates continue to control a majority of Digital Domain Holdings
shares and convertible debt. Currently, Digital Domain Holdings corporate
headquarters in Hong Kong is integrated in the offices of Che Fengs Ever Union
Capital, which holds roughly half the companys convertible debt. Digital Domain
Holdings has continuously shared its office space with offshore shell companies
controlled by Che Feng and his brother Che Tao since the concealed takeover by Che
Fengs associates in late 2009.
II.
Ties to Ever Union: Related-Party Transactions

Between 2012 and 2015 Digital Domain Holdings repeatedly acquired or attempted
to acquire majority stakes in companies controlled by Ever Union Capital and Ever
Union Asset Management. Among these acquisitions was the companys purchase of
a 70% stake in Digital Domain 3.0. Furthermore, we show that while Zhou Jian was
the chairman of Digital Domain Holdings, Digital Domain 3.0 licensed a key piece of
technology (MOVA) from a Shenzhen-based shell company controlled by Zhou Jian
himself. Digital Domain Holdings did not disclose this fact, nor did it seek
shareholder approval for the transaction.
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III.
DDHLs Business:
Questionable Subsidiaries
Since the associates of Ever Union gained control over DDHL, the company has set
up a variety of subsidiaries which generate no revenue, yet have their own offices.
One month after the concealed takeover, DDHL established a Hong Kong based
subsidiary named Sino Front Investments Limited, which filed for a commercial
money lenders license. Sino Front received the money lenders license, which it has
since repeatedly renewed (latest renewal: 2015). DDHL has never disclosed the
purpose of its money lenders license. Digital Domain Holdings also established
various subsidiaries in mainland China under the Ever Union name. One of these
subsidiaries is registered to the address of Beijing Ever Union Asset Management.
IV.
DDHLs Business:
Scrap Metal Fabricated Financials?
Digital Domain Holdings accounting of its scrap-metal trading subsidiary S.I. Travel
Group Limited (S.I. Travel) seems irreconcilable with publicly available customs
documents, which is reason to believe that the financials of S.I. Travel are fabricated.
Digital Domain Holdings established the British Virgin Islands based S.I. Travel
several months after the concealed takeover by Che Fengs associates. S.I. Travel
accounted for 97.7% of Digital Domain Holdings revenue prior to its acquisition of
Digital Domain 3.0 in late 2013. In 2014, S.I. Travel accounted for 37.6% of DDHLs
total revenue. Towards the end of 2014, S.I. Travel group was suddenly shut down.
We outline a thesis explaining the sudden and mysterious termination of S.I. Travel
Groups operations, which DDHL first revealed more than 10 months after the fact.
V.
DDHLs Business:
Joint Ventures
Digital Domain Holdings operates several JVs, many of which seem to be largely
non-operational. Furthermore, we found that the vast majority of the companys JVs
rely disproportionally on Digital Domain Holdings to supply capital.
VI.
DDHLs Business:
Visual Effects - Good Money after Bad
Digital Domain Holdings biggest asset is its controlling interest in the visual effects
firm Digital Domain 3.0, which it acquired in the second half of 2013. In 2014, the
first full year under Digital Domain Holdings, DD3.0s revenues declined by 24.4%
compared to 2013, while many competing firms saw strong YOY revenue growth.
Recently there were further shakeups as Digital Domain 3.0 did not renew the
contract of Eric Barba, its Chief Creative Officer and an Oscar-winning Senior VFX
Supervisor and terminated the contracts of several other high-level employees. A
valuation comparison with a rival firm shows that DDHLs stake in Digital Domain is
overvalued by as much as 97.5%. In just two years, DDHLs stake in DD3.0s losses
has far exceeded the ~US$50 million dollar purchase price of DDHLs stake.
Meanwhile, Li Pei Xin, Chairman of Beijing Ever Union Asset Management, has
launched a copy of Digital Domain in Beijing, named Digital World.
Digital World seems to claim credit for several of Digital Domains achievements on
its website, including its hologram concert of the Chinese singer Teresa Teng.
Digital World claims to develop Virtual Reality experiences and Virtual Holograms.
Is Ever Unions home team in China reverse engineering the intellectual property of
Digital Domain and Immersive?
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TIES TO EVER UNION: CORRUPT FINANCING
I.I
Introduction
Digital Domain Holdings Chairman, former HTC-CEO Peter Chou, has recently denied that Digital
Domain Holdings had ties to the disgraced billionaire Che Feng, and added that Che Feng does not
have any influence over the company or its board.
Peter Chou has stated1:
We make independent decisions.
Even if he [Che Feng] had a 23-percent stake he would still not be sitting on the board. We
also have no contact; we are independent. I don't worry at all, because the right to run the
company and its direction lies in our hands. What we do is free of interference.
When you look at a company you look at its strategy, values, profits, and direction. We are
100 percent in control, there is no interference whatsoever. Presently the company structure,
the director votes are all in our hands.
People are being too sensitive.
By retracing Digital Domain Holdings history, starting with the first investment made by Che Fengs
associates in 2009, we set out to prove that Peter Chous statements are completely false.
http://english.cw.com.tw/article.do?action=show&id=14987&offset=6
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I.II
Partial control
On May 25th 2009, Wise Sun Holdings Limited, a British-Virgin Islands based shell company
controlled by Zhou Jian acquired a 38.12% stake in Digital Domain Holdings (then called Sun
Innovation Holdings)2.
The financial magazine Caixin revealed that Wise Sun Holdings is merely a front for Che Feng, a
Chinese businessman who amassed billions through corruption3.
Che Feng is the son-in-law of Dai Xianglong, the former governor of the Peoples Bank of
China, Chinas central bank. Various newspapers have reported on Ches involvement in
corruption scandals centered on the investment firm Beijing Dinghe Venture Capital, which
Che controls through a web of shell companies. In a highly unusual arrangement, Beijing
Dinghe Venture Capital was reportedly able to borrow 650 million yuan interest-free from
Minsheng Bank to buy shares in Haitong Securities4. Both Minsheng and Haitong fell within
the jurisdiction of Che Fengs father-in-law Dai Xianglong.
The New York Times reported that Dinghe Venture Capital also held shares in Ping An
Insurance, which it had purchased from a state-owned enterprise at a ~75% discount,
implying corruption. Although Ches spokeswoman / Digital Domain Holdings Independent
Non-Executive Director Jenny Lau told the New York Times that Che never held a stake5,
Caixin reported that Che led the negotiations for the purchase on behalf of Dinghe Venture
Capital and controlled Dinghe through Shenzhen-based shell companies. Dinghe purchased
the shares in Ping An Insurance for US$55 million. Five years later, in 2007, Dinghes stake
in Ping An was worth ~US$3.1 billion. Meanwhile, the value of Dinghes stake in Haitong
Securities had grown to ~US$ 1 billion6.
Forbes took notice of the high valuation, and ranked Dinghes director / DDHL Chairman
Zhou Jian 129th on its 2008 list of richest Chinese7. Filings with the Beijing Enterprise Credit
System confirm that Zhou Jian is still a director of Dinghe Venture Capital8. Che is
known to transact through shell companies registered to his employees, friends and family,
and often uses highly sophisticated investment structures involving multiple layers of
(offshore) shell companies to evade regulatory constraints, enjoy maximum tax relief and hide
his involvement.
http://sdinotice.hkex.com.hk/di/NSForm1.aspx?fn=30762&sa2=an&sid=25980100
http://english.caixin.com/2015-06-04/100816216.html
4
http://www.mingjingnews.com/MIB/blog/blog_contents.aspx?ID=0000529000000030
5
http://www.nytimes.com/2012/12/31/business/global/chinese-regulators-family-profited-from-stake-ininsurer.html
6
https://www.youtube.com/watch?v=qDvJo_wLJJY
7
http://www.forbes.com/lists/2008/74/chinarichest08_Zhou-Jian_6YF2.html
8
http://qyxy.baic.gov.cn/ searched for:
3
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Che Feng was detained by the anti-corruption authorities of Chinas Communist Party on
June 2nd 2015, along with his assistant, driver and several other associates9. According to
Caixin, the corruption probe was not focused on Dinghe Venture Capital, but was instead
focused on Ches ties to Guo Wengui, a close friend of Che who fled China after he became
ensnared in the corruption probe into former Politburo member Zhou Yongkang, who recently
received the life sentence for corruption10.
Guo Wengui is a billionaire who made most of his money through his construction firm
Beijing Zenith Holdings. Wengui is rumored to have engineered the fall of Beijings Deputy
Major in order to acquire a valuable plot of land next to Beijings Olympic Stadium11. He
faces corruption charges and became one of Chinas most wanted fugitives after fleeing to the
United States. The Washington Times reported that Chinas president Xi Jingping himself
was expected to ask Barack Obama personally to facilitate the return of Guo Wengui to
China12.
Guo Wenguis British-Virgin-Islands based investment vehicle Head Win Group Limited
played a small yet crucial role in Digital Domain Holdings acquisition of its 70% stake in
Digital Domain, which will be outlined later in this material.
http://www.nytimes.com/2015/06/12/world/asia/zhou-yongkang-former-security-chief-in-china-gets-lifesentence-for-corruption.html
11
12
http://www.washingtontimes.com/news/2015/sep/23/china-seeks-return-of-2-wanted-officials
10
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I.III Management Control

As Wise Sun Holdings gained control of a stake larger than 35%, the acquisition triggered a
mandatory offer for all outstanding securities of Digital Domain Holdings13. Not many parties were
interested in selling to Wise Sun, which resulted in Wise Sun acquiring only 1.70% of common stock
as a result of the mandatory offer14.
However, together with the mandatory offer, Digital Domain Holdings also announced that it would
place HK$ 200 million (~US$ 26 million) worth of convertible bonds to independent third parties,
and HK$ 120 million (~US$ 15.6 million) worth of convertible bonds to Wise Sun Holdings. The
conversion of these bonds had the potential to give Wise Sun absolute control over DDHL.
As Wise Sun Holdings increased its control over Digital Domain Holdings, it also increased its grip
on the companys board. After Wise Sun Holdings became Digital Domain Holdings largest
shareholder, the entire management was replaced: on July 21st 2009, Zhou Jian and four other new
directors are appointed to the companys board. The existing management resigned shortly after, as is
visible in this 2009 overview of Digital Domain Holdings Board15:
13
http://www.hkexnews.hk/listedco/listconews/SEHK/2009/0617/LTN20090617460.pdf
15
DDHL 2009 Annual Report, p.11
14
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A majority of the directors appointed to the board on the 21st of July have strong ties to Che
Feng and his Beijing Ever Union Asset Management. Fan Lei was the Chief Investment
Officer of EUAMC. Digital Domain Holdings acknowledges this in its annual reports, but
misleadingly refers to Beijing Ever Union Asset Management as Beijing Changhe Century
Asset Management16.
Filings with the Beijing Enterprise Credit System show that both Zhou Jian and Fan Lei
served as directors at numerous investment companies that were registered to @euamc.com
email addresses and EUAMCs phone number. One such company is the aforementioned
Beijing Dinghe Venture Capital, where Zhou Jian served as a director.
The newly appointed independent non-executive director Lau Cheong is Ches
spokeswoman, Jenny Lau. Ms. Lau held positions at multiple firms controlled by Che Feng;
she served as the secretary of Xince (HongKong) Investment Development, a wholly owned
of subsidiary Shenzhen Xince Investment Development, which is controlled by Che Feng and
managed by Zhou Jian. Essentially, this makes Digital Domain Holdings Independent NonExecutive Director Jenny Lau an employee of Digital Domain Holdings Executive Director
Zhou Jian.
Ms. Lau is also the president of Palau Golf Inc., which intends to build a massive golf resort
on the tiny island state of Palau, a project that Lau said has the backing of a seasoned
Chinese businessman who is in the real estate business17. The businessman turned out to be
none other than Che Feng18.
16
17

http://pidp.org/pireport/2015/February/02-10-06.htm
18
http://webcache.googleusercontent.com/search?q=cache:eKkCLKSPW98J:www.islandtimes.us/index.php%3F
option%3Dcom_content%26view%3Darticle%26id%3D1476%253Achinese-investor-involved-in-aimeliik-golfproject-detained%26Itemid%3D1+&cd=1&hl=en&ct=clnk&gl=nl
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I.IV
Integration
Following the resignation of the existing executives, Zhou Jian is appointed Chairman of the board.
Zhou Jian and Fan Lei together formed the executive committee of DDHL from 2009 to 2015.
Two days before Zhou Jians appointment as Chairman, Digital Domain Holdings moves its
headquarters to Room 1717 of the Sun Hung Kai Centre19. This particular room was already
registered to a British-Virgin-Island shell company controlled by Che Fengs brother, Che Tao.
Annual reports filed by an unrelated shell company called Rock Profit International Limited
show that Che Taos address is Room 1717. Che Tao acquired a 50% stake in Rock Profit
International from Asian Base Holdings; a British-Virgin-Islands based shell company.
Another BVI shell company, Ultra Gain Development owned the other 50%.
Asian Base Holdings is controlled by DDHL shareholder Zhang Xiao Qun20.
Ultra Gain Development is controlled by DDHL Chairman Zhou Jian21.
Zhang Xiao Qun and Zhou Jian are the directors of Che Fengs Dinghe Venture Capital.
Filings with the Hong Kong Exchange22 show that Che Taos BVI investment vehicle
Oriental Fortune Investments Limited was registered to Room 1717 of the Sun Hung Kai
Centre23.
19
https://offshoreleaks.icij.org/nodes/132047
21
22
sdinotice.hkex.com.hk/di/NSForm2.aspx?fn=86138&sa2=np&scpid=1874480
23
http://offshoreleaks.icij.org/nodes/151103
20
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I.V
Absolute Control
On September 18th 2009, Zhou Jians first day as Chairman of Digital Domain Holdings, the company
completes the placement and subscription of HK$320,000,000 (~US$41,600,000) worth of
convertible debt which upon full conversion would lead to the issuance of 7,975,000,000 new shares.
At the time, the number of outstanding shares was only 1,832,686,65824, some 60% of which was in
the hands of public shareholders.
The extreme dilution triggered by the conversion25 of new convertible bonds diminished the influence
of public shareholders and essentially transferred control over Digital Domain Holdings to the CB
subscribers. Because this could be seen as a Takeover, the CB subscribers had to confirm that they
are independent third parties of the company and not acting in concert with Wise Sun Holdings prior
to subscribing to the placement:
Despite confirming that they were not acting in concert with Wise Sun, the CB Subscribers
were offshore shell companies registered to employees of investment firms controlled by Che
Feng. Filings with the Hong Kong Exchange show that the recipients of the CBs were the
following parties26:
24
25
www.hkexnews.hk/listedco/listconews/SEHK/2009/1002/LTN20091002999.pdf
www.hkexnews.hk/listedco/listconews/SEHK/2009/1201/LTN20091201817.pdf
26
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It is our opinion that Wise Sun Holdings, Fortune Source International and Huge Rising
were acting in concert. Fortune Source Internationals Zhang Xiao Qun and Wise Sun
Holdings Zhou Jian jointly managed Shenzhen Xince Investment Development (Shenzhen
Xince), a company controlled by Che Feng27.
Kong Dalu and Zhang Xiao Qun are the directors of Xince (HongKong) Investment
Development, a wholly-owned subsidiary of Shenzhen Xince Investment Development.
Meanwhile, Digital Domain Holdings Independent Non-Executive Director Jenny Cheong
Lau served as secretary to Xince (HongKong) Investment Development.
We outlined the ties between Digital Domain Holdings and Shenzhen Xince as follows, with
the ownership percentages of DDHL based on the assumption of full conversion of all
convertible bonds at the time of the placement28:
27
28
Sources for schematic:
http://gsxt.gdgs.gov.cn/ searched for:
https://www.icris.cr.gov.hk/csci/ searched for:

()
As well as the Hong Kong Exchange filings for Fortune Source International,
Huge Rising and Wise Sun Holdings referred to above.
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As is visible in the schematic, Shenzhen Xince is controlled by two shell companies

registered to an @euamc.com email address, indicating that they are controlled by Che Fengs
Beijing Ever Union Asset Management29.
It is our understanding that Kong Dalu, Zhang Xiao Qun and Zhou Jian as the directors of
Shenzhen Xince and its wholly-owned subsidiary should have been presumed to be acting in
concert with one another under the Hong Kong Mergers and Takeovers Code when acquiring
the option to control an absolute majority of DDHLs shares. However, they were not, and in
fact denied in writing that they were acting in concert.
As the directors of Shenzhen Xince and its wholly-owned subsidiary have the option to
control an absolute majority of Digital Domain Holdings shares exercise direct influence over
the companys board, we believe that at this point, Digital Domain Holdings could be viewed
as a variable interest entity of Shenzhen Xince.
We deem this problematic as Shenzhen Xince is a highly questionable company. The
legitimacy of the firm was called into question by Chinese journalists after the company was
listed as one of Shenzhens top corporate taxpayers in 2009, when Shenzhen Xince paid
almost twice as much in corporate taxes than major Shenzhen-based corporations such
as Huawei. Shenzhen Xince paid more than 1.3 billion yuan in corporate taxes, indicating a
profit in the range of 5.2 to 7.2 billion yuan (~US$820 million to US$1.1 billion) over the
year 2009. When the journalists, having never heard of Shenzhen Xince, went to the
companys registered address to investigate, the company simply was not there. An
unrelated logistics company was using the offices to which Shenzhen Xince was registered.
Employees of the logistics firm had never heard of Shenzhen Xince or Zhou Jian, the firms
managing director. When the journalists then called Shenzhen Xince, the receptionist hung up
after the name Zhou Jian was mentioned. It seems as if Shenzhen Xince is a phantom
company, and a very profitable one at that 30.
It is believed that Shenzhen Xince record 2009 profit was due to the sale of shares in Ping An
Insurance it controlled. Dinghe Venture Capital, another company holding shares in Ping An
is also believed to have cashed out in 2009; a thesis supported by Ping An filings.
29
Euamc.com is registered by Ever Union Asset Management: http://www.whois.com/whois/euamc.com

Also note: Jinfan Baotong Investment Consultancy holds a significant stake in Henan Jiayou Home Shopping,
of which Zhou Jian was an executive director according to Digital Domain Holdings annual report
DDHL Annual Report 2013 p.24, showcasing deeper integration between DDHLs executives and EUAMC.
30
http://finance.qq.com/a/20090612/005206.htm
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Peculiar are the offshore investment vehicles used to subscribe to Digital Domain Holdings
placement of convertible debt. Zhang Xiao Qun used the BVI shell company Fortune Source
International Limited, which was established by Elsa Wong, an offshore services agent31.
Xu Kai subscribed to the convertible debt placement through another BVI shell company,
Mass Channel Investment Limited, which was registered by the same Elsa Wong32.
ICIJ data shows that Elsa Wongs operated from Room 1717 of the Sun Hung Kai Centre,
Digital Domain Holdings corporate headquarters in Hong Kong33.
Did all these supposedly independent third parties of Digital Domain Holdings come into the
offices of Digital Domain Holdings to establish offshore shell companies which they would
then use to inject capital into Digital Domain Holdings?
Ms. Wong seems to primarily register companies on behalf of Che Feng, his relatives and his
associates. Among the firms she registered are Che Fengs Ever Union Capital, Zhou Jians
Ultra Gain Development and Zhang Xiao Quns Asian Base Holdings34.
We believe it should be abundantly clear by now that Zhang Xiao Qun, Zhou Jian and Kong
Dalu are all just fronting for Che Fengs Beijing Ever Union Asset Management.
31
33
34
32
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To make the Ever Union tie-in complete, Kong Dalus LinkedIn profile shows that he is the
managing director of Ever Union Capital35.
But Kong Dalu isnt the only one blatantly fronting for Che Feng: Zhang Xiao Qun listed the
address of the property investment firm Shanghai Tianjin Real Estate Development as his
residential address in annual reports of Xince (HongKong) Investment Development.
Shanghai Tianjin Real Estate was directly controlled by Che Feng36. Meanwhile, Kong Dalu
listed the address of Beijing Ever Union Asset Management as his residential address.
Kong Dalus offshore vehicle Huge Rising Limited is the most obvious front for Che Feng.
Before Huge Rising injected capital into Digital Domain Holdings, it purchased a sizeable
stake in another public company. Filings with the Hong Kong Exchange regarding this
acquisition show that Che Feng was the owner of Huge Rising Limited37.
Aside from holding executive positions at Ever Union Capital and Xince HongKong, Kong
Dalu was also a director at Haitong Securities, in which Dinghe Venture Capital held a
sizeable stake. An overview of directors positions in shareholder entities from Haitong
Securities 2009 Annual Report shows that Kong Dalu was the Deputy General Manager
of Dinghe Venture Capital from 2007 on, and still held that position at the date of
publication of the annual report in 201038.
35
https://www.linkedin.com/profile/view?id=307061223
http://file.irasia.com/listco/hk/pingan/circulars/c060407.pdf
37
http://sdinotice.hkex.com.hk/di/NSForm1.aspx?fn=14954&sa2=np&scpid=2182030
38
http://quote.morningstar.com/stock-filing/AnnualReport/2009/12/31/t.aspx?t=XSHG:600837&ft=&d=41caba516d9c0be7c85ada337628ea9f
36
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p. 21
Beijing Enterprise Credit data shows that Zhang Xiao Qun and Zhou Jian are respectively the
managing director and the director of Dinghe Venture Capital.
Before his tenure as director at Haitong Securities, Kong Dalu worked as a senior executive at
Minsheng Bank39, which had provided Dinghe Venture Capital with questionable loans to
finance its purchase of shares in Haitong Securities40.
Dinghe Venture Capital, much like Shenzhen Xince Investment Development, seems to have
cashed out its stake in Ping An Insurance between 2008 and 2009. According to the New
York Times, Dinghe is expected to have profited more than US$ 3 billion on the sale41.
We deem it highly likely that the proceeds of these corrupt deals were injected into Digital
Domain Holdings through Wise Sun Holdings, Fortune Source International and Huge Rising.
39
http://www.bloomberg.com/research/stocks/people/person.asp?personId=265629007&capId=10494877
http://www.mingjingnews.com/MIB/blog/blog_contents.aspx?ID=0000529000000030
41
http://www.nytimes.com/2012/12/31/business/global/chinese-regulators-family-profited-from-stake-ininsurer.html?_r=0
40
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After the injection of capital into Digital Domain Holdings through the subscription and
placement of convertible bonds, Kong Dalus Huge Rising, Xu Kais Mass Channel
Investment and Zhang Xiao Quns Fortune Source International all sold portions of their
securities in off-exchange deals.
Huge Rising sold the majority of its stake to three BVI shell companies. The three
companies purchased stakes of 4.3%, 4.6% and 4.9% respectively. Huge Rising retained a
4.9% stake.
Mass Channel Investment later sold 14.7% of its 17.8% stake to 3 or more investors in an
off-exchange deal. Mass Channel retained 3.1%.
Fortune Source sold a 4.3% stake and retained 12.3% stake.
As a result of these sales, half of Digital Domain Holdings shares are in the hands of investors
holding less than 5%, who no longer have to disclose their shareholding to the exchange.
Based on Hong Kong Exchange filings, three buyers could be identified, all of whom are once
again closely associated to Che Feng and his Ever Union:
Quantum Base Company purchased 4.3% from Huge Rising42.

Quantum Base Companys owner is Li Pei Xin, chairman of Ever Union Asset
Management43.
Progress Mind Investment purchased 4.6% from Huge Rising44.

Progress Mind Investments owner is Xiao Ping, a director of Shenzhen Xince
Investment45. Progress Mind Investment was registered by Elsa Wong46.
Trendy Base Company purchased 4.9% from Huge Rising47.

Trendy Base Companys owner is Zhou Fulin, Vice Chairman of Beijing Worthope
Sathen Network Technology, where Che Feng served as Chairman48.
42
The listed figure is 9.48%. Dilution triggered by conversions lowered this figure to 4.3% by year-end 2009.
43
44
The listed figure is 11.33%. Dilution triggered by conversions and share sales of previously owned stock
lowered this figure to 4.7% by year-end 2009.
45
http://finance.qq.com/a/20090612/005206.htm
46
http://offshoreleaks.icij.org/nodes/155938
47
The listed figure is 10.74%. Dilution triggered by conversions lowered this figure to 4.9% by year-end 2009.
48
http://www.icij.org/offshore/china-who-uses-offshore-tax-havens#people/che-feng
note: Wo He, Worthope, and Yaohe all refer to .
- 21 -
Che Feng was also the Chairman and CEO of Hong Kong Worthope Technology Group
Limited while Zhou Fulin served as president of Beijing Worthope Technology
Development49. Filings with the Beijing Enterprise Credit System show that Beijing
Worthope Technology Development is registered to an @euamc.com email address,
indicating it is controlled by Beijing Ever Union Asset Management50.
Filings from Ping An Insurance show that Zhou Fulin was appointed as supervisor to Ping An
Insurance shortly after Dinghe Venture Capital acquired its stake in the company. After
Zhou Fulins three year term at Ping An was over, he was succeeded by Che Feng himself51.
We believe that these deals of just under 5% of DDHLs securities were only intended to
obscure the ownership structure of Digital Domain Holdings, and were not regular
transactions.
Corroborating our thesis are the sale prices: When Huge Rising Limited sold convertible
bonds to Trendy Base, Quantum Base and Progress Mind, the average transaction sum for a
single bonds was HK$0.078. The bonds were freely convertible into shares that traded on the
exchange for HK$0.22. Huge Rising was effectively selling at a discount of ~64.5%.
Furthermore, we sense a high degree of artificial randomness in the deal structure. Notice the
numbers of convertible bonds initially subscribed to by Fortune Source, Huge Rising and
Mass Channel (1500m, 1625m, 1750m). When Huge Rising sells its securities to Progress
Mind, Trendy Base and Quantum Base, a similar pattern unfolds (375m, 400m, 425m).
The pricing for these transactions shows a similar pattern: 375m CBs were sold at HK$0.075
each, 400m CBs were sold at HK$0.078 each, and 425m shares were sold at HK$0.080 each.
This is effectively a structure where volume discounts have gone negative, further indicating
that these are not regular transactions.
49
http://www.hkexnews.hk/listedco/listconews/SEHK/2005/0428/02318/F106.pdf
51
http://file.irasia.com/listco/hk/pingan/circulars/c060407.pdf
50
- 22 -
I.VI
Sustained Integration
As the associates of Che Feng consolidated their control over Digital Domain Holdings; the company
remained closely integrated with Che Tao and his British-Virgin-Islands based investment vehicle
Oriental Fortune Investments.
Zhou Jians Wise Sun Holdings then sold 950,000,000 shares in Digital Domain Holdings to Che
Taos Oriental Fortune Investments in an off-exchange deal52. Che Tao paid HK$0.06 per share
for the 10.69% stake. Meanwhile, Digital Domain Holdings shares traded on the Hong Kong
exchange closed at HK$0.325 that day, ~442% more than the 0.06 per share paid by Che Tao.
The purchase by Oriental Fortune Investments is not just questionable because of the unusually high
discount it received, but mostly because Digital Domain Holdings shared office space with Oriental
Fortune, making it highly probable that Oriental Fortune was trading on inside information.
Filings with the Hong Kong Exchange show that Oriental Fortune did not fill out an address on its
Form 2 regarding the acquisition of a substantial stake in Digital Domain Holdings, hiding the rather
important notion that Oriental Fortune shared office space with Digital Domain Holdings53. It is our
opinion that by not fully filling out its Form 2, Oriental Fortune obscures its true connection to DDHL
from regulators and investors.
Oriental Fortune Investments did list its address on forms unrelated to Digital Domain Holdings:
52
53
- 23 -
- 24 -
I.VII Conclusion
By retracing the early history of Digital Domain Holdings, we believe to have proven that:
-
The associates of Che Feng controlled a majority of Digital Domain Holdings board.
The associates of Che Feng controlled a majority of Digital Domain Holdings securities.
Digital Domain Holdings shared its offices with an offshore investment vehicle controlled
by Che Fengs brother, Che Tao.
Based on our reconstruction of the events following the placement and subscription of convertible
debt in late 2009, Che Feng assumed control of between 79.7% and 88.0% of the total of outstanding
shares and convertible bonds in Digital Domain Holdings54:
55
Effectively, we believe that the placement and subscription of convertible bonds meant that
absolute control of Digital Domain Holdings was transferred to Che Feng at the cost of public
shareholders.
54
The convertible notes subscribed to by unidentified could be subscribed to by parties unrelated to Che Feng,
something we deem unlikely given that all the other subscribers were closely associates with Che Feng.
The percentages also do not account for associates of Che Feng holding shares as public shareholders.
Progress Mind Investment for example already held 1.22% in DDHL shares prior to buying a sizeable stake
from Huge Rising, meaning that the associates of Che Feng were likely to control more than 90% of DDHL
after the placement. http://sdinotice.hkex.com.hk/di/NSForm2.aspx?fn=124412&sa2=np&scpid=1957832
55
- 25 -
The subsequent sales by Ches associates to other associates of Shenzhen Xince Investment and Ever
Union Asset Management corroborate our thesis, and have resulted in roughly half of Digital Domain
Holdings shares to be considered as held by public shareholders, despite still being controlled by
the associates of Che Feng.
We deem the deal structure of these sales to be too artificial, the pricing structure too irregular and the
parties involved too intertwined for these deals to be regular transactions; we are convinced that Huge
Rising, Mass Channel Investment, Progress Mind Investment, Quantum Base Company and Trendy
Base Company are all merely fronting Che Feng in exactly the same way that Caixin has alleged
Fortune Source International and Wise Sun Holdings are56.
The fact that the majority of Digital Domain Holdings capital has originated from British Virgin
Islands based shell companies controlled by the directors of Shenzhen Xince Investment and Dinghe
Venture Capital, two highly questionable firms entangled in a seemingly ongoing corruption scandal,
is more than sufficient reason to doubt the legitimacy of Digital Domain Holdings financing.
Based on our analysis of Digital Domain Holdings early history, we can say with confidence that
Digital Domain Holdings is highly likely to be majority financed with the proceeds of corruption.
The result of the analyzed events continue to be at the core of Digital Domain Holdings shareholding
structure today. It is highly likely that the associates of Che Feng still hold their many stakes of ~ 4%,
and thus still control an absolute majority of Digital Domain Holdings shares.
Today, Wise Sun Holdings and Fortune Source International are still among the companys largest
shareholders. Cheong Lau is still on the board of Digital Domain Holdings. Zhou Jian, although
replaced as chairman by Peter Chou, is still with the firm as a senior advisor. Fan Lei, although
replaced as executive director, remains active as a director at nearly all of the companys subsidiaries.
The most transformative event in the history of DDHLs ownership structure has been the acquisition
of Digital Domain 3.0, which was financed with convertible notes placed directly to Che Fengs Ever
Union Capital, an event which will be covered in the next chapter.
Recall that Digital Domain Holdings current Chairman Peter Chou has said:
We make independent decisions.
Even if he [Che Feng] had a 23-percent stake he would still not be sitting on the board. We
also have no contact; we are independent. I don't worry at all, because the right to run the
company and its direction lies in our hands. What we do is free of interference.
. People are being too sensitive.
By now, we believe to have proven that Digital Domain Holdings is far from independent. In the next
chapter, we present evidence that while under the absolute control of Che Fengs associates between
2010 and 2015, Digital Domain Holdings systematically engaged in transactions with shell companies
linked to Che Fengs Beijing Ever Union Asset Management, proving the very interference which
Peter Chou denies, while at the same time proving that we are not too sensitive.
56
- 26 -
II.
TIES TO EVER UNION: RELATED PARTY TRANSACTIONS
II.I
Related-Party Transaction 1: Shenzhen Tuohe
On July 13th, 2012, Digital Domain Holdings announced a major transaction: It would acquire
Shenzhen Tuohe Investment Development (Shenzhen Tuohe) from Shenzhen Xinhe Technology
Development (Shenzhen Xinhe) and Beijing Jingbaiqi Asset Management (Beijing Jingbaiqi )57.
Shenzhen Tuohe is an investment holding company that owns a 70% stake in Kaiyuan Management,
which in turn owns the Kaiyuan Hospital, an orthopedic hospital in Shanghai. Additionally, Shenzhen
Tuohe owns a purchase option which allows the company to acquire an additional 10% stake in
Kaiyuan Management.
Digital Domain Holdings would pay RMB77,000,000 (~US$12,320,000) for Shenzhen Tuohe.
Additionally, DDHL agreed to repay RMB133,605,100 (~US$21,375,000) owed by Shenzhen Tuohe
to Shenzhen Xinhe and Beijing Jingbaiqi, bringing the total consideration to RMB240,605,100
(~US$33,695,000).
Digital Domain Holdings established a Hong Kong subsidiary called Ever Union Medical Services
Group through which the company would acquire Shenzhen Tuohe.
Digital Domain Holdings choice to name its subsidiary Ever Union is curious as this subsidiary is
set up long before Ever Union Capital takes a stake in Digital Domain Holdings. It is our opinion that
the choice for the Ever Union name corroborates the thesis that Digital Domain Holdings is under
absolute control of Che Fengs Ever Union, despite the name Ever Union never showing up in its list
of substantial shareholders at the time Digital Domain Holdings established Ever Union Medical
Services Group.
Digital Domain Holdings in an announcement provided the following before-and-after schematic for
the acquisition, in which it refers to its subsidiary Ever Union Medical Services Group simply as
Ever Union:
57
- 27 -
58
58
Digital Domain Holdings announcement dated July 13th, 2012

- 28 -
In the announcement, Digital Domain Holdings reports the following:

To the best of the Directors knowledge, information and belief, having made all reasonable
enquiries, each of Shenzhen Xinhe, Beijing Jingbaiqi, their respective ultimate beneficial
owners, Mr. Tan [Zhenyu] and Mr. Qin [Zhiming] is a third party independent of the
company and its connected persons.
Before it can be assessed whether or not this statement is true, the ultimate beneficial owners of
Shenzhen Xinhe and Beijing Jingbaiqi need to be identified.
Based on data from the Guangdong and Beijing Enterprise Credit Databases, the ownership structure
can be outlined as follows:
- 29 -
59
59

http://gsxt.gdgs.gov.cn/ searched for:
- 30 -
As is visible in the schematic, Shenzhen Tuohe is owned by three Beijing based investment
vehicles, all of which are registered to an @euamc.com email address, indicating that these are
shell companies controlled by Che Fengs Beijing Ever Union Asset Management, of which Digital
Domain Holdings Executive Director Fan Lei was the Chief Investment Director.
According to Digital Domain Holdings annual reports, Fan Lei seized being the CID of EUAMC
somewhere during the year 201260. It is unclear if Fan Lei was the CID at the time of the acquisition.
Fan Leis involvement in both EUAMC and DDHL seems suspect nonetheless, especially when
considering that Fan later seems to claim that he resigned from his position at EUAMC before
becoming an executive of DDHL61, which is contradicted by DDHLs annual reports.
Effectively, Digital Domain Holdings seems to use an investment vehicle that it calls Ever Union to
buy a hospital from three shell companies linked to Beijing Ever Union, upon which Digital Domain
Holdings executive director Fan Lei, himself an executive of Beijing Ever Union, claims that all
parties to the transaction are to his best knowledge, information and belief, independent.
The independence of Digital Domain Holdings other executive, Zhou Jian, is also questionable.
Zhou Jian was the managing director of Zhujiang Joint Investment Management and a director of
Dinghe Venture Capital, companies in which Shenzhen Xinhe Technology Development invested.
Digital Domain Holdings executives (green), substantial shareholders / convertible bondholders
(blue) and acquisition counterparties (red) all held executive positions at investment firms
linked to Ever Union62:
60
DDHL 2012 Annual Report p.21

http://stock.aganjinrong.com/companies/832807
62

61
- 31 -
We believe this is compelling evidence that effectively, all of the parties to the Shenzhen Tuohe
acquisition were connected, as they were effectively all employees of Che Fengs investment firms.
However, there is more that suggests that the parties to this acquisition were not truly independent; on
the very same day that Digital Domain Holdings established Ever Union Medical Services Group
Limited, through which it would purchase Shenzhen Tuohe, a company was established by the name
of Ever Union Medical Group Limited, documents from the Hong Kong Companies Registry
show63.
Ever Union Medical Group and Ever Union Medical Services Group were both incorporated on 1203-2012, more than four months prior to Digital Domain Holdings first mentioning its plans to
acquire Shenzhen Tuohe. Unlike Digital Domain Holdings subsidiary Ever Union Medical Services
Group, the company Ever Union Medical Group is not mentioned in DDHLs announcement
regarding the acquisition at all, and is not affiliated with Digital Domain Holdings.
The owner of Ever Union Medical Group Limited is a British Virgin Islands based shell company
named True Elite Investments Limited. The sole director of Ever Union Medical Group Limited is
none other than Tan Zhenyu, the managing director of Shenzhen Xinhe Technology Development.
Making the confusion complete, Digital Domain Holdings renamed its subsidiary Sun Innovation
Development Limited to Ever Union Medical Services Limited on February 9th 201264.
If Digital Domain is truly independent of Tan Zhenyu, why did they both incorporate eerily similarnamed Hong Kong companies on the exact same day more than 4 months before the first disclosure of
any future transaction between Digital Domain and Tan Zhenyu?
63
64
http://www.cr.gov.hk/docs/wrpt/wk_new&changednamecoys_20120312.pdf
- 32 -
The vendor in the proposed acquisition, Shenzhen Xinhe Technology, is eerily similar to Shenzhen
Xince Investment, which is controlled by Che Feng and headed by then-DDHL chairman Zhou Jian.
Data from the Guangdong Enterprise Credit System shows that Shenzhen Xince Investment shares its
office space with Shenzhen Xinhe Technology. Futhermore, it shows that a variety of other shell
companies were registered to the exact same address, phone number and email address as Shenzhen
Xinhe. Many of these shell companies list substantial shareholders of Digital Domain Holdings
as well as Digital Domain Holdings Chairman Zhou Jian as their directors65:
Recall that when investigative journalists went to find the mysterious Shenzhen Xince Investment at
Unit C-E on the 20th floor of the Hanglu Building after its 2009 profits exceeded ~US$1 billion, they
found an unrelated logistics company, and not a trace of Shenzhen Xince or its managing director
Zhou Jian.
Reconsider this story in light of the information that there are at least four other investment firms
registered to the same address as Shenzhen Xince, including Shenzhen Tuohe and Shenzhen Xinhe.
There seems to be a vast network of phantom companies established by Digital Domain Holdings
executives and substantial shareholders.
Interestingly enough Digital Domain Holdings acquisition target, Shenzhen Tuohe, is registered to
almost the same email address as DDHLs Shenzhen-based subsidiary Digital Domain (Shenzhen)
Technology Development.
We believe that the email address Caoxi0316@Sina.cn belongs to Shenzhen Tuohes executive Cao
Xi. The email address used to register Digital Domains Shenzhen based subsidiary,
Caoxi0316@gmail.com, is near identical. Caoxi0316@gmail.com was previously used as the
registered email address of the billion dollar phantom company Shenzhen Xince66, raising the
question: What is the full extent of Digital Domains relationship to these phantom companies?
65
http://finance.qq.com/a/20090612/005206.htm &
http://gsxt.gdgs.gov.cn/aiccips searched for:
66
http://www.1024sj.com/com/qiye.aspx?id=16368242
- 33 -
II.II Related-Party Transaction 2: Digital Domain 3.0

In the bankruptcy auction of American visual effects and animation company Digital Domain Media
Group, the companys flagship visual effects production division, Digital Domain, was sold to the
Chinese independent movie production house Beijing Galloping Horse and Reliance MediaWorks.
Galloping Horse, which acquired 70% of the shares of Digital Domain, was planning an IPO in China
and thus could not raise additional financing to support Digital Domains large losses. As a result, it
had to dispose of its stake in the company shortly after the acquisition. The buyer of the stake was the
Hong Kong Exchange listed Sun Innovation Holdings, currently known as Digital Domain Holdings.
At least, that is the official story, which is filled with half-truths and fails to acknowledge the role that
the Chinese financiers Che Feng, Guo Wengui and Xiao Jianhua played in the acquisition.
Our reconstruction of the events surrounding the Digital Domain bankruptcy and subsequent sale sto
Galloping Horse and Digital Domain Holdings indicates that Beijing Galloping Horse never held a
70% stake in Digital Domain, and revealed that Che Feng and his associates were preying on Digital
Domain even before the company went bust.
- 34 -
Reconstruction: Digital Domains demise and resurrection

March 30th, 2012
Digital Domain Media Group files its 10-K showing a record loss of
US$140.7 million over the year 201167.
August 13th, 2012
Digital Domain Media Group hires Wells Fargo Securities as advisor

to explore strategic options. The company suggests a possible sale68.
September 6th, 2012
Che Feng establishes Upfield Sky Limited, a British Virgin Islands

shell company.
September 7th, 2012
Digital Domain Media Group lays off 300 artists, shuts down its
branch in Port St. Lucie. CEO John Textor resigns in disagreement
with the boards decision to close the Port St. Lucie branch69.
September 11th, 2012
Digital Domain Media Group declares chapter 11 bankruptcy70.

The visual effects firm Digital Domain is to be sold in a bankruptcy
auction, which is scheduled for September 21st.
Exact date unknown
Galloping Horse, Tomorrow Holdings and Che Fengs Harmony

Energy pool funds for the purchase of Digital Domain together in
Upfield Sky, which is now 42.86% controlled by Che. The remaining
57.14% is split between Galloping Horse and Tomorrow Holdings71.
Four days prior to Digital Domains bankruptcy auction Upfield Sky

sets up a subsidiary in Delaware called Galloping Horse America
LLC, through which it will purchase Digital Domain.
Two days prior to the bankruptcy auction, Digital Domain Holdings

(then called Sun Innovation Holdings) Chairman Zhou Jian is
invited by Che Feng to oversee the business of Upfield Sky Limited.
Zou Jian becomes a director of Upfield Sky Limited72.
September 21st, 2012
During the bankruptcy auction, the Upfield Sky consortium teams up

with Reliance Mediaworks in a bid to acquire Digital Domain.
67
http://quote.morningstar.com/stock-filing/Annual-Report/2011/12/31/t.aspx?t=:DDMG&ft=10K&d=52231c355996afa65df67e39a5b82a49
68
http://finance.yahoo.com/news/digital-domain-media-considering-strategic-121647889.html
69
http://www.cartoonbrew.com/business/digital-domains-legend-of-tembo-shuts-down-production-dozensof-animation-artists-lose-their-jobs-john-textor-is-ousted-69456.html
70
http://www.kccllc.net/ddmg/document/1212568120911000000000039
71
http://m.finance.sina.com.hk/news/article/7916722/33452/20150810
72
- 35 -
- 36 -
September 22nd, 2012
Digital Domain confirms it will be sold to Beijing Galloping Horse

and Reliance MediaWorks73. Galloping Horse America LLC (which
is renamed Galloping Horse-Reliance LLC and is 30% owned by
Reliance and 70% owned by Upfield Sky Limited) will acquire the
company.
Effectively, Beijing Galloping Horse never owned 70% of Digital
Domain 3.0. The actual ownership structure was 30% Reliance,
30% Che Feng, with the remaining 40% shared between Beijing
Galloping Horse and Tomorrow Holdings.
The New York Times confirms the acquisition of Digital Domain by
Beijing Galloping Horse was financed by Che Feng and Xiao
Jianhuas Tomorrow Holdings74. Xiao Jianhua himself later clarified
in a statement that an unspecified Tomorrow Holdings subsidiary coinvested with Che Feng and acquired shares in Digital Domain at the
same price as Che Feng75.
Bankruptcy court approves sale to Galloping Horse-Reliance LLC76.
Exact date unknown
Digital Domain 3.0s losses force Upfield Sky to keep raising

money to keep the company afloat. As Beijing Galloping Horse was
cash-strapped, the additional financing comes from Che Feng. The
additional investment raises Ches stake in Upfield Sky Limited to
48.60%, bringing his total share of Digital Domain to 34%.
Che Fengs brother Che Tao flips the majority of his ~10% stake in
Digital Domain Holdings (then called Sun Innovation Holdings) to
a BVI shell company called Head Win Group Limited, which is
controlled by Che Fengs friend Guo Wengui77. This clears the way
for Digital Domain Holdings to transact directly with Che Feng
without Che Feng being considered a connected person of the
company (which he would have been if his brother were still a
substantial shareholder).
October 26th, 2012
Digital Domain Holdings (then called Sun Innovation Holdings)

terminates its MOU to acquire Shenzhen Tuohe78.
73
http://variety.com/2012/film/news/digital-domain-acquired-by-galloping-horse-1118059686/
http://www.nytimes.com/2014/06/04/world/asia/tiananmen-era-students-different-path-to-power-inchina.html
75
http://sinosphere.blogs.nytimes.com/2014/06/05/billionaire-issues-statement-about-times-article/
76
http://www.debevoise.com/insights/news/2012/09/debevoise-advises-galloping-horse-in-joint-ventu__
77
78
74
- 37 -
October 26th, 2012
Zhou Jian resigns as Director of Upfield Sky Limited to avoid

conflicts of interest.79 We believe this means October 26th marks the
starting date of the attempt to inject Ches stake in Upfield Sky into
Sun Innovation Holdings. After all, an acquisition with Zhou Jian as
director of Upfield Sky and Chairman of Sun Innovation Holdings
would constitute a conflict of interest. Notice that this is merely a
month after the sale to Galloping Horse-Reliance was approved.
November 14th, 2012

confirms it is in talks with an independent third party to explore
a possible acquisition80.
November 14th, 2012

noticed a clerical error in its original announcement, and puts out a
clarification announcement: it is in talks with independent third
parties to explore a possible acquisition81.
November 18th 2012

Chairman Zhou Jian announces the company has entered into an
MOU with Mr. Che Feng and Ms. Gegen Tana to purchase
some or all of the shares of a company which is involved in the
production of visual effects82.
November 21st, 2012
Galloping Horse US LLC is formed in Delaware, and is placed as a

layer between Upfield Sky and Galloping Horse-Reliance, allowing
for the sale of Upfield Sky to Digital Domain Holdings (then called
Sun Innovation Holdings).
November 29th, 2012
Digital Domain 3.0 announces across-the-board pay cuts, causing

an exodus of talent83.
December 31st, 2012
Upfield Sky Limited registered a loss of HK$82,914,000 between

its incorporation on September 6th and December 31st, indicating that
Digital Domain 3.0 lost US$ 15,400,000 in just three months.
Exact date unknown
Che Feng unilaterally breaks his cooperation agreement with Beijing

Galloping Horse and strong-arms Beijing Galloping Horse into
selling its stake in Upfield Sky. Upon acquiring Galloping Horse and
Tomorrow Holdings stakes in Upfield Sky, Che has full control over
the company, enabling him to list the company entirely as part of
Digital Domain Holdings (then called Sun Innovation Holdings).
79
81
82
83
https://vfxsoldier.wordpress.com/2012/11/29/digital-domain-pay-cuts/
80
- 38 -
March 27th, 2013

announces it has entered into a Sale and Purchase agreement pursuant
to which it will acquire 100% of Upfield Sky Limited from Che
Feng and Gegen Tana84. The company will finance the entire
consideration for the acquisition by the issuance of zero-interest
convertible debt to Gegen Tana and Ches Harmony Energy. Both
receive roughly 5 billion convertible notes, which upon
conversion would double the amount of outstanding DDHL shares.
In its announcement the company admits that both of its executives
are not fully independent of the Vendor, yet fails to mention Fan
Leis role at Harmony Energy Limited or comment on his role as
Chief Investment Director at Beijing Ever Union Asset
Management85:
July 27th, 2013

acquires 100% of Upfield Sky Limited and its 70% stake in DD3.086.
On the same day, Digital Domain Holdings executive Daniel Seah is
appointed as CEO of Digital Domain 3.0, replacing Ed Ulbrich87.
July 29th, 2013
In an interview with Variety, Digital Domains new CEO Daniel

Seah attempts to obscure Che Fengs involvement in DDHLs
acquisition of Upfield Sky Limited, refusing to use his name and
referring to Che only as Upfield Sky88.
October 8th, 2013
Sun Innovation Holdings proposes to rename itself Digital Domain

Holdings89.
84
Fan Lei is listed as the contact person for Harmony Energy Limited in filings with the SEC:
http://www.sec.gov/Archives/edgar/data/1489271/000095012310035698/h03788a1exv10w48.htm
86
http://www.businesswire.com/news/home/20130726005913/en
87
http://www.businesswire.com/news/home/20130726005914/en
88
http://variety.com/2013/biz/asia/inside-the-sale-of-digital-domain-to-sun-innovation-1200568954/
89
85
- 39 -
December 31st, 2013
Digital Domain Holdings 2013 annual report indicates that Digital

Domain 3.0 lost ~US$68 million over the year 2013,
~US$ 47 million of which since the acquisition by Digital Domain
Holdings90.
January 5th, 2014
Beijing Galloping Horse CEO Li Ming dies while under interrogation

by the Central Commision for Discipline Inspection, Chinas top
anti-corruption body91.
January 19th, 2014
Guo Wengui is spotted on Malta, where he is said to have purchased

a European passport92. He flew to Malta on a private jet registered to
his offshore investment vehicle Head Win Group Limited93.
Gegen Tana, who had received ~5 billion convertible notes in Digital

Domain Holdings following the sale of Upfield Sky to DDHL, sells
her entire position to Wei Huo Li94, a director of numerous
@euamc.com registered companies. Gegen Tana sells the notes
at HK$0.035 each, a discount of 70.8%; DDHLs shares on the
exchange closed at HK$0.12 at the day of the sale.
January 12th, 2015
Beijing Zenith Holdings, Guo Wenguis construction conglomerate,

reports it has lost contact with two executives, a commonly used
euphemism for executives being arrested in a corruption probe95.
January 16th, 2015
Guo Wengui sells his entire stake in Digital Domain Holdings to

unidentified buyers in an off-exchange deal and has since become
one of Chinas most wanted fugitives96.
April 1st, 2015
Digital Domain Holdings moves into the offices of Ever Union

Capital and its subsidiary Ever Union Asset Management.
Ever Union Capital had earlier obscured its address on exchange
filings relating to Digital Domain Holdings97.
June 2nd, 2015
Che Feng is arrested by the Central Commission for Discipline

Inspection at a business dinner in Beijing.
90

http://www.hollywoodreporter.com/news/galloping-horse-ceos-death-linked-675984
92
https://www.youtube.com/watch?v=Tg5FXaUxYXs
93
The plane is visible in the youtube video referred to before. High-resolution pictures of the plane:
https://www.planespotters.net/Aviation_Photos/search.php?reg=M-GYQM
94
http://sdinotice.hkex.com.hk/di/NSForm1.aspx?fn=65719&sa2=np&scpid=2208760 &
95
http://www.bloomberg.com/news/articles/2015-01-25/death-threats-dawn-raids-kindled-by-china-anticorruption-drive
96
97
See next page.
91
- 40 -
- 41 -
- 42 -
II.III Related Party Transaction 3: MOVA License

On February 20th 2015, Shenzhenshi Haitiecheng Science And Technology Co Ltd (SHST), filed a
legal complaint against several parties including Rearden LLC (Rearden) over the ownership of
MOVA98. Reardens principal is Steve Perlman, one of the inventors of MOVA.
MOVA is a facial motion capture system principally used in the production of visual effects.
99
The MOVA system in action

Although we will not get into the details of the legal dispute here, the letter from SHST makes one
thing very clear: SHST believes it is the only owner of the rights to the MOVA technology since it
acquired the rights to MOVA in May 2013 (shortly after Digital Domain Holdings first announced its
intention to purchase a 70% stake in Digital Domain 3.0 from Beijing Galloping Horse).
In the complaint to Rearden, SHST claims it has licensed its MOVA technology to a U.S.-based
entity:
98
http://www2.bloomberglaw.com/public/desktop/document/Shenzhenshi_Haitiecheng_Science_and_Technol
ogy_Co_Ltd_v_Rearden_L
99
Image credit: Fxguide: https://www.fxguide.com/featured/sci-tech-winners-ucap-mova/
- 43 -
We know this particular U.S.-based entity to be Digital Domain 3.0. MOVA is a technology primarily
used by Digital Domain 3.0, which has used MOVA for facial capture on Pixels, Avengers Age of
Ultron, Terminator Genisys, Night at the Museum 3 and Guardians of the Galaxy100.
The reason for SHSTs complaint are comments made by Reardens founder Steve Perlman, who
stated to the Hollywood Reporter that Digital Domain did not have the proper license to use MOVA
on Guardians of the Galaxy101. The following is an outtake from said Hollywood Reporter article:
When the MOVA technology was honored with an Academy Award, Digital Domain Holdings put
out a press release titled: Digital Domains Exclusive visual effects technology MOVA 102,
indicating that Digital Domain has an exclusive license to the MOVA technology. We believe a
licensing agreement between Digital Domain and SHST would be problematic due to the
ownership structure of SHST, which we have outlined on the basis of Guangdong Enterprise Credit
System and Hong Kong Exchange filings:
100
http://www.cgmeetup.net/home/jobs/digital-domain-recruiting-mova-facial-data-processor-3/
http://www.hollywoodreporter.com/behind-screen/oscars-scitech-awards-hit-by-770501
102
http://en.acnnewswire.com/press-release/english/19853/digital-domain's-exclusive-visual-effectstechnology-mova-and-drop-honored-with-scientific-and-technical-achievement-awards-in-the-87th-academyawards
101
- 44 -
103
103

http://gsxt.gdgs.gov.cn/
http://www.hkexnews.hk/di/di.htm
Xiao Ping, Zhou Fulin, Zhou Jian, Zhang Xiaoqun
Percentages refer to last known shareholding at 8 May 2013.
- 45 -
As is visible in the schematic, SHST is majority owned by Shenzhen Worthope Investment

Development104 which in turn is 70% owned by Digital Domain Holdings then- Chairman Zhou Jian.
Effectively, Zhou Jian controls SHST. At the time Digital Domain licensed MOVA from SHST,
Zhou Jian was the chairman of Digital Domain Holdings.
All the other parties with an interest in SHST were all employed by multiple firms linked to Ever
Union. In total, the BVI investment vehicles of SHSTs owners are believed to control an absolute
majority of the Digital Domain Holdings outstanding shares, although Progress Mind Investment and
Trendy Base no longer have to disclose their holdings.
Either way, Digital Domain Holdings licensing agreement with SHST constitutes to a continuing
connected transaction between the Company and an entity related to multiple connected parties of
the Company. Digital Domain Holdings has not publicly announced or commented on its agreement
with SHST, and has not sought shareholder approval for the continuing connected transaction.
We believe Digital Domain Holdings has kept everybody in the dark for good reason:
An overview of Shenzhen-based companies related to Digital Domain Holdings shows that SHST is
registered to the same phone number as the phantom companies Shenzhen Tuohe, Shenzhen Xince
and Shenzhen Xinhe105.
Additionally, Shenzhen Worthope Investment Development (which controls SHST) is registered to

the same offices as the aforementioned phantom companies. This goes to show that Shenzhen
Worthope, much like Shenzhen Xince, is likely to exist only on paper.
Data from the Guangdong Enterprise Credit system shows that Shenzhen Worthope Investment held a
significant stake in Dinghe Venture Capital, which makes it likely to be one of the companies in the
web of shell companies that the New York Times referred to in its article detailing how Che Feng
and his associates exercised control over Dinghe Venture Capital. SHST itself held a large stake in
Shenzhen Xince, which it later transferred to an @euamc.com registered shell company.
Digital Domain Holdings has not sought shareholder approval for its dealings with SHST. This further
corroborates with the rest of our findings indicating that Digital Domain Holdings does not seem to be
interested in properly disclosing relevant facts to its public investors. Meanwhile, SHSTs deep ties to
dubious companies such as Shenzhen Worthope and Shenzhen Xince raise even more questions about
Digital Domain Holdings relations to the mysterious group of Shenzhen-based phantom companies.
104
Worthope as in Beijing Worthope Sathen Network Technology, Beijing Worthope Technology Development, etc.
Is anybody still surprised at this point?
105 This overview shows the addresses at the time of the Shenzhen Tuohe agreement. Guangdong Enterprise Credit System
filings show that the companies registered to the Hanglu Building have since moved, but still share office space with one
another.
- 46 -
II.IV Related-Party Transaction 4: Yibong Limited

On December 30th 2014, Digital Domain Holdings announced it would acquire Yibong Limited from
Virtue State Investments Limited for HK$312,500,000 (~US$40,625,000)106.
The proposed acquisition of Yibong Limited is structured in a fashion near-identical to Digital
Domain Holdings acquisition of Upfield Sky Limited: Digital Domain Holdings would settle the
entire consideration for the acquisition by issuing zero-interest convertible debt to the Vendor.
The vendor, a British-Virgin-Islands shell company named Virtue State Investments, had signed a
letter of intent to acquire 51% of Beijing Carina International E-Commerce Co Ltd (Carina
International), a company that sells face masks branded Carina, after the Chinese movie-star Carina
Lau, who is one of the directors of Carina International.
Virtue State Investments would acquire the stake in Carina International through its wholly-owned
subsidiary Yibong Limited and subsequently dispose of Yibong Limited (whose sole asset would be a
51% stake in Carina International) in a sale to Digital Domain Holdings.
Digital Domain Holdings in its announcement stated that the acquisition of a controlling stake in
Carina International can allow the Group to expand its trading operations to include skin care
products. Read: Digital Domain Holdings intended to expand its scrap metal trading business to
include skin care products.
The proposed business combination: Carina Internationals beauty masks & scrap metal.
At the time that Digital Domain Holdings signed the MOU regarding the acquisition, Virtue State
Investments had yet to acquire its stake in Carina International from its owner, a mainland company
named Beijing Sheng Yun E-Commerce Co Ltd (Beijing Sheng Yun).
This makes that Virtue State Investments is merely a British-Virgin-Islands shell functioning as an
intermediary for a transaction between Digital Domain Holdings and Beijing Sheng Yun. As such, it
is relevant to check Digital Domain Holdings ties to Beijing Sheng Yun, even though the company is
technically not a direct counterparty to Digital Domain Holdings. Based on data from the Beijing
Enterprise Credit System, the ownership structure of Beijing Sheng Yun can be outlined as follows:
106
- 47 -
107
107
Sources for schematic are identical

to those of the Shenzhen Tuohe
schematic with the addition of:
- 48 -
The owners of Beijing Sheng Yun E-Commerce are the very same @euamc.com shell companies
that exercise control over Digital Domain Holdings earlier acquisition target, Shenzhen Tuohe
Investment Development108. In effect, Digital Domain Holdings once again attempted to purchase
assets from a mainland Chinese company controlled by Che Fengs Beijing Ever Union Asset
Management. Further corroborating this thesis is the fact that Beijing Ever Union Asset
Managements Jia Yue is appointed directly to the board of Beijing Sheng Yun109.
At this point, need we even continue?
This intended transaction once again confirms our thesis that Digital Domain Holdings, despite
denying its ties to Che Feng, systematically entered into deals with entities controlled by Che Fengs
Ever Union.
Digital Domain CEO Daniel Seah announced in the month after Che Fengs arrest that Digital
Domain Holdings and Virtue State Investments had agreed to terminate the intended transaction110.
108
Beijing Hongwei Xuantai and Beijing Liqui Fangzhou were the owners of Beijing Sheng Yun at the time
Digital Domain Holdings signed the MOU regarding the acquisition of Yibong Limited. The two firms have
since transferred ownership of Beijing Sheng Yun to two newly established shell companies, both of which
are partially controlled by Xiao Ping (who served as the general manager of SHST and as director of
Shenzhen Xince Investment Development).
109
Beijing Worthope Technology Development is registered to jiayue@euamc.com, we believe Beijing
Sheng Yuns Jia Yue to be the owner of this email address.
110
- 49 -
II.V
Related-Party Transactions: Conclusion
Having analyzed Digital Domain Holdings acquisitions, it seems to be clear beyond a doubt that
Digital Domain Holdings systematically engaged in transactions with shell companies linked to the
executives of Che Fengs Ever Union. All of that happened while Che Fengs associates controlled an
absolute majority of Digital Domain Holdings shares, and while Ches associates controlled a
majority of the director votes.
Currently, Digital Domain Holdings executives deny that the companies has ties to Che Feng. When
interviewed by the Taiwanese business magazine Commonwealth, Digital Domain Holdings
executives are quoted as saying111:
The fact that this Chinese princeling [Che Feng] has been thrown in jail does not mean that
he has ties with Digital Domain.
Although we agree that the two facts are not directly related, it does seem abundantly clear at this
point that this particular Chinese princeling is undeniably deeply connected with Digital Domain
Holdings. However, the companys executives seem to remain in denial about this fact.
The line of defense employed here is an exact copy of that of Digital Domain Holdings investor Guo
Wengui, who defended his ties to the disgraced Communist party official Ma Jian as follows112:
He [Guo Wengui] stressed that even if Ma was convicted of corruption, it did not mean that
he had been involved in any of Ma's wrongdoings.
Today, Guo Wengui is amongst Chinas most wanted after being implicated in Ma Jians
wrongdoings.
Digital Domain Holdings chairman, former HTC-CEO Peter Chou, when asked by Commonwealth
about the integration of corrupt capital in Digital Domain Holdings, said113:
When you look at the company you look at its strategy, values, profits, and direction. We are
100% in control, there is no interference whatsoever. Presently the company structure, the
director votes are all in our hands. People are being too sensitive
We can come to no other conclusion that Peter Chous statements are false.
What has Digital Domain Holdings strategy been other than purchasing assets from companies
controlled by Ever Union? Who has supplied financing to Digital Domain Holdings but Ever Union
and its associates? What other explanation for Digital Domains Ever Union branded subsidiaries is
there other than that Digital Domain is completely under the control of Ever Union?
Che Fengs interference is visible in nearly every aspect of the company. Furthermore, we would
argue that people are never too sensitive when it comes to corruption. Instead, we believe that Peter
Chou is too ignorant to see and acknowledge the massive integration of corrupt capital in Digital
Domain Holdings and the nefarious interference it has brought along with it.
111
http://www.scmp.com/news/china/article/1751968/chinese-tycoon-denies-colluding-disgraced-senior-spyma-jian
113
112
- 50 -
III.
DDHLS BUSINESS: QUESTIONABLE SUBSIDIARIES
III.I Ever Union Services Development Limited

Ever Union Services Development Limited is a Hong-Kong based subsidiary of Digital Domain
Holdings known earlier as Ever Union Medical Services Limited (not to be confused with Ever Union
Medical Services Group Limited, the DDHL subsidiary which would purchase Shenzhen Tuohe).
Ever Union Services Development Limited received its current name on February 16th 2012.
On March 30th of 2012, Ever Union Services Development established a representative office in
Beijing, filings with the Beijing Enterprise Credit System show114.
The address of the representative office?
13th Floor, B Building, 21st Century Plaza, No. 40, Liang Ma Qiao Road.
The address of Che Fengs Beijing Ever Union Asset Management?
13th Floor, B Building, 21st Century Plaza, No. 40, Liang Ma Qiao Road115.
The purpose of Ever Union Services Development or its representative offices in Beijing has not been
disclosed by Digital Domain Holdings. If Digital Domain Holdings has no ties to Che Feng, why is
a dubious Digital Domain Holdings subsidiary registered to the exact same address as Che
Fengs most prominent investment vehicle?
III.II Sino Front Investments Limited
Less than one month after the completion of the placement and subscription of convertible debt in
2009 which gave Che Fengs associates absolute control over Digital Domain Holdings, the company
established Sino Front Investments Limited, a Hong-Kong based company116.
Digital Domain Holdings listed the purpose of the firm as a Securities Investment and Investment
Holding Company117.
Sino Front Investments repeatedly filed for and received a commercial money-lenders license118.
DDHL however has never seemed to recognize any revenue from money-lending activities119, which
may be explained by the fact that Sino Front was only registered to conduct lending activities from the
18th floor of an office building, has no website, no phone number and no retail presence. How can a
legitimate money lending firm do business without being accessible to consumers?
On April 30th, 2014, Digital Domain Holdings sold Sino Front Investment for HK$560,000 to an
undisclosed party believed to be from Beijing120. Why did Digital Domain Holdings operate a
money lending business for years on end without recognizing revenue from money lending?

116
https://www.hkgbusiness.com/en/company/Sino-Front-Investments-Limited
117
118
http://www.gld.gov.hk/egazette/pdf/20111548/egn201115487843.pdf
119
For example: Annual Report 2013 p.62
120
DDHL 2014 Annual Report, p.85 A Beijing-based director was appointed to Sino Front following the sale.
114
115
- 51 -
DDHLS BUSINESS: SCRAP METAL FABRICATED FINANCIALS?
IV.
IV.I
Introduction
Although two of Digital Domain Holdings questionable subsidiaries were covered in the previous
chapter, the most dubious of all of Digital Domain Holdings subsidiaries must be the Hong-Kong
based S.I. Travel Group Limited, which is run from Digital Domain Holdings headquarters in Hong
Kong.
S.I. Travel was established before the concealed takeover by Che Fengs associates, but had been
categorized as a dormant subsidiary. That changed several months after the concealed takeover, when
Ches associates transformed S.I. Travel Group into a scrap-metal trading business.
Since being transformed into a scrap-metal trading business in early 2010, S.I. Travel has been on a
meteoric rise. By 2014, S.I. Travels revenues were roughly 65% of that of Digital Domain 3.0,
making the two companies by far the largest subsidiaries of Digital Domain Holdings.
In HY1 2013, the period prior to Digital Domain Holdings acquisition of Digital Domain 3.0, S.I.
Travel accounted for 97.7% of Digital Domain Holdings revenues. However, S.I. Travel is a rather
mysterious business venture: Digital Domain Holdings has never given a detailed explanation of what
S.I. Travels business entails. It usually spends less than half a page of its annual report detailing the
dealings of the subsidiary.
IV.II Reconstruction
The following is an attempt to reconstruct S.I. Travel Group Limited on the basis of the companys
accounts in the period prior to the acquisition of a controlling interest in Digital Domain 3.0. As S.I.
Travel accounted for nearly all of DDHLs business prior to the acquisition of DD3.0, it is possible to
analyze S.I. Travel in more detail based on DDHLs group financials.
In 2012, Digital Domain Holdings reported that it sourced 99% of its purchases from a single
supplier. As S.I. Travel Group accounted for the vast majority companys business over the year, we
extrapolate that S.I. Travel Group sourced its entire supply from one supplier121.
Furthermore, Digital Domain Holdings reporting similarly indicates that S.I. Travel sells to just four
customers in Mainland China. These four customers account for 100% of S.I. Travels client base122:
Customer 1:
Customer 2:
Customer 3:
Customer 4:
Total:
37%
32%
16%
15%
100%
In short, S.I. Travel Groups entire business model seems to be buying scrap from a single supplier,
then sell and ship it to four customers in China. Unlike many publicly listed companies, Digital
Domain Holdings has never provided the names of its major suppliers and major customers.
121
122

- 52 -
It seems rather obvious that due to the very limited amount of value added by S.I. Travel in the way of
sourcing suppliers and customers, and its complete lack of value added to the product itself, the
companys margins should be expected to be razor-thin. However, Digital Domain Holdings reports
margins that are among the best in the entire scrap-metal industry, defying all logic.
The reason for its margins seem to be the companys virtually non-existent capital expenditures. Over
the entire year of 2012, Digital Domain Holdings spent HK$ 5,000 (~US$ 650) on additions to
Equipment, Furniture and Fixtures, despite the reported annual turnover from its scrap-metal trading
segment increasing 33.3% to HK$ 179,041,000 (~US$ 23,275,000).
It is simply unfathomable that a company with a ~23 million dollar turnover spends far less than one
thousand dollar on capital expenditures and still increase revenues by 33.3% during the year, only to
grow by another 25% the next year.
At this stage, we already question the legitimacy of S.I. Travels financials.
- 53 -
However, we do not have only a hunch that Digital Domain Holdings reporting of S.I. Travel is
fabricated, we also seem to have proof: As mentioned earlier, DDHLs 2012 annual report indicates
that S.I. Travel Group sourced all its materials from a single supplier. Publicly available shipping
documents directly contradict this notion123:
The above shipping documents show that S.I. Travel sourced from multiple suppliers over the course
of 2012. Digital Domain Holdings reporting that S.I. Travel sold only to customers in Mainland
China also seems to be directly contradicted by publicly available shipping documents. The following
image shows that S.I. Travel in 2012 also sourced scrap metal from China, and shipped it to a
company in the United States124:
123
124
Source: www.52wmb.com
Source: www.importgenius.com
- 54 -
It seems to us that Digital Domain Holdings reporting on S.I. Travel is not just incredibly far-fetched,
it is simply irreconcilable with publicly available information. However, other shipping documents
raise even more questions.
One shipping document for S.I. Travel Group lists a phone number with the area code of Qingyuan
China as its main contact125. Digital Domain Holdings claims that S.I. Travel is run from its corporate
headquarters in Hong Kong, and does not have scrap-metal trading operations in mainland China.
125
http://www.importersinusa.com/company/s-i-travel-group-limited/155140.php
https://www.importgenius.com/importers/qingyuan-ye-hai-plastic-material
- 55 -
The phone number, 0763-3687728, does not belong to S.I. Travel or any other DDHL subsidiary.
Instead, the phone number seems to belong to a direct competitor of S.I. Travel, Qingyuan Ye Hai
Plastic Material, a Qingyuan-based scrap-metal and plastics trading company.
How does a phone number of a direct competitor end up as the contact information on a
shipping document for S.I. Travel? Did S.I. Travel outsource the only value it added (arranging
shipments)? If so, how could it generate industry-leading margins?
The thesis that S.I. Travel outsourced the only aspect of its business that actually added any value
seems to be supported by Digital Domain Holdings workforce numbers. Digital Domain Holdings
reported its total workforce numbers in both its annual and interim accounts, which leads to the
following overview126:
-
Annual Report 2010

Interim Report 2011
Annual Report 2011
Interim Report 2012
Annual Report 2012
Interim Report 2013
26
21
23
21
23
24
Revenues generated by S.I. Travel increased from HK$ 20,308,000 in 2010 to HK$ 223,416,000 in
2013127. This is more than a ten-fold increase, yet the company apparently did not hire any
additional staff to handle the massive increase.
Effectively, we believe that everything points towards the same conclusion: S.I. Travel is not a
legitimate business operation. It simply cannot be for the numbers do not make sense on any level and
seem to be completely detached from the reality described by publicly available shipping documents.
We deem it likely that Digital Domain Holdings has fabricated its financials and massively inflated
the revenues of S.I. Travel, while neglecting to also inflate its employee count and capital
expenditures. It would not be the first Hong-Kong listed scrap-metal company to do so: the scrapmetal recycling firm China Metals Recycling was earlier exposed to have fabricated its financials on a
massive scale to the point where 90% of its profits were fictitious128. China Metals Recyclings
reporting also showed massive revenue increases unmatched by employee count increases.
126
DDHL reports the size of its workforce in both its interim and annual reports. Since its acquisition of Digital
Domain 3.0 the size of its workforce has increased dramatically and has become unfit of any analysis
relating to S.I. Travel Group. Sources:
DDHL 2010 IR, p.22
DDHL 2011 IR, p.25
DDHL 2012 IR, p.25
DDHL 2013 IR, p.27
DDHL 2010 AR, p.6
DDHL 2011 AR, p.6
DDHL 2012 AR, p.7
127
DDHL 2010 AR, p.49 & DDHL 2013 AR, p.62
128
http://www.reuters.com/article/china-metal-fraud-idUSL4N0W03H220150226
- 56 -
IV.III S.I. Travels Collapse

Over the first six months of 2015, S.I. Travel generated ZERO revenue.
TRADING SEGMENT: HALF YEARLY REVENUES
Digital Domain Holdings did not do anything to warn investors of the impending collapse of its
second biggest business unit. However, everybody could have seen this coming.
In its annual report, Digital Domain Holdings reports the value of goods in transit. Given that it takes
roughly a month for any container shipment to go from west-coast of the US to the shores of China,
the amount of goods in transit can be seen as an indicator of future revenues.
By the end of 2014, the amount of goods in transit was ZERO.
Effectively, this indicates that S.I. Travel wasnt just idling over the first six months of 2015: it
stopped arranging new shipments at least a month before the end of 2014.
Given that S.I. Travel contributed nearly 40% to the total revenue of DDHL, we believe it is
incredibly immoral not to disclose such a material downturn in activity to investors right away.
The following is a reconstruction of how Digital Domain Holdings CEO Daniel Seah has deceived
the companys shareholders and obscured the reality of S.I. Travel Groups collapse:
- 57 -
November, 2014
Latest estimated activity of Digital Domain Holdings trading business, S.I.

Travel Group Ltd. Effectively the termination of the trading business.
January 12th, 2015
Estimated 2+ months after termination of trading business.

Digital Domain Holdings Chairman Zhou Jian resigns as director of S.I.
Travel, and is replaced by Digital Domain CEO Daniel Seah129.
May 14th, 2015
Estimated 6+ months after termination of trading business

Digital Domain CEO Daniel Seah tells the South China Morning Post:
The plan is to terminate the companys existing trading business so we
can focus all our energy and resources into the visual-effects, virtual-reality
content and other new-technology related businesses.130
May 15th, 2015

Digital Domain Holdings issues Clarification Announcement, flip-flopping
on Seahs plans to terminate the trading business:
... Mr. Seah was quoted to have stated that the plan was to terminate
the companys existing trading business The Company clarifies
that it remains a part of the businesses of the Group as the Group
also continues to dedicate substantial resources in developing visualeffects, virtual reality content and other new technology-related
businesses.131

Digital Domain Holdings files its interim 2015 report, in which it first reveals
that it has effectively shut down its trading business in 2014:
During the Review Period, the trading segment did not recognize
any revenue. This segment was engaged in the trading of metal
scraps
among
Hong
Kong,
Mainland
China
and
other
countries/regions in 2014. As the performance of metal scraps
trading highly depended on economic conditions and market prices,
the Group adopted prudent business strategies during the
Review Period.132
It seems that it took Digital Domain Holdings more than ten months to finally reveal to investors
that it had effectively shut down S.I. Travel. The implied reason seems to be poor economic
conditions and low prices of metal scrap.
129
https://www.icris.cr.gov.hk/csci/ searched for S.I. Travel Group

http://www.scmp.com/business/companies/article/1797445/top-executives-buy-25pc-effects-housedigital-domain-hk397b
131
132
130
- 58 -
Common sense dictates that even if economic conditions worsen, revenues do not simply drop from
HK$ 173,061,000 in the first half of 2014 to absolutely zero in the first half of 2015.
Furthermore, S.I. Travel Group over almost its entire existence has had to deal with systematically
declining copper prices, and has managed to report incredible revenue growth despite this. For us, this
is another reason to doubt whether economic conditions are really the reason for S.I. Travels decline.
TRADING SEGMENT: HY REVENUES VS COMEX COPPER FUTURES
As is visible in the above graph, Copper prices have been in decline since 2011. Despite this, S.I.
Travel managed to post double digit revenue growth in 2011, 2012, 2013 and 2014.
One of the most questionable characteristics of S.I. Travel was that it, unlike its competitors, seemed
completely untouchable by the declining commodities prices and posted impressive revenue growth
despite the poor conditions in the commodities markets.
To find the actual reason of S.I. Travel Groups sudden demise, we attempted to reconstruct the
financials of S.I. Travel Group. Our analysis indicates that S.I. Travels assets historically consisted
almost entirely of just three items:
- Accounts Receivable;
- Goods in Transit;
- Deployed Cash.
- 59 -
The correlation between the total of Accounts Receivable, Goods in Transit and Deployed Cash, and
the amount of the companys trading segment assets (effectively, S.I. Travels assets) is 99.8%
between 2010 and mid-2013 (in late 2013 DDHL acquired and consolidated DD3.0, making any
analysis of S.I. Travel close to impossible, before the acquisition, S.I. Travel contributed 97.7% to
DDHLs revenue, making it possible to analyze S.I. Travel on the basis of DDHL data).
Effectively, S.I. Travel at any given point in time seems to consist solely of cash, receivables, and
some goods in transit. With that in mind, we looked at how S.I. Travel changed from 2014 (before
termination) to 2015 (after termination).
From year end 2014 to interim 2015, the trading segment assets item dropped 57.5% from
HK$91,582,000 to HK$ 38,868,000.
When analyzing the changes in Accounts Receivable, Goods in Transit and Deployed Cash, the root
cause of S.I. Travels sudden demise becomes glaringly obvious:
Goods in transit had dropped to zero before year-end 2014 and has remained at zero ever since,
meaning both the HK91,582,000 at year end 2014 and the remaining HK$38,868,000 of trading assets
present at June 2015 must logically consist almost entirely of cash and accounts receivable.
The total amount of cash deployed by Digital Domain Holdings (including cash deployed at Digital
Domain 3.0) dropped from HK$91,313,000 at year-end 2014 to HK$78,065,000 in mid-2015. Given
that Digital Domain Holdings raised additional cash to deploy at Digital Domain 3.0, it seems
unlikely that the reduction in total deployed cash was due to a drop in cash deployed at Digital
Domain 3.0. The resulting option is that the amount of cash deployed at S.I. Travel was sharply
reduced. Following that, it is impossible that the remaining HK$38,868,000 of S.I. Travels assets
consist largely of deployed cash.
This indicates that S.I. Travel groups remaining HK$38,868,000 in assets must consist near
entirely of receivables. Given that the latest business activity of S.I. Travel was November 2014,
these receivables would have been more than half a year past due by mid-2015. Effectively: we
believe that the only thing that remains of S.I. Travel are outstanding receivables.
Digital Domain Holdings 2015 interim report seems to confirm our views: the report shows that
HK$33,800,000 of the companys receivables were labeled as more than 90 days past due.
Assuming that these receivables are indeed receivables from its trading segment, which has seemingly
last been in business in November 2014, this means that the receivables were more than 200 days
past due: S.I. Travels customers stopped paying S.I. Travel. Why?
Was S.I. Travel ever a legitimate business? Or was it just another phantom company like the other
firms run by DDHL exces? Most pressingly: who are S.I. Travels supplier and its customers?
- 60 -
DDHLS BUSINESS: JOINT VENTURES
V.I Introduction
Digital Domain Holdings Media & Entertainment segment consists of four joint ventures, two
proposed joint ventures, and the companys controlling stake in Digital Domain 3.0.
The following is an overview of Digital Domain Holdings current joint ventures, its ownership stake
in them and the joint ventures purpose:
-
JV with Tencent Holdings

JV with TNT Production
JV with POW!
JV with Immersive
50%
60%
75%
51%
investments
holograms
ambiguous
virtual reality
acquired September 2013133

announced October 2014134
announced January 2015135
announced February 2015136
And the following proposed JVs (with proposed ownership stake and proposed purpose):
-
JV with Taiwan Government

JV with Letv
60%
50%
virtual reality
virtual reality
announced May 2015137

announced Dec. 2015138
V.II
JV with Tencent Holdings
Digital Domain Holdings joint venture with Tencent Holdings consists of a 50% stake in DD Tencent
Company Limited, which controls DD Tencent Fund I Limited. Both companies are incorporated in
the Cayman Islands.
The purpose of the joint venture is described as to make investments in entertainment companies.
Following its incorporation, the joint venture was funded with ~US$ 3 million to make investments.
This joint venture has not conducted any material business activity since its incorporation139.
Digital Domain Holdings acquired this JV in September of 2013, when it acquired the British-VirginIslands based shell company Ever Ultra Limited from an undisclosed party. No details of the
transaction were disclosed to DDHLs investors.
The book value of the companys interest in the JV was HK$10,711,000 (~US$1,400,000) at the end
of 2014.
133

135
136
137
138
139
DDHL 2014 Annual Report, p.9, 93 & 94
134
- 61 -
V.III JV with TNT Production

Digital Domain Holdings joint venture with TNT Production (short for Teresa Teng Production, not to
be confused with the Turner-Network-Television) consists of a 60% stake in a company that sets out
to organize hologram concerts of the deceased Asian singer Teresa Teng.
Digital Domain 3.0 had created the 3D replica of Teresa Teng in 2013, shortly after which the first
concerts took place140.
Digital Domain Holdings contributed up to HK$33 million (US$4.3 million) cash for 60% of the JV.
TNT Productions contributed the rights to the image of Teresa Teng in exchange for 40% of the JV.
Since the announcement of this JV, Digital Domain Holdings has not signed any new deals with the
estates of other deceased artists. Meanwhile, competitors like Pulse Evolution and Hologram USA are
dominating the market. Pulse Evolution (run by former Digital Domain Media Group CEO John
Textor) for example has signed deals with the estates of Marilyn Monroe, Elvis Presley and Michael
Jackson, but has yet to reap the rewards of its work. Pulse Evolution lost more than US$ 8 million in
the first nine months of 2015141.
Regardless of the losses, we believe Pulse Evolution and Hologram USA are better positioned to
effectively monetize the hologram business than Digital Domain Holdings, as they are far less
diversified and focused exclusively on holograms. Meanwhile, Digital Domain Holdings joint
venture has planned only 2 hologram concerts over the course of 2015.
The hologram business relies heavily on the use of MOVA to capture facial movements and apply
them to the 3D models of deceased singers, something DDHL is well aware of142:
However, when DDHL announced the formation of the JV, Zhou Jian (who controls the company
from which Digital Domain licenses MOVA) put out an announcement stating that none of the
directors had any material interest in the formation of the Joint Venture143. We believe Zhou Jian had
an interest in the formation of this JV as it increased Digital Domains reliance on its MOVA license,
which, again, it licenses directly from a company controlled by Zhou Jian.
140

http://www.sec.gov/Archives/edgar/data/1583138/000149315215004451/form10q.htm
142
DDHL 2015 Interim Report, p.17
143
141
- 62 -
V.III JV with POW!

Continuing the pattern of Digital Domain Holdings contributing all the cash and the partner company
contributing IP rights, Digital Domain Holdings established a joint venture with Stan Lees POW.
The JV is formed to develop, produce and distribute projects based on certain characters and other
content developed by POW or by the two parties jointly for distribution throughout the world.
This could mean whatever you want it to mean. Whats important is that the JV will develop up to 10
projects, the first project being already funded with US$ 300,000 from DDHL. No details of the first
project are given. POW does not seem to contribute any money to the JV, yet will own 25%.
It is also contemplated that POW will make Mr. Stan Lee available for a digital facial scan (MOVA?)
for exploitation. It is unclear how the joint venture intends to monetize Stans face.
What is clear is that Digital Domain Holdings executives courted Stan Lee on a private jet:
The private jet in question is believed to be a Gulfstream G550 managed by Sino Jet Management, of
which Digital Domain Holdings independent non-executive director / Che Fengs spokeswoman
Jenny Lau is the president144.
Sino Jet manages private jets of wealthy individuals and has a few private jets of its own to rent. Sino
Jet doesnt seem to own a G550, making it likely that the plane belongs to a private owner. One of the
few privately-owned G550s in Hong Kong belongs to Che Fengs Harmony Energy Limited145.
This raises the question: Did DDHL executives rent a private jet belonging to the companys primary
financier through a firm run by an independent non-executive director, in order to establish an
ambiguous JV that may use facial scanning technology licensed from a firm controlled by the
companys former chairman, all just to scan Stan Lees face at a cost of US$ 300,000?
144
Ms. Lau is interviewed in what seems to be the exact same jet in the following video:
https://www.youtube.com/watch?v=RqURkTCEiEU
145
http://aviationweek.com/business-aviation/operators-survey-gulfstream-g550
- 63 -
V.IV JV with Immersive Ventures

Digital Domain Holdings JV with Immersive Ventures is another stellar example of the companys
joint ventures relying entirely on Digital Domain Holdings for financing.
The formation of the joint venture company with Immersive Ventures, IM360, was a three-step deal:
1. Digital Domain Holdings invests US$3 million in Immersive in exchange for a 12.91%
ownership stake.
2. Digital Domain Holdings contributes US$3 million to IM360 in exchange for 51% of IM360.
3. Immersive Ventures contributes US$ 2,882,353 of the US$3,000,000 investment from DDHL
to IM360 in exchange for 49% of IM360.
Digital Domain Holdings effectively contributed the entire US$5,882,353 share capital of IM360.
Immersive pocketed the remaining US$117,646 cash and gets a 51% stake in IM360, all in exchange
for 12.91% ownership of Immersive Ventures.
At the time of DDHLs investment, Immersive Ventures was worth US$ 4 million on an NAV basis.
DDHLs investment values the company at ~US$23.2 million. With Digital Domain Holdings recent
acquisition of Immersive Ventures, DDHL has become the sole owner of IM360.
V.V
Envisioned JV with Taiwan Government
Digital Domain Holdings and the Digital Content Industry Promotion Office of the Taiwan
government signed a Memorandum of Cooperation regarding a possible joint venture. The MOC
envisages that the joint venture company may engage in the development of virtual reality projects as
may be agreed between the joint venture parties from time to time146.
Thus far, Digital Domain Holdings has not announced entering into a definitive contract.
V.VI Envisioned JV with Letv Sports

Digital Domain Holdings and the Beijing Letv Sports Culture Development company signed a term
sheet regarding a possible joint venture, to be owned 50/50 by DDHL and Letv Sports. Both parties
will contribute US$ 5 million according to the term sheet.
The proposed joint venture company seems to be intended to livestream Chinese sports events in VR.
IM360 earlier teamed up with Letv Sports to livestream the 2015 International Champions Cup in VR,
according to Digital Domain Holdings 2015 interim report147.
146
147
DDHL 2015 interim report, p.22
- 64 -
V.VII Conclusion
Digital Domain Holdings has established many joint ventures, repeatedly contributed the majority of
the capital to these joint ventures and assumed the majority of the companys future funding
requirements.
Not only did Digital Domain Holdings effectively contribute all the capital for its joint ventures with
Immersive, TNT Production and POW, the company also seems to be the only source of working
capital for these joint ventures.
In the case of its hologram joint venture with TNT Production, DDHL has announced that it will
fund the JVs working capital through a shareholders loan that is to be repaid through the profits of
the JV148. DDHL also seems to be the only partner contributing capital to the JV with POW, and
following its acquisition of Immersive Ventures will also be the only party providing working capital
to IM360.
The total amount of investment in JVs by DDHL has thus far been:
Tencent :
Immersive Ventures:
POW:
TNT Production:
Total:
US$ 1.5 million

US$ 5.8 million
US$ 0.3 million
US$ 4.3 million
US$ 11.9 million
Most of these deals were struck in the time period where every move made by Digital Domain
Holdings seemed to be financed with zero-interested loans from Che Feng. Currently, the companys
prospects are much bleaker.
We believe that the companys obligations towards its joint ventures will be a major concern going
forward as it will force the company to destroy shareholder value in further offerings to finance the
working capital needs of its joint ventures, which it has disproportionally assumed in times where it
had easy access to capital.
148
- 65 -
VISUAL EFFECTS GOOD MONEY AFTER BAD
VI
VI.I
Introduction
Digital Domain Holdings main business unit is Digital Domain 3.0, a visual effects company in
which it has a 70% ownership stake. Prime Focus Limited, which owns the remaining 30% stake in
Digital Domain 3.0 and controls two competitors of Digital Domain 3.0 (Prime Focus World and
Double Negative) gave the following overview of the visual effects industry in a 2015 investor
presentation, in which it divided industry players in three tiers:
149
Revenue > ~$150 MN

Top 5 involved in > 65% of Top 25 VFXheavy films (2009-2012)
Mostly studio backed / well funded
Controls < 25-30% of market
Revenue from $50-150 MN

Medium size firms
Controls < 20-25% of market
III
RELATED-PARTY TRANSACTIONS
Revenue < $50 MN

New/emerging players/small-size firms
(many < 10 employees),
in-house VFX of production houses
Remaining 45-55% of market
Related-Party Transaction 1: Shenzhen Tuohe

This overview portrays Digital Domain as a top tier VFX firm, however, according to Prime Focus
own criteria, Digital Domain 3.0 is no longer a top tier firm since the acquisition by DDHL.
In fact: Digital Domain does not even come close to Prime Focus own criteria of a top-tier VFX firm:
-
Revenues generated by Digital Domain 3.0 do not exceed ~$150 million.

Digital Domain 3.0s 2014 revenues were merely ~$68 million (HK$ 524,595,000).
Digital Domain 3.0 is not studio-backed nor well-funded.
Digital Domain Holdings is among the most indebted firms across all tiers.150.
Effectively, Digital Domain 3.0 is no longer a top tier firm. Adding to the negative sentiment is the
fact that the visual effects industry is generally a considered highly competitive space characterized
by thin margins. Recent consolidation efforts by mid-sized competitors will only increase pressure on
margins of independent visual effects producers such as DD3.0. The consolidation of Double
Negative into Prime Focus and the merger of Cinesite and Image Engine has created two strong
competitors that outsize DD3.0 and will increase pressure on the companys business. This would not
be overly problematic if Digital Domain wasnt already losing to the competition.
149
150
http://www.primefocus.com/sites/default/files/pdf/Corporate_Presentation_Jan%202015.pptx
As discussed earlier, Digital Domain Holdings acquisition of Digital Domain was entirely financed with debt.
- 66 -
Digital Domain revenues decreased by almost a 25% from 2013 to 2014. It was one of the only
firms in the visual effects industry whose revenues decreased in 2014. Public filings show that British
competitors MPC, Framestore and ILM-UK all posted strong organic growth over the year 2014.
Based on publicly available information, public filings and industry sources we have estimated the
size of Digital Domains competition. The following overview shows estimates of revenue generated
from VFX production in 2014:
After the collapse of S.I. Travel Group and before to the acquisition of Immersive, Digital Domain
Holdings shares traded around HK$0.50 per share, giving the company a market cap of roughly
US$650 million.
At that time, Digital Domain consisted a tiny property investment business that rents out two shops
and several parking spots in a parking lot (total book value: ~US$25 million), several joint ventures in
which the company had invested a total of ~US$12 million, and its 70% stake in DD3.0.
As the companys JVs at that time had not reported any revenue and earnings, and since the
companys property investment business has not significantly grown at all (and can thus be
reasonably valued at book value), we extrapolate that the companys 70% stake in DD3.0 was valued
at roughly US$608 million, in which case DD3.0 would be valued at US$868.5 million.
Digital Domains valuation is simply not based in reality.
- 67 -
VI.II Valuation
In an effort to sketch up a rough valuation of Digital Domain that is based in reality, a comparison
was made with the valuation for Digital Domains British competitor Framestore (or rather
Framestores holding company, Guidedraw Limited). Framestore shares many similarities with
Digital Domain. The two are among the oldest visual effects companies in business today, being
established in 1986 and 1993 respectively.
The core business of both DD3.0 and Framestore is the production of visual effects, both companies
serve clients in film as well as advertising. Both companies have a division dedicated to the
development of Virtual Reality content, and both companies have received financing from
questionable investors151.
Recently, Framestore raised capital from All Asia Digital Content Limited at a valuation of 30 million
pounds (~$45.3 million) 152. A back-of-the-envelope valuation comparison between Framestore and
Digital Domain 3.0 is sufficient to confirm our views that Digital Domain Holdings is massively
overvalued:
151
Guidedraw Limited is 70% owned by Framestores management (50.6% directly, 19.4% through a
Liberian shell company controlled by Framestores chairman). The remaining 30% is in the hands of All Asia
Digital Content Limited, a Hong-Kong based investment vehicle jointly controlled by Ananda Krishnan and
the Malaysian Government. The firm lists Marshall Augustus Ralph as a director in its latest annual report.
Both Ananda Krishnan and Marshall Augustus Ralph are wanted in multiple countries on corruption charges.
http://www.thestar.com.my/news/nation/2014/08/30/ananda-krishnan-charged/
http://www.themalaysianinsider.com/malaysia/article/astro-says-indonesian-conglomerate-using-copsagainst-ceo-marshall
152
https://beta.companieshouse.gov.uk/company/04013464/filing-history - Annual Return - June 13th 2015
All Asia Digital Content acquired 115,868 Class A shares at 65,89 each, and 199,993 Class B shares at 6.83
each, bringing the total investment to ~9,000,000. The shares give All Asia Digital Content 30.00% of the
vote, bringing Guidedraws valuation to ~30,000,000 or ~US$45,300,000.
- 68 -
Investors buying into Digital Domain Holdings paid roughly 34 times more per dollar of revenue, per
dollar of EBITDA and per dollar of tangible VFX-related assets than Framestores investors, despite
Framestores revenues and assets actually netting returns for their investors, unlike their counterparts
at Digital Domain 3.0.
We believe the current valuation is completely detached from reality and will prove to be
unsustainable. Retracing the back-of-the-envelope calculation comparing DD3.0 to Framestore shows
that if DD3.0 were valued at multiples similar to its competitor, Digital Domain Holdings share
price would be around HK$0.01, around 97.7% below its current share price of HK$0.44.
Digital Domain Holdings is currently actively leveraging its massively inflated stock price (resulting
directly from the concentrated shareholding and manipulation by the associates of Che Feng) by
heading on an equity-financed acquisition frenzy in which it has purchased majority stakes in the Post
Production Office and Immersive Media Ventures.
Meanwhile, the company is also leveraging its inflated stock price by awarding its executives multimillion dollar option packages: DDHL Executive Director Amit Chopra was awarded an option
package with a value of ~US$5.2 million, company filings show153.
This should be enough for Chopra to finance his part in the management buyout, in which Digital
Domain Holdings management each purchased more than 500 million DDHL shares from Wise Sun
Holdings, the British-Virgin-Islands shell company controlled by DDHLs former Chairman Zhou
Jian. Payment of the shares has been completely deferred and is spread out over 3 installments, an
initial installment covering 20% of the total consideration, a second installment covering 30%, and a
final installment to cover the remaining 50%. Towards the end of 2016, the initial installment, totaling
~US$3.9 million payable to Wise Sun Holdings is due for Chopra154.
Effectively, we believe that the structure in place will result in the companys shareholders paying for
Digital Domain Holdings managements acquisition of Zhou Jians stake in the company.
Digital Domain Holdings has also awarded ~US$3.9 million in options to advisors of the company.
The only advisor to the company that we are aware of is Zhou Jian, who serves as senior advisor since
handing over chairmanship of the company to Daniel Seah.
153
154
- 69 -
VI.III Immersive Ventures Acquisition

Digital Domain Holdings acquisition of an additional 70,19% stake in the Canadian company
Immersive Ventures consists of several parts. Digital Domain Holdings (1) acquired a 53,88% stake
from the founders of Immersive Ventures, (2) acquired a 16,31% stake from senior employees and
other shareholders of Immersive Ventures, (3) bought out other employees holding IMV options.
The way the deal is structured, Digital Domain Holdings will pay the founders and senior employees
60% in cash and 40% in shares of DDHL. The total consideration is spread out over four annual
payments (thus, 75% of the acquisition sum has been deferred and spread out over a 3 year period).
Option holders will receive DDHL shares if they choose to waive their options.
In each of the next three years, DDHL is slated to pay roughly US$7.6 million in cash, and issue
~100 million shares to the shareholders of IMV155.
In effect, Digital Domain Holdings has not yet lined up the financing for the IMV acquisition at all.
VI.IV Immersive Ventures Acquisition
More recently, Digital Domain Holdings announced it would acquire an 85% stake in Post Production
Office, a visual effects and post-production group with operations in Shanghai and Beijing)156.
Currently, Post Production Office is 40% owned by Nicholas Tse, and 60% owned by See
Corporation (HK: 00491).
Under the current proposal, Digital Domain Holdings will (1) acquire the entirety of See
Corporations 60% stake, and (2) acquire 25 percentage points of Nicholas Tses 40% stake.
After the acquisition, Digital Domain will own 85%, Tse will remain in control of the remaining 15%.
To settle the acquisition of the 60% stake in Post Production Office from See Corporation, Digital
Domain Holdings will pay HK$30 million cash up-front, and has deferred the remaining HK$65
million through a Promissory Note (effectively deferring roughly ~70% of the consideration).
Meanwhile, See Corporation agrees to waive HK$ 36.7 million in loans owed by the deeply
indebted Post Production Office.
To settle the acquisition of a 25% stake in Post Production Office from Nicholas Tse, Digital Domain
Holdings will issue HK$40 million worth of new shares, a total of just over 87 million shares.
Meanwhile, Nicholas Tse agrees to waive HK$ 52.2 million in loans owed by the deeply
indebted Post Production Office, provide another HK$20 million shareholders loan to Post
Production Office and immediately waive that loan also.
Nicholas Tse is thereby essentially providing HK$20 million in working capital to the firm, which
should sustain its losses for roughly a year. Combined, See Corporation and Tse take a combined
write-down of HK$108.9 million on their loans to Post Production Office.
155
156
- 70 -
Actual write-downs are coming in even higher: See Corporation alone expects to record losses in
excess of HK$79.2 million on the sale of Post Production Office157. Apparently, the owners of Post
Production Office are anxious to reduce their exposure to the structurally loss-making visual effects
firm, which recorded a net loss of HK$24.4 million in 2015.
See Corporation explains the reasons for the disposal of Post Production Office as follows:
During the year ended 31 December 2015, the Group [See Corporation] had made
substantial capital investment into the Disposal Group [Post Production Office] and it
recorded loss for the year ended 31 December 2015. The Directors believe that the proposed
Disposal represents a good opportunity for the Company to realize the value of the Disposal
Group and release the Group from making significant capital and development fund to the
post-production business in the future in view of the lack of strategic development of the
Disposal Groups business for the Group under the challenging economic environment.154
In short: See Corporation is no longer interested in throwing good money after bad to finance a
structurally unprofitable and borderline bankrupt visual effects firm: If only DDHLs management
would have taken the hint.
VI.V Conclusion
Digital Domain Holdings has deferred the payment of ~US$22,8 million on its acquisition of
Immersive and another ~US$8,5 million on its proposed acquisition of Post Production Office,
bringing the total of deferred cash payments to US$31,25.
Adding to Digital Domain Holdings liquidity crunch is the companys ~US$51 million debt to Ever
Union resulting from its acquisition of Digital Domain 3.0 coming due next year. Combined with
obligations under the acquisition agreements, we forecast that Digital Domain Holdings is looking at
an average negative cash flow of ~US$27,5 million per year over the next three years.
Digital Domain Holdings does not have sufficient cash to cover even one such year.
As DDHL terminated its only fast-growing and profitable business, S.I. Travel Group, and currently
consists for the vast majority of heavily loss-making businesses or non-operational businesses, we
deem it highly doubtful that the company will be able to meet its many obligations.
The only plausible way DDHL could meet its obligations to the vendors in the IMV and PPO
acquisitions and repay Ever Union all while sustaining the losses of DD3.0 and affiliated JVs would
be to systematically destroy shareholder value in further dilutive equity offerings for at least another
three years.
Digital Domain Holdings ability to raise the required sums in equity offerings may soon be coming to
an end as the market wakes up to the possibility that Digital Domain Holdings executives have
systematically deceived the companys investors. Given the companys history of losses, lies and
deceit, who will be left willing to make a long-term bet on a bright future for Digital Domain?
Capricious Research
January, 2016
157
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Ties to Ever Union:

Digital Domain Holdings business overview:

Ties to Ever Union: Corrupt Financing

Ties to Ever Union: Related-Party Transactions

TIES TO EVER UNION: CORRUPT FINANCING

I.III Management Control

DDHL 2009 Annual Report, p.16

http://qyxy.baic.gov.cn/ searched for:

https://www.icris.cr.gov.hk/csci/ searched for:

As is visible in the schematic, Shenzhen Xince is controlled by two shell companies

Euamc.com is registered by Ever Union Asset Management: http://www.whois.com/whois/euamc.com

Fortune Source sold a 4.3% stake and retained 12.3% stake.

Quantum Base Company purchased 4.3% from Huge Rising42.

Progress Mind Investment purchased 4.6% from Huge Rising44.

Trendy Base Company purchased 4.9% from Huge Rising47.

TIES TO EVER UNION: RELATED PARTY TRANSACTIONS

Digital Domain Holdings announcement dated July 13th, 2012

In the announcement, Digital Domain Holdings reports the following:

Sources for schematic:

http://qyxy.baic.gov.cn/ searched for:

DDHL 2012 Annual Report p.21

II.II Related-Party Transaction 2: Digital Domain 3.0

Reconstruction: Digital Domains demise and resurrection

August 13th, 2012

Digital Domain Media Group hires Wells Fargo Securities as advisor

September 6th, 2012

Che Feng establishes Upfield Sky Limited, a British Virgin Islands

September 7th, 2012

September 11th, 2012

Digital Domain Media Group declares chapter 11 bankruptcy70.

Exact date unknown

Galloping Horse, Tomorrow Holdings and Che Fengs Harmony

September 17th, 2012

Four days prior to Digital Domains bankruptcy auction Upfield Sky

September 19th, 2012

Two days prior to the bankruptcy auction, Digital Domain Holdings

September 21st, 2012

During the bankruptcy auction, the Upfield Sky consortium teams up

September 22nd, 2012

Digital Domain confirms it will be sold to Beijing Galloping Horse

September 25th, 2012

Bankruptcy court approves sale to Galloping Horse-Reliance LLC76.

Exact date unknown

Digital Domain 3.0s losses force Upfield Sky to keep raising

September 29th, 2012

October 26th, 2012

Digital Domain Holdings (then called Sun Innovation Holdings)

October 26th, 2012

Zhou Jian resigns as Director of Upfield Sky Limited to avoid

November 14th, 2012

Digital Domain Holdings (then called Sun Innovation Holdings)

November 14th, 2012

Digital Domain Holdings (then called Sun Innovation Holdings)

November 18th 2012

Digital Domain Holdings (then called Sun Innovation Holdings)

November 21st, 2012

Galloping Horse US LLC is formed in Delaware, and is placed as a

November 29th, 2012

Digital Domain 3.0 announces across-the-board pay cuts, causing

December 31st, 2012

Upfield Sky Limited registered a loss of HK$82,914,000 between

Exact date unknown

Che Feng unilaterally breaks his cooperation agreement with Beijing