Muddy Waters’ Block Says New Oriental Forced to Give More Detail

Muddy Waters Founder and Research Director Carson Block
Carson Block, research director and founder of Muddy Waters LLC. Photographer: David Paul Morris/Bloomberg

Carson Block, the short seller who sparked a 74 percent drop in Sino-Forest Corp. shares before it filed for bankruptcy protection, said his latest allegations against New Oriental Education & Technology Group Inc. will force the company to disclose more details about its business.

“I think there are a lot more revelations that are going to come forward,” Block, founder of Muddy Waters LLC, said in an interview with Bloomberg TV from San Francisco.

Muddy Waters in July 18 report questioned the ownership of some of New Oriental’s schools and the consolidation of their financial statements with the parent company. New Oriental responded yesterday by saying it owned 664 schools and learning centers at the end of May as previously disclosed and that 21 third-party operated “cooperation facilities” and their students were never counted as the company’s.

New Oriental’s stock surged 18 percent in New York trading after its response. The American depositary receipts had fallen 35 percent the day before on the Muddy Waters report and declined 34 percent on July 17 when the Beijing-based company said it was being investigated by the U.S. Securities and Exchange Commission.

“They are trying to downplay it as much as possible,” Block said of New Oriental’s response. He also accused the company of “understating” its activities with third-party operated locations.

Sisi Zhao, a Beijing-based spokeswoman for New Oriental, didn’t immediately answer calls to her office seeking comment.

Chinese Shares

The Bloomberg China-US Equity Index of the most-traded Chinese shares in the U.S. added 2.3 percent to 86.65 yesterday, snapping a three-day slump. The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., advanced 2.2 percent to a two-week high of $33.71.

Block, who founded a self-storage company in Shanghai after moving there in 2005 with a law degree, started Muddy Waters in 2010. He became the face of the short-selling wave against Chinese companies after his research led regulators to suspend trading in four of his first five targets, including Sino-Forest.

Other companies he’s target haven’t suffered the same fate. Shares of Spreadtrum Communications Inc., a Shanghai-based chipmaker, have increased 25 percent since Muddy Waters recommended shorting the stock in June 2011.

“Nobody bats a thousand,” Block said today.

Muddy Waters is also studying and taking smaller short positions against non-Chinese companies, Block said today, without identifing them. Short-selling involves the sale of borrowed stock to profit from a subsequent decline.

Asked how much he had personally earned by shorting stocks, Block said, “we don’t talk about it publicly or privately.”

— With assistance by Aipeng Soo, and Susan Li

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