After RINO, Is Muddy Waters About To Sacrifice Orient Paper (NYSE: ONP) On The Altar Of Chinese Stock Fraud?

Tyler Durden's picture

Now that RINO is on its deathbed following the Muddy Waters report that started it all, it is time to give the specialized research shop some kudos...And move on to their next (or technically previous) target - Orient Paper. With RINO likely to open just north of 0 if at all (and will do so on the Pink Sheets), investors are curious which other name brought to you courtesy of the NYSE overeagerness to float any garbage, is just minutes away from becoming the next Chinese fraud export du jour. We present ONP, or Orient Paper, which Muddy Waters has been even more bearish on (since late June), and has a target price of $<1.00 (in essence, barely a liquidation recovery). The research report begins boldly enough: "We are confident that ONP is a fraud. Its purpose is to raise and misappropriate tens of millions of dollars" and then goes on to prove its allegations. The stock was last trading at $5.88. The only question is how much lower can it go.

As a reminder, here is why the firm see over 90% of downside from current levels in ONP.

  • Approximately $30 million has been misappropriated since October 2009.
  • ONP overstated 2008 revenue by 27x.
  • ONP overstated 2009 revenue by 40x.
  • ONP’s claims about its top 10 customers support our fraud conclusion.
  • ONP overvalues its assets by at least 10x.
  • The value of ONP’s Production Lines is greatly overstated.
  • ONP’s inventory is overstated by millions of dollars.
  • ONP’s claim of inventory turnover of 32.5x and 16.8x in 2008 and
    2009 (respectively) are without credibility when compared to those of
    China’s industry leaders, which range from 4.3x to 7.7x.
  • ONP overstates its gross profit margin by hundreds of basis points.

To be sure, management has already had several rounds of back and forth with investors and with MW. However, the bottom line is that nobody has been convinced either way, and following the stunning success of MW with RINO, it may be time for a long hard look at the borrow in ONP stock.


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El Gato's picture

If you're thinking about playing ONP via buying puts, beware: RINO is still closed and has been since Wednesday and OPEX is in 35min. It may never reopen. I think all those out-of-the-money puts exprining today will expire worthless. You can be right about ONP, but if NASDAQ halts trading through your OPEX, you will have a -100% return.

Herd Redirection Committee's picture

Exactly.  Only the House wins, when you put your money into their system.  Although in honesty, you are just aiding in price discovery and 'providing liquidity' by shorting the hell out of it!!!

I had a friend who almost convinced me to buy RINO shares.  I almost convinced him to invest in silver.

PsychoNews: Exposing the Oligarchy, one Psycho at a time.

AccreditedEYE's picture

There was a time when listing on the NYSE was a pretty prestigious deal... this is what happens when you kill the IPO in the USA and try and import all of your new issues. What a sad state of affairs. Is it any wonder our markets are dead man walking?

El Gato's picture

HRBN might be a new MW target. Same auditor as RINO, same unbelievable books.

YHWH's picture

I don't buy Chinese clothing, I don't buy Chinese food, I don't give my kids Chinese toys, and I don't invest in Chinese 'companies'.

Zeilschip's picture

So basically you're a dead retard?

Kayman's picture


Big Brain, Small Container...

China has perfected the art of the RipOff.

YHC-FTSE's picture

Some days, 9/10 headlines on ZH are about US Govt/Wall St. frauds then we have one about a Chinese company and all the usual cunts come out to cause mischief to muddy the waters (!) about an entire country. No surprises here, then.


Small caps fraud is nothing new, if I think about the hundreds of emails I get from brokers and shady websites every single day asking me to buy companies that only exist as a one room office, there must be hundreds of fraudulent companies out there, and why this one is so special is anybody's guess. This certainly will not be the last.


I can't believe it's been more than 20yrs since I did soul-destroyingly hard work in Beijing and Dalian setting up joint ventures between US/UK and Chinese factories, and since then I've learned a great deal about human nature, media manipulation, propaganda, and my own failures in judging character. A nice suit, a white smile, and a Harvard education does not make a person trustworthy - sometimes they are indicative of a subhuman thief of extraordinary unimpassioned nature. Conversely, I have had the privilege of knowing hard working Chinese people of extraordinary warmth and intelligence who have made my colleagues millionaires many times over by their diligence and trust, but who lacked dress sense and don't even get me started on their dental features. They're probably all billionaires by now and sending their kids to Europe for their education. Well, I hope so because they deserve it.


Anyway, I haven't been doing that kind of work or travelled to China for many years, but I do remember this: Most of the Chinese I met 20yrs ago had been told all of their lives that Westerners are all thieves, liars and murderers who value money over anything else. That capitalism is akin to gangsters, slavery to factories, blah blah blah. So, when the PRC govt encouraged the people to actively participate in private enterprise, guess what? Yep, a lot of them behaved in precisely the way they were told how Capitalists are: Like gangsters. The irony is so thick. 


So how did China not go the way of Russia, Georgia, Latvia, et al? Brutal state control. The QAA (Quality Assurance Agency) in China does not mess about if you commit fraud or deliberately manufacture dangerous goods for export. The factory manager gets a bullet in the head and the cost is billed to his family. I suspect that Stock Fraud will be dealt with in  a similar manner.


Like it or not, almost all of what you might call Chinese clothing, Chinese food, Chinese toys, were planned, designed, and manufactured in partnership with Western companies (Especially German) that had the foresight to tap into that market more than 20 years ago and now are reaping the enormous benefits.  That's the reality. 

carbonmutant's picture

There are a lot of roaches in China...

Bill Lumbergh's picture

I didn't even have to read the analysis...a quick look at the pictures and captions are enough to make anyone suspicious.

Abiggs's picture

Again with this worthless stock...

goldmiddelfinger's picture

They've bashed ONP numerous times since this June report. ONP has made a reasonable response since these "reports".

What's new here aside from recognition of the more recent, but late, RINO call? (RINO started rolling over in late October near $20 and Muddy jumped on the crazed rhino beast Nov 10 near $15-if you give them the open)

I'd be on the trail of CVVT at this point. (Also a late call, but it's not my job to post stock tips here)



greenewave's picture

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tom's picture

Hilarious. I like these guys (Muddy Waters)

montanassky's picture

all chinese cos are scam, fools. they can't be trust.

Double down's picture

Did MW visit the wrong Chinese subsidiary:

"They were trying to match up the financials of ONP with a Chinese paper company called He Bei Oriental Paper Co. Ltd.. Unfortunately, that is the wrong company, and is in fact a different paper company located in Baoding. The correct name of the operating company is Hebei Baoding Orient Paper Milling Co., Ltd., and according to ONP, the numbers match what has been disclosed in U.S. generally accepted accounting principles."

I know this stuff should matter but how different are the small ones from oneanother....  Funny nonetheless. 

Thunderlips's picture

Unfortunately, What Rick Pearson (who made the "wrong company analyzed" assertion the link above references) apparently did not understand is that Chinese Companies list in China under their Mandarin, not English, name.

So MWR found the subsidiary by its correct SAIC Mandarin name in Zhongwen Characters, and they are sticking by their report.  They also responded to Pearson, who did not mention their rebuttal to his claims.

MWR's rebuttal to the "Incorrect Subsidiary" assertion can be found here:

Double down's picture

Had no idea it worked that way.

Thanks buddy

trav7777's picture

Fraud in CHINA?  NO WAY.

I was under the impression that fraud was not tolerated in China.