Game Over Sino Forest, After Globe And Mail Investigation Confirms Company Is A Sham

Tyler Durden's picture

Early this morning, Muddy Waters sent out the following email:

The Globe & Mail, one of Canada's largest newspapers, has published a lengthy investigative piece on Sino-Forest's holdings in Yunnan. The article corroborates Muddy Waters' research showing that TRE has massively overstated its Yunnan timber holdings.

Muddy Waters is still short Sino-Forest.

Bottom line: a small 2-person operation outsmarted a $35 billion hedge fund courtesy of the first thing in a true investor's arsenal: real due diligence. The second and third things for those asking are, getting big enough where an economy of scale is all tha matters to any "investing" decision, and hubris. Next up: See No Forest halted indefinitely like most other Chinese fraudcaps, while John Paulson continues the denial farce, saying he is still "supportive." Unfortunately, we doubt his LPs will be, and with no "selectively created" CDOs available to offset the massive loss, and with Bank of America about to drop back to Paulson's cost basis in the mid $9s (which it will very soon once the liquidations prompt the firm to unwind the most liquid assets first), we wouldn't be surprised to see the unwind of the biggest hedge fund "success" story in recent history begin in earnest.

The key part from the Globe and Mail investigation:

The Globe’s investigation raises particularly hard questions about a key agreement in March, 2007, that Sino-Forest says gave it the right to buy timber rights for up to 200,000 hectares of forest in Yunnan over a 10-year period for between $700-million (U.S.) and $1.4-billion. The trees were to be bought through a series of agreements with an entity called Gengma Dai and Wa Tribes Autonomous Region Forestry Co. Ltd., also known as Gengma Forestry. The company says it has fulfilled virtually all of the agreement with Gengma and now owns more than 200,000 hectares in Yunnan. But officials with Gengma Forestry, including the chairman, dispute the company’s account of the deal, telling The Globe and Mail that the actual numbers are much smaller. Xie Hongting, the chairman of Gengma Forestry, said in an interview that the transactions carried out so far by Sino-Forest amounted to less than 14,000 hectares.

From the Globe and Mail piece:

Globe inquiry finds irregularities in timber company's disclosure; Chinese forestry officials open probe

Embattled Sino-Forest Corp. TRE-T, once Canada's biggest publicly-traded timber company, appears to have substantially overstated the size and value of its forestry holdings in China's Yunnan province, according to figures provided by senior forestry officials and a key business partner there.

During two weeks of on-the-ground reporting that included interviews with Chinese government officials, forestry experts, local business operators and brokers, The Globe and Mail uncovered a number of glaring inconsistencies that raise doubts about the company's public statements regarding the value of the assets that lie at the centre of the company's core business of buying and selling Chinese timber rights.

Once a stock market favourite, Sino-Forest has had a spectacular fall since a short seller's report, published June 2, alleged that the company engaged in large-scale fraud and is inflating the value of its timber assets. The shares are down 82 per cent since the release of that report, written by Carson Block of Muddy Waters LLC, representing a paper loss of $3.7-billion to investors in little more than two weeks.

The company has denied all wrongdoing and the board of directors formed a committee to probe the allegations raised by Muddy Waters. The investigation is expected to last months and has begun with representatives from PricewaterhouseCoopers checking Sino-Forest's bank accounts to verify the more than $1-billion (U.S.) the company says it holds in cash at Chinese banks and other financial institutions.

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ZeroPower's picture

Here here G&M, as well as MW.

Anyone pickup any of the action? Hadn't touched any TRE//SNOFF myself.

fellatio is not fattening's picture

This may be the straw etc etc.  HOWEVER looking at Paulson's top 20 holdings as of 2/14/11 he had NO Sino shares, here is the link to the holdings, if someone has a different link please post...thx

walküre's picture

Looked at it. Liked the volume. But too much noise, too volatile to predict either way.

Stayed out of it.

RIM however.. I can understand tech and opportunity. Up and down. :)

Roger Knights's picture

I seem to recall that Paulson's big-successful call was due to an employee, not primarily to Paulson himself. This employee quit about 18 (??) months ago to work for an outfit on the West Coast. (His name ended in an "i", I think.) I saw him on a TV interview snippet posted on the web--he seemed modest and astute.

dognamedabu's picture

Hank knew that the BIS was going to dry up credit. He ran some numbers through his big bald head and it outputted - the housing market will crash. 

snowball777's picture

Billions of roaches will scurry when the lights go on...

chartcruzer's picture

Exposing government and market fraud in the BOLDEST fashion is the only way to win back liberty and sustainability.  We have crushed the prosperty of our children by allowing this class of economic/market fraud.   These companies should have NEVER been listed on the exchanges to start with.

note: needs a few updates,,,  will do shortly.

Consider this![s235939273]&disp=P

and this[s206018187]&disp=P


Bindar Dundat's picture

Listed on the TSX.  I have to admit that my Countries been a sucker for fraud listings for a long time . Anyone remember Bre-X ?


The Profit Prophet's picture

Now that was a great story....filled with greed, hubris, and fraud - and with the hollywood twist of the head geologist and witless fallguy being "suicided" from a helicopter.  A microcosm of our entire financial system....

T.E.I.N. everyone!

Extremist Tan's picture

Yes - reverse-merger companies from Canada are legendary:  many of them are laughable on their face, if you just read the prospectuses, which few investors (solicited via junk fax, webscams, boiler-room cold calls from Long Island or South Florida) ever read or understand.  Add to that the incredibly opaque financial reporting on See No Forest and the inability of investors in the Western Hemisphere to do meaningful diligence, and you can see what a coup this is for MW.

walküre's picture

I remember the Bre-X scandal.

One of many stock frauds.

The question is when are investors going to learn?

Pegasus Muse's picture

Chart, great piece.  The Crash of the US Empire is the kind of material you can send to friends and family that are still clueless.  It's short enough they shouldn't get too bogged down yet loaded with references if they want to dive in deeper.  Thanks! 

Do you have it PDF format?

MiningJunkie's picture

So Paulson outsmarted everyone by dumping TRE??? That makes sense - he probably orchestrated the pump in order to execute the dump some time back north of $20. Unless of course ZeroHedge can confirm that Paulson actually still owns it, in which event you may totally disregard this post.

GeneMarchbanks's picture

Poor JP, I hope his GLD holding works out...

casey13's picture

This is a far more complex issue because the reporter is confusing land ownership with tree ownership. Sino has many agreements where they have long term lease agreements with the owners. They own the trees and not the land.

Susan Mallin has prepared a comprehensive rebutal of Muddy here.


casey13's picture

Carolyn Wheeler - The writer of the G&M article. Integrity problem?

Readers of Toronto’s Globe and Mail, Canada’s newspaper of record, got a different version than the rest of the world of this week’s summit meeting between Prime Minister Ariel Sharon and Palestinian Authority Chairman Mahmoud Abbas.

According to Globe and Mail reporter Carolyn Wheeler, the meeting took place in “Mr. Sharon’s flag-draped residence in the Muslim Quarter of Jerusalem’s Old City,” on “disputed home turf.”

In fact, the meeting was held at the prime minister’s residence in the Rehavia neighborhood of the capital, where there is no dispute over sovereignty.

Wheeler then waxed for two paragraphs about the alleged site of the meeting: “Mr. Sharon’s purchase of the stately Old City stone home in 1987, and the subsequent removal of its Arab tenants, created great controversy at the time. The building is now rarely used, but it is still under heavy guard and remains a stinging symbol for Palestinians struggling to hold onto Arab neighborhoods in East Jerusalem.”

After outraged readers pointed out the error, the Globe and Mail issued a correction. “Obviously, it’s a very embarrassing error,” said Guy Nicholson, the newspaper’s interim foreign editor. “We asked her for some background about where the story location was. Unfortunately, she was not actually at the scene of it. She wrote it off of television and wires.”

Dov Smith, executive director of HonestReporting Canada, which tracks Canadian media for anti-Israel bias, questioned how the reporter was able to describe participants in the meeting as “grim-faced” – a phrase that appeared in the article – if she wasn’t actually there.

“We believe Carolyn Wheeler’s reporting is inconsistent with the standards that the Globe and Mail wishes to maintain,” Smith said.

Wheeler, a freelancer who is married to Mark MacKinnon, the Globe and Mail‘s full-time Israel correspondent, recently moved to Israel with her husband. Nicholson said the paper is “generally very trusting with her and pleased with her work.”

“This was a very tangential element of the story,” Nicholson said, pointing out that the error was limited to two paragraphs “very, very deep in the piece.” In fact, the error also appears in the second sentence of the story, which was 16 paragraphs long.

“This is such a closely watched issue that it’s getting a little bit blown out of proportion, to be frank,” Nicholson said. “I certainly understand the nature of why this was wrong, but we did immediately correct the error and she was mortified at having made the mistake.”

JuicedGamma's picture

F you Paulson. I hope the redemptions come thick and fast. Letting that poor little Italian boy take the fall for Abacus is why you and the squid deserve what's coming.

PulauHantu29's picture

My brother worked for a rating agency as a stock analyst trainee in the 1960s and his section head told him NEVER, EVER do your final report without visiting the company and talking to at least...three top management people to "get a feel" for the people and the physical plant. He emphasized not to rely on numbers they feed them alone.

Too bad few analyst do their DD these days...ENRON, Worldcom, etc and these recent Chinese company shams are a good example of how poor analysis is these days.


His retired opinion now...DO NOT rely on "expert advice" or the SPIN from MSM your research as thorough as possible and still look for fundamentals. They may seem irrelvant now with the Fed montezing, TARPing, Bailing, etc...but in the long run solid company fundamentals will be the safest bet...I think he is on to something...fundamentals....mmm...more people should give it a try.


walküre's picture

G&M hitpiece on TRE?

They better have a solid legal fund and legal team standing by.

keepmydollar's picture

They only need a legal team if TRE files suit.  And second is what jurisdiction would they file suit?  You really think the Chinese want to expose any more light to how they are stealing wealth from around the world.

Hondo's picture

You don't need a legal fund when telling or exposing the truth

gmrpeabody's picture

You're not from these parts, are you?   ;- )

if's picture

 Being an unregistered self employed analyst, he has not pledged to follow the analysts’ code of ethics or disclosures.


LOL, what insight.  I'll bet Susan Mallin is a real Hoover, probably swallows too.