As far as Muddy Waters’ Carson Block is concerned, literally any company in China could be a massive fraud. He’s not saying they all are. He’s just saying they could if they want to be, and as such the Middle Kingdom is fruitful territory for a short-seller seeking to uncover such things. And Block has done so, time and again and in the face of bitter opposition, in the forests and factories and storage units and docks and classrooms of the world’s largest country. Essentially, no Chinese company is immune to Block’s probing eye, and no one can know exactly when and where the share-price-shattering research reports that result will land. Unfortunately for the Chinese Google, Baidu, the most recent one landed right on top of a company it just agreed to pay $3.6 billion for.
Muddy Waters Research founder Carson Block said Joyy’s livestreaming service YY is “guilty of bot forming, creating fake transactions and having fake users….”
In a 71-page report, Muddy Waters alleged evidence of revenue inflation: livestreamers who got paid during long periods of absence or inactivity; mis-matches with local credit reports it obtained; and payments originating from company servers. Muddy Waters also said it holds a short position in Joyy, meaning the firm will benefit financially when the shares drop….
“Will Baidu really try to buy ‘growth’ in the form of an almost completely fake business?” Muddy Waters asked.
Of course, Joyy and its backers say Block doesn’t know what the hell he’s talking about: Those bots and bogus livestreamers aren’t about bulking up the company’s numbers but about driving interest among, you know, actual users, they say. Whether or not that’s true—and it certainly doesn’t really sound true—we don’t like their chances against someone who’s batting pretty much 1.000 on Chinese soil.