“If Alibaba wanted to defraud investors, it absolutely could,” Mr. Block, the founder of Muddy Waters Research, told an audience of accounting students and aspiring investors at Baruch College in Manhattan on Wednesday. Mr. Block, 38, belongs to a small group of short-sellers who cut their teeth digging up corporate misdeeds on Chinese companies listed in the United States. “China is to stock fraud as Silicon Valley is to technology,” Mr. Block said, adding that this reality should weigh on Alibaba’s stock price when it lists in New York next week, in what could be the largest stock debut ever in the United States. Mr. Block didn’t offer any evidence of fraud at Alibaba, but was using the company to illustrate a broader point. [Dealbook]
Noted Short-Seller Not Saying Alibaba Is A Fraud, Just Saying Alibaba *Could* Be A Fraud, If It So ChoseBy Bess Levin
Muddy Waters’ Carson Block Is Not Impressed With S&P, Would Prefer Not To Be Thought Of As A “Ninja Assassin”By Bess Levin
Earlier this month, Muddy Waters founder Carson Block published a report describing Sino-Forest as “a Ponzi scheme…investing for the 23rd century.” The note did not have a positive effect on the company’s stock price and major shareholder John Paulson ended up pulling his entire investment. Appearing on Bloomberg TV earlier today for a little post-mortem, Block wanted to get a couple things straight.
1. The S&P downgrade of Sino-Forest bonds? Bull shit.
“I’d think that it’s a bit of a cop out on the part of S&P. We published this almost a month ago. The company has had a microphone and a platform to respond. When it has opened its mouth, the company, the stocks and bonds have gone lower. Rather than having anything confidence inspiring to say, they have continued to spook investors. S&P may want to hang this on us, but I have a feeling that is really a cover for, at least in part, their own assessment that there are significant risks that are company specific not related to market perception and Muddy Waters.”
2. The mistaken impression some people have that he’s a ninja assassin? Also bull shit.
“I am getting uncomfortable, actually, with this idea that we are ninja assassins that are going to take this stock price down a huge percentage within minutes or days. What I would like to do to protect investors is that I would like to point out the issues and start a dialogue and get people thinking about these red flags before we come out with a report that sends the stock down 70%, 80%.”
That report they released last week? Wasn’t even their best material, according to founder Carson Block who told reporters today from an undisclosed location there’s so much more where that came from and that anyone long Sino should probably be quaking in their boots. You don’t even know. Read more »
MW’s Carson Block: It’s a Ponzi scheme in that the company perpetually issues securities in order to fund itself. Even by its own fraudulent numbers, the company does not generate any free cash and has not done so in sixteen years. Were the company be unable to issue additional securities to fund itself, it would collapse. That to me is the definition or epitomizes the definition of a Ponzi. “In this situation, the company appears to be investing for the 23rd century. It’s sixteen straight years burning cash, no guidance as to what the rationale is to acquire so many trees so far ahead of customer orders. This is taking a capex fraud–we have found several of these in China–it’s taking it to the next level where you’re not constrained by the walls of a factory and no one is able to really see the movement of physical goods. It could grow to be infinite provided that the capital markets continue to fund it.” Read more »