Sino-Forest Rebuffs Accusations by Short-Seller Muddy Waters


New York – Sino-Forest, a Chinese timber company accused of fraud by short seller Muddy Waters, refutes the accusations after an independent committee concluded that the accusations do not reflect the company’s reality.

“We spent $35 million – five months looking at everything that could possibly be looked at. This is not a fraudulent company”, said Judson Martin, Sino-Forest’s CEO.

Sino-Forest not only spent time and money as a result of the accusation. Its shares fell 74% since the publication of the report and it was downgraded to below investment grades by the rating agencies. But the report by the independent commission is starting to alleviate the company’ pains. After the report was published, its subsidiary, Greenheart, soared about 93%. Furthermore, Richard Chanlder Corp., Sino-Forest’s largest shareholder reiterated their support to the company.

Carson Block, Muddy Waters’ director of research, stands by their research and questions the validity and timing of the latest report. Mr. Block pointed out that “all three directors who oversaw the investigation are defendants in shareholder lawsuits and one of the three resigned just prior to this release.”

Furthermore, a report by the advisors to the independent committee (which includes firms such as E&Y and PwC) lists some “concerns” such as the isolation and exclusion of potentially privileged documents by the company during the review process.

In addition to the special investigation by the independent committee appointed by Sino-Forest, the company is also under investigation by the Ontario Securities Commission which will provide the investment community with yet another review of the company’s practices.

Supporters of Sino-Forest abound. Research providers such as Dundee Capital Markets, New York global Group and RBC have stood by Sino-Forest since the beginning of this muddy affair.

Muddy Waters is a short-seller which trades on the stocks it covers making the independence of its research somewhat muddier. The Wall Street Journal reports that Mr. Block of Muddy Waters, who –no wonder- profited by betting against Sino-Forest, is reserving a portion of these profits to cover potential legal challenges to his allegations.


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