Muddy Waters

  • 30 Nov 2012 at 11:36 AM

Skeptical Investor Puts Trust In Ratings Agency

You may be aware that noisy Asia-focused short-seller Muddy Waters is in a fight with Singaporean agricultural commodity trader Olam. Muddy Waters thinks that Olam is “an extreme example of an increasingly important conflict in modern finance: the clash between accounting and business reality,” and that “it is instructive to view Olam through the lens of failed US trader Enron Corp.” Olam disagrees, vehemently and litigiously. You can read all about it at your leisure (pro, con); I am not an idiot so I will carefully avoid taking any position on who is right and by how much.

Our question today is instead: are S&P idiots? Here is Muddy Water’s latest offer:

We hereby make a bona fide offer to pay for Olam to have one of its public debt issues rated by S&P. … The Company has never before had a debt rating, and having Olam’s debt rated by S&P would be an important step toward improving the Company’s transparency. Because we will pay the expense, Olam has no good reason not to have a rating.

I love this move! On its surface this is a pretty straightforward proposal. Muddy Waters thinks that Olam is – to use simple words – a big fraud, but the only way to really know is to have inside information,1 which Muddy Waters lacks. Olam has plenty of inside information but (1) has a vested interest in persuading people it’s not a giant fraud, whether or not it in fact is, and (2) can’t reveal every piece of inside information to everyone for reasons both practical and competitive-secrecy-y. Read more »

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%.”

Read more »

  • 08 Jun 2011 at 1:40 PM

And For Another Perspective On Sino-Forest…

“We are going to provide you with some information on why Muddy Waters research [on Sino-Forest] is a pile of crap,” said Richard Kelertas, an analyst at Dundee Capital Markets, during a conference call he held with clients on Tuesday afternoon. “We believe there’s nothing true in that report.” [FP, earlier]