Fact or fiction, Sino-Forest edition

Posted by John McDermott on Jun 21 16:51. 5 comments | Share

Only one of these exhibits is real:Exhibit A:

BriefingWire.com, 6/21/2011 – Washington, D.C., June 21, 2011 — The Securities and Exchange Commission has charged Carson Block and Muddy Waters LLC in a stock manipulation ring that allegedly published false information, More…

Only one of these exhibits is real:

Exhibit A:

BriefingWire.com, 6/21/2011 – Washington, D.C., June 21, 2011 — The Securities and Exchange Commission has charged Carson Block and Muddy Waters LLC in a stock manipulation ring that allegedly published false information, causing a drop in the market prices of at least three stocks and generated more than $240.2 million in illicit profits when they sold shares short then repurchased the shares after a significant decline on the market.

Exhibit B:

Exhibit C:

(q ʇıqıɥxǝ :ɹǝʍsuɐ)

To be sure, the SEC definitely didn’t charge Muddy Waters with anything. Who published that release is a mystery.

But back to the stock price. The way things are going Sino-Forest may not get to wait for the results of its “independent” review into the allegations brought by Muddy Waters.

John Paulson is not sticking around to find out, selling his entire holdings of Sino-Forest at an estimate loss of around $500m, according to the FT.

And by the look of today’s price action, there’s a lot of investors following suit. Short positions, by the way, are back to pre-Muddy Waters levels, but there’s obviously still a few sellers out there betting on a complete collapse. Chart and data courtesy of Data Explorers:

All of which means that perhaps John Hempton of Bronte Capital shouldn’t be so hard on himself. From his blog on Tuesday:

I got yesterday’s post wrong

by John Hempton

Yesterday’s post was as error-ridden as anything I have ever published.

On the most important matter: I thought the Globe and Mail story on Sino Forest would drive the stock down at least 50 percent.

The last time I saw a major paper of record come right out and agree with a shortseller that a major company was a fraud was…  well… never.
I thought that would be significant. I thought it would be game-over.

Come on John, it would be far too ironic if a newspaper felled a tree company. A Paulson & Co. withdrawal, on the other hand, is all too real.

Related links:
In a dark, dark wood – FT Alphaville
CAREFUL: There’s A Hoax Press Release Out There Saying Short-Seller Carson Block Was Charged By The SEC – Business Insider
Jorge Luis Borges – The Book of Imaginary Beings – Spike

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