Can you spot a lie? What about a half-truth, a sin of omission or the telling smirk of someone who thinks they got away with it? How about the grand lie, so big it has pillars and caverns of mis-truth, or the subtle wave of misdirection?
Short sellers like to look for lies, in company accounts or in what management say. Find one, stick a red flag in it and go looking for more, on the basis if there’s one there’s several: lies multiply. There is also a small cottage industry in the art of deception, from books of facial expressions to help you play poker all the way to ex-CIA consultants offering interrogation advice.
For instance, the latest report from Muddy Waters on the commodity trading group Noble, which includes some “third party behavioural analysis” of management statements. Read more
How might Chinese fraudsters be stopped? SkyTides, an investment firm started by a former auditor, has a suggestion: Special Attestation Reports.
The reason is that auditors live by two words: material and reasonable. So while they need to keep an eye out for fraudulent-type behavior, it is not their central preoccupation. Read more
Muddy Waters’ Carson Block has made some big claims about the companies he and his colleagues have targeted and shorted, the latest of which is Olam. But the extent to which the market has been willing to follow his trades has been falling. More importantly, the willingness of sovereigns to support their listed companies has been rising. The combination of the two suggests shorting Block-style is getting less profitable. Read more
Here’s embattled agriculture combine Olam on Tuesday morning:
“We are very comfortable with our balance sheet position, in terms of our equity position as well as our debt position,” Sunny Verghese told Reuters in an interview on Thursday… Asked when Olam was likely to tap the markets at the earliest, Verghese said: “Definitely not in the next five to six months.”
Since that interview we might assume Olam has become less comfortable with its balance sheet position because on Monday the company announced an intriguing $750m rights issue.
Following Muddy Waters’ report on why it’s shorting Olam, released yesterday, the company has released a detailed defence. In fact, it’s 45 pages long… Read more
Carson Block has faced some criticism in the past couple of days (such as from the FT’s Lex) for the week-long delay in releasing the promised Muddy Waters’ report on Singapore-based Olam International.
But the wait is over. The report was published on Monday night. Block has not skimped on his allegations, so have a new ink cartridge ready if you’re planning on printing out all 133 pages. Read more
Hedge fund managers piled into the Marriott on Grosvenor Square earlier this week for London’s first Sohn conference. The headlines were dominated by Carson Block’s announcement that his next target was Olam International, but we wanted to give you a quick run through what the others had to say. Read more
Carson Block of Muddy Waters laid into Singapore-based commodities trading group Olam International at Monday’s Sohn conference in London. Such is the way of his shorting.
The thrust of his argument was that there are troubling irregularities in Olam’s accounts and that the company has taken on excessive leverage.
But Block also pointed to Olam’s acquisition of NZ Farming Systems Uruguay, noting that latter had recently published an annual report with the words “fudge this” next to one of the line items. The suggestion was that Olam has not been particularly wise or scrupulous in picking acquisition targets. Read more
With his reputation suitably inflated from his Sino-Forest adventures, Carson Block’s next target is Olam International, the Singapore-based commodities trading group. As usual with the companies Block focuses on, it should be assumed that that his firm, Muddy Waters, is shorting the name.
Speaking at the Sohn London Investment Conference on Monday, Block questioned Olam’s accounting practices, declaring that the company was engaged in “constant ‘reclassification’” of certain parts of its balance sheet. He alleged there was a case where “office supplies became biological assets”. Read more
It’s a big, big China leveraged buyout — the biggest ever, in fact. Advertising company Focus Media, which is listed in the US, said it has received a $3.5bn takeover offer from its chief executive who is backed by a number of private equity groups, including Carlyle.
It’s gained attention in part because the offer (in the form of a non-binding proposal letter) of $27 per share is higher than the level the shares closed on the last day before the short seller Muddy Waters published the first of several reports criticising the company. Read more
1) Sino-Forest gets a “bankruptcy credit event, yes or no” question asked about its CDS for the second time:
It’s about time we heard again from Sino-Forest.
The timber flipper has been quiet since it published the interim report into allegations of fraud made in June by short seller Muddy Waters. Third quarter results aren’t out until December 15, but Bloomberg has spoken to Judson Martin, Sino-Forest CEO, and the company seems in pragmatic mood. Read more
And it can start by answering: what’s the deal with these alleged whistleblowers (see below)?
The interim report published by Sino-Forest claims to exonerate the company, but that’s going too far, too soon. Read more
We take it back, perhaps the Canadian regulators have absolutely nothing to teach their US counterparts.
A few hours after suspending trading in Sino-Forest shares and ordering the executive team to resign, the Ontario Securities Commission issued the following statement: Read more
This really wasn’t what Sino-Forest hoped for when it welcomed the Ontario Securities Commission investigation following the release of Muddy Waters’ now infamous report into the firm.
The OSC has decided to not wait around for Sino-Forest’s independent investigation. Read more
Sino-Forest, how we’ve missed thee.
Everyone’s favourite Chinese-Canadian timber company released its Q2 2011 earnings on Monday morning. Its share price rose 8 per cent immediately after Canadian markets opened and was up nearly 4 per cent at pixel time. Read more
Sino-Forest shares have climbed since billionaire investor Richard Chandler disclosed his stake in the company, Bloomberg reports. The Chinese tree farming company’s shares rose to their highest level since Carson Block’s firm, Muddy Waters, published a report claiming it had overstated its timber holdings. The shares rose as much as 12 per cent in Toronto on Tuesday. Mr Chandler’s Mandolin Fund disclosed on July 20 it had built up 26.7m shares in Sino-Forest, or an 11 per cent stake, making it the company’s third-largest investor. Chandler became one of New Zealand’s richest men partly by pushing for reforms at South Korea’s SK Group, the news agency says.
Here is what Sino-Forest said, in its first quarter 2011 earnings call, 14 June:
Operator: And your first question comes from the line of Richard Kelertas from Dundee Capital Markets. Your line is open. Read more
News that Muddy Waters, the short-seller that sparked the crash in Sino-Forest shares, has shorted another Chinese company has failed to make a dent this time. Bloomberg reports that shares in Shanghai-based Spreadtrum Communications initially plunged by more than a third on the news, but recovered to close just 3.5 per cent lower at $8.59. One analyst said the concerns raised by Muddy Waters about Spreadtrum, a wireless chip designer, were not new. Meanwhile the WSJ relates that auditors of Chinese companies traded in the US are having to take extra measures to confirm cash balances with banks, with the issue being raised in SEC filings in about 10 companies.
The price action in Shanghai-based, Nasdaq-listed Spreadtrum Communications on Tuesday afternoon.
Via Google Finance: Read more
FT Alphaville caught up on its Sino-Forest reading over the weekend and enjoyed the latest post by John Hempton of Bronte Capital. It looks at Paulson & Co.’s loss from the perspective of a fellow portfolio manager, offering sympathy and rivalry in equal measure. Hempton recognises that small teams of investors will use “shortcuts” based on received wisdom such as timber being a safe asset.
However, that does not excuse Paulson & Co for not doing their research thoroughly, writes Hempton: Read more
We bet Paulson & CO. wishes it had this research before it bought shares in Sino-Forest.
On Wednesday, Tom Szabo and David Zurbuchen from Augment Partners, a research firm that normally focusses on metals and mining stocks, published the first part of a report on Sino-Forest Corporation (TRE). Read more
Here are extensive extracts from the memorandum sent by John Paulson, Michael Waldorf, and James Wong of Paulson & Co. Inc. to investors on Thursday:
It begins: Read more
John Paulson is not the only prominent fund manager hurt by the share plunge of Sino Forest, the Toronto-listed Chinese company, reports Bloomberg. Christopher Davis, a value investor who researches stocks and holds them for long periods, owned 13% of the Chinese tree-plantation owner as of April 29 through his Arizona- based firm Davis Selected Advisers. The value of that stake has since dropped 92% or more than $600m, after Muddy Waters, an investment firm run by Carson Block, said Sino-Forest overstated its timber holdings. Davis’s firm, with $71bn in assets, held 30.9m Sino-Forest shares as of April 29, making it the second-biggest owner before Paulson & Co. dumped its stake, according to Bloomberg. The FT earlier reported that Paulson & Co lost more than $500m after selling its entire holding in Sino Forest.
Only one of these exhibits is real:
Exhibit A: Read more
The Globe and Mail on Sino-Forest, June 20:
Its corporate structure has opened Sino-Forest up to criticism that it is too opaque. The company has scores of subsidiaries in China and offshore locations such as the British Virgin Islands. It has refused to disclose the names or locations of the customers who buy its standing timber, saying it doesn’t want to reveal the identity of its customers for competitive reasons…
Paulson & Co has lost more than $500m after selling its entire holding in Sino Forest, then FT reports. The sale adds to the pressure on Sino Forest as it attempts to fight a series of accusations by short seller Carson Block, and represents a high-profile setback for John Paulson, Paulson & Co’s founder, as his hedge fund struggles with recent poor performance. Paulson & Co was the largest shareholder in Sino Forest when Muddy Waters, Mr Block’s research firm, published a report on June 2 accusing the group of overstating its ownership of forestry assets in China. The company has denied the allegations and appointed an independent committee to examine the report. Since the report was published, shares in Sino Forest have fallen by more than 80 per cent.
Timeline courtesy of Sino-Forest’s erstwhile supporter, Dundee Securities:
June 1: Read more
Now, about them trees.
Canada’s paper of record, the Globe and Mail, on Saturday published the results of a two-week investigation into Sino-Forest’s assets. Read more