Photo: Kent Law
Muddy Waters has sent an open letter to Chinese semiconductor company Spreadrum, in which it now has a short position.On the release of the letter, the shareprice tanked, falling about 30%. It has recovered somewhat and is now only down about 1%.
In the letter, Carson Block, head of Muddy Waters, queries Spreadtrum on a range of financial statements made by the company, as well as the reasons behind executive departures.
In particular, Block cites “2010 and 2011 numbers” as eliciting the “gravest” concern.
The letter concludes with 15 questions, which can be read below in the full document, and begins:
Dear Chairman Li:
Muddy Waters, LLC has begun researching SPRD, and we have taken a short position in it.
We have identified a number of issues in SPRD’s filings, and we believe that there is a high risk of material misstatement in the reported financials since the time of Dr. Ping Wu’s resignation. Our concerns are gravest regarding 2010 and 2011 numbers.
We are writing you an open letter so that our concerns and hopefully your responses are transparent to SPRD shareholders. The following letter contains questions relating to many of our areas of concern. Should you send us your response, we are happy to disseminate it.
(The full letter is embedded below).
Spreadtrum is the latest China-based company that finds itself a victim of a Muddy Waters research report — the shareprice of Sino-Forest, a Chinese planatation operator, has nosedived since Block released a report on the company earlier this year, equating it to the Madoff Ponzi scheme.
Yesterday, the shareprice of a Chinese company called Yuran tanked purely on the rumour of a Muddy Waters report.
Spreadtrum Communications, based in Shanghai, is a “fabless semiconductor company,” which “designs, develops, and markets baseband processors, radio frequency (RF) transceivers, and turnkey solutions for the wireless communications and mobile television markets.”
The largest holders of Spreadtrum stock include Bank of New York Mellon, New Enterprise Associates, Hamon US Investments, Silver Lake and Fidelity. Hedge fund holders of Spreadtrum include DE Shaw, Citadel and SAC Capital.
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