Photo: Screenshot via Bloomberg TV
Carson Block, the young hotshot short-seller who runs Muddy Waters Research, has become famous (or infamous) for shorting Chinese companies. He was a virtual unknown in Wall Street circles until his 2010 report on Orient Paper crippled the stock’s value.Due to Carson’s uncanny accuracy in developing targets to short, experts in the industry think he’s much better than the SEC at catching fraudsters in the act. James Rickards, senior managing director of Tangent Capital Partners, has declared, “Block is in the intelligence business where you gather tidbits of information, you fuse them together, connect the dots and then you draw a conclusion. The SEC is much more like cops. First the crime is committed, and then they go to solve the crime. But Block is looking at the crime in progress.”
An ex-colleague describes Block as “an arrogant guy with an independent and somewhat restless streak,” and Carson admits to having “discipline problems” from an early age.
When researching potential targets, he’s been known to misrepresent himself, pretending to be a potential customer.
But a brash personality and questionable tactics haven’t held Carson back. He’s continued his take downs in China, attributing it to his ability to see “through appearances to a Chinese company’s true worth.”
Carson’s road to the top has had plenty of speed bumps. His early business ventures ended in failure, and he’s shuffled around at least four different jobs before opening Muddy Waters.
He’s done it all in a short 36 years, so there are plenty of chapters to be written in the Carson Block story. We’ll be watching.
Summit has a population just over 20,000. Carson's father, Bill, ran a equity research firm called W.A.B. Capital (where Carson would later work), while his mother works as a real estate agent.
Source: W.A.B. Capital
Carson majored in business administration and graduated in 1998. After school, he shuffled through jobs, working for W.A.B. Capital as a principal and opening an investment business in Shanghai before returning to the U.S. to enhance his education.
Source: W.A.B. Capital
Carson got his J.D. from the Chicago-Kent College of Law, and went on to work for the firm Jones Day
This is another example of a young Carson jumping from career to career, trying to find his niche. In the 2007 book, Block told readers that in China 'you may face some of the most brutal negotiations you've ever seen.'
The company was one of the first storage businesses in China, though it was not very successful. According to the Globe and Mail, Love Box Storage has 'been pulled back from the brink of financial failure on no less than four occasions.'
Source: Globe and Mail
In January, he went to Baoding City to do some research on Orient Paper for father's firm. Block was astounded at the shoddy quality of the plant, saying 'The machinery was basically scrap metal that probably belonged to a state-owned enterprise.'
After Orient passed its next accounting audit, Carson was cajoled into action. On June 28, 2010, he published a scathing report on Orient Paper, claiming the firm overstated revenue by 40 times the previous year and rating the company 'a strong sell.' The firm's shares fell by 47 per cent over the next month.
Muddy Waters released a report in November 2010 indicating that the wastewater equipment designer had exaggerated sales -- which the company confirmed eight days later. The stock tumbled 67 per cent that month and was delisted from the NASDAQ.
The Muddy Waters report released in June 2011 compared Sino Forest to Madoff's Ponzi scheme. Hedge fund legend John Paulson was a substantial investor in Sino Forest, with holdings up to $500 million.
Source: Business Insider
2011 was a great year for Carson. He was honored as one of Bloomberg Markets 50 Most Influential People.
The excerpt from the magazine credits Block's revelation of Sino Forest's accounting fraud as the basis for his inclusion. As hedge fund manager Sahm Adrangi asserts, 'The Carson Block model of very detailed reports has set a new standard.'
Block has moved his attention from China because he says today's Chinese shorts are harder to find. He is also concerned for his safety.
After his dismantling of Sino-Forest, Block reported that he and his staff were harassed by agents of the Chinese government as well as 'tattooed gangsters.' He believes the Chinese government is enabling or otherwise overlooking accounting fraud by domestic firms.
The firm, which is responsible for 90 per cent of the world's peanut trade, filed a lawsuit against Block two days later, calling his statements slanderous and baseless. Olam has the backing of Temasek Holdings, Singapore's sovereign wealth fund, which happens to be its largest shareholder. Temasek has recently underwritten another bond issuance for Olam.
rumours of Muddy Waters report against a company can send its stock tumbling. That's what happened to Chinese meat processor Yurun.
Business Insider Emails & Alerts
Site highlights each day to your inbox.