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Muddy Waters Plans More Research on Sino-Forest, Block Says

Carson Block, research director at Muddy Waters Research. Source: Bloomberg Televison via Bloomberg
Carson Block, research director at Muddy Waters Research. Source: Bloomberg Televison via Bloomberg

June 7 (Bloomberg) -- Carson Block, the short seller whose assertions of financial manipulation by Sino-Forest Corp. preceded a 71 percent plunge in the forestry company’s shares last week, said he will release more research “pretty soon.”

He will address Sino-Forest’s 2010 purchase of engineered-wood products company Homix Ltd. and the company’s majority stake in Greenheart Group Ltd. Sino-Forest said Block’s statements are false and that it’s studying its legal options. It appointed PricewaterhouseCoopers to assist with its investigations of allegations by Block’s Muddy Waters Research.

“We didn’t really do our accounting tour de force,” said Block, the founder of Hong Kong-based Muddy Waters who’s said he doesn’t like to give his exact address because he’s received death threats. “Our resident accounting monster is chomping at the bit to get going.”

Block, who stands to make money from declines in Sino Forest’s share price, has published research on Chinese companies at Muddy Waters that preceded declines totaling almost $4.4 billion from five of them since before publication through June 3. The firm focuses on what it says are under-researched companies.

Hong Kong- and Mississauga, Ontario-based Sino-Forest tumbled last week after Block said the company’s disclosures of land holdings don’t match Chinese city records and that its stated production figures may not be accurate.

Moody’s Review

Sino-Forest, an operator of timber plantations backed by Paulson & Co., had its Ba2 corporate family and senior unsecured credit ratings put on review for possible downgrade by Moody’s Investors Service, Moody’s said today in a statement.

Shares of Sino-Forest dropped 18 cents, or 2.9 percent, to C$5.98 as of 9:41 a.m. on the Toronto Stock Exchange. It rebounded 18 percent yesterday after publishing documents on its website that it says support its financial disclosures.

The company said it’s been “thoroughly scrutinized” by major international underwriters and law firms inside and outside of China in the course of seven public and private offerings over the past five years. Sino-Forest also is planning an analyst tour of its operations in China in July, according to the statement.

PricewaterhouseCoopers will start work immediately, Sino-Forest said in a regulatory filing.

On a conference call yesterday, Block, 35, said Muddy Waters has been unable to find a Greenheart corporate registration in Suriname, a South American country where the forestry company operates. Trading in Greenheart shares was suspended June 3 “pending the release of an announcement of price-sensitive information,” the company said.

‘Operate as Normal’

“The Board would like to stress that the company has established its own operational management and operational teams in its forestry assets independent from Sino-Forest,” Greenheart said in a statement today. Operations in Suriname and New Zealand “are not the subject of the Sino-Forest Allegations and will continue to operate as normal.”

The company has applied for its shares to resume trading in Hong Kong from 9 a.m. tomorrow, according to the statement.

David Horsley, Sino-Forest’s chief financial officer, didn’t return a call to his mobile phone. Louisa Wong, a company spokeswoman in Hong Kong, didn’t return an e-mail message. A call left to the company’s office in Hong Kong also wasn’t returned.

Biggest Target

Sino-Forest is Muddy Waters’ biggest target to date. Ten researchers spent two months looking at the business, and government records indicated the company would have a capital hole of as much as $922 million if it had made the investments it claimed, according to the June 2 report.

The firm has also released reports on companies including China MediaExpress Holdings Inc. and Rino International Corp.

Regulators and investors have increased scrutiny of Chinese companies trading in North America. The U.S. Securities and Exchange Commission began an investigation last year into the use of reverse takeovers, in which a closely held firm becomes public by purchasing a shell company that already trades. The Bloomberg Chinese Reverse Mergers Index of U.S.-listed stocks has fallen 40 percent this year.

To contact the reporter on this story: Matt Walcoff in Toronto at

To contact the editor responsible for this story: Simon Casey at

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