Muddy Waters around Sino-Forest


New York – A heated debate has developed after the release of a short-seller’s report that accuses Sino-Forest Corp of fraud.  Research firms express opposed views on the Chinese company leaving investors on the verge and the company with an outstanding 78% fall in share price.

The report, issued by Muddy Waters, a short seller which trades on the stocks it covers, accused Sino-Forest Corp, a Chinese forestry company, of massively exaggerating its assets and running a multi-billion dollar Ponzi scheme. The report follows the line of thought of documents filed with China’s State Administration for Industry and Commerce (SAIC).

Although Sino-Forest formally denied the accusations and requested an official investigation, the days following the publication of the report have proved tough on Sino-Forest’s shares. Moody’s Ratings Services placed Sino-Forest under review and the company’s shares, which trade in the Toronto Stock Exchange, decreased to 78% from their closing price last Wednesday.

Some analysts with a trajectory of covering Sino-Forest have defended the company. RBC’s Paul Quinn maintained an “Outperform” rating on the company (with an above average risk in owning shares).  Benjamin Wey, president of the New York Global Group, indicated that it is highly unusual that SAIC filings match a public company’s SEC filings.

Richart Kalertas, an analyst at Dundee Capital Markets, has been one of the louder supporters of Sino-Forest. Mr. Kalertas declared in various media outlets that after 7 years of diligently covering Sino-Forest, he believes that Muddy Waters’ report is outright false. Mr. Kalertas went further to accuse Muddy Waters of dubious actions not only with the current Sino-Forest affair, but also in the past with a report on orient Paper Corp.

While Carson Block, founder of Muddy Waters, claims that he will stand to his report until Sino-Forest’s shares reach “zero”, Mr. Kalertas believes that Sino-Forest will come clean, albeit after clarifying these issues. Investors with interest in Sino-Forest will find a wealth of independent research on this topic. Then they will have to make a call on which research line to follow.



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