Hong Kong Stock Plunges 20% as Short-Seller Questions Accounting

  • Stock falls as much as 20% before trading halted in Hong Kong
  • Short-seller Glaucus Research questions company’s accounting

CT Environmental Group Ltd. shares fell in Hong Kong before it suspended trading as the activist short-seller Glaucus Research Group questioned the company’s accounting.

The Chinese wastewater company’s shares dropped as much as 20 percent, the most intraday since July 2015, after Glaucus published a 52-page report questioning CT Environmental’s reported wastewater treatment volumes and some recent transactions.

Taking a Tumble

Glaucus, in its report, said it has a short interest in CT Environmental and stands to realize “significant gains” if the shares decline. Short sellers borrow stock and sell it, hoping to profit by buying it back later at a lower price.

CT Environmental “is preparing a formal statement in response to the short-seller report” that it will file to the Hong Kong Exchange today, said Sasha Zeng, the company’s investor relations manager based in Guangzhou.

Glaucus -- a firm founded in Orange County, California, that’s led by director of research Soren Aandahl -- targeted Hong Kong’s Tech Pro Technology Development Ltd. at the end of July, saying the company overstated profits and inflated the purchase price of acquisitions. Tech Pro demanded an apology, saying the report “has no merit” and is “defamatory.” The stock is down 92 percent since the report was published.

Glaucus made its first foray into Japan in July, when it criticized the accounting of Itochu Corp., a trader of products from commodities to clothing. Itochu denied all allegations. While the shares tumbled the day of the report, they’ve since recovered all losses.

Shares in soft-drink maker National Beverage Corp. have also rebounded after Glaucus in September called it a “faddish” stock. In a response to the allegations, National Beverage called the Glaucus report “false and defamatory.”

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