Muddy Waters: Sino-Forest Is "A Ponzi Scheme...Investing For The 23rd century"

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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."

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