John Paulson Loses Half A Billion In Under 24 Hours

Tyler Durden's picture

John Paulson's worst nightmare is on the verge of coming true. As reported yesterday, JP is a holder of 34.7 million shares of Sino-Forest, which was halted yesterday after Muddy Waters came out with a report exposing the company as a fraud, and by implication, all the sellside analysts covering the company with a buy rating, not to mention all the funds who had bought into it, as diligenceless monkeys who refuse to actually do their homework and merely follow the leader in the worst example of Wall Street groupthink. Well, yesterday groupthink became gangbang, after names as varied as JP, CapRe, Bessemer, Blackrock, John Hancock, Hartford, and many more learned they all may have been fooled by the biggest ponzi fraud since Madoff. And while the funds may pretend things are good courtesy of the continued freeze of TRE.TO on the Toronto Stock exchange, where it still has to issue an announcement despite promises it would do so before market open, its sister stock, SNOFF.PK continues to trade domestically. And it's a bloodbath. After opening at $18 yesterday, the stock just touched $2.45, generating a loss of over $500 million for John Paulson, who in addition is rumored to be very heavily long the company's bonds. It will be ironic if one Chinese fraud (despite our repeated warnings) ends up being the black swan that confirms that there is no such thing as a consistently good hedge fund, and it is all merely a function of one right trade, at the right time, executed with infinite  amounts of leverage (thank you CDS). In the meantime, we hope Muddy Waters is working a report exposing that biggest ponzi scheme of all: the US stock market.

Below is an example of how true research impacts a stock price, instead of merely idiots piling upon idiots.

And speaking of monkey, groupthink and idiots, here are those sellside "analysts" who up until yesterday had the company on a buy rating. We hope their resumes are up to date.

Update: Here is the company's response which was just filed. The gist of it is - the company does not admit it is a fraud, and says not to believe MW because they are short.

TORONTO, June 3, 2011 /PRNewswire/ - Sino-Forest Corporation (TSX: TRE) ("Sino-Forest" or the "Company"), a leading commercial forest plantation operator in China, today commented on the share price decline on June 2, 2011 as a result of the allegations made in a 'report' issued on a website by a short seller operating under the name Muddy Waters, LLC. The Company was not contacted by Muddy Waters for comment ahead of publication of its report.

The Board of Directors and management of Sino-Forest wish to state clearly that there is no material change in its business or inaccuracy contained in its corporate reports and filings that needs to be brought to the attention of the market. Further we recommend shareholders take extreme caution in responding to the Muddy Waters report.

As indicated in the report, Muddy Waters has a short position in the Company's shares and therefore stands to realize significant gains from a share price decline that it precipitated.  Muddy Waters expressly admits that it makes no representation as to the accuracy, timeliness, or completeness of any information contained in its report. Further, its website discloses no address or ownership information, nor the credentials of any of the authors of the 'report'. Neither the Ontario Securities Commission nor the Securities Exchange Commission website lists Muddy Waters or its author as being registered as an advisor. Nevertheless, due to the substantial impact that the report has had on the prices of the Company's securities and the reputation of the Company, the Board has appointed an independent committee consisting of three of the Company's independent directors, William Ardell (Chair), James Bowland and James Hyde.  All three of these directors are financially qualified professionals and two of the three are recent appointees to the Board. The independent committee's mandate is to thoroughly examine and review the allegations contained in Muddy Waters' report, and report back to the Board. The independent committee has appointed Osler Hoskin & Harcourt LLP as independent legal counsel and will retain the services of an independent accounting firm and such other independent advisors as it deems necessary to assist with its examination. During the course of the independent committee's examination, the Company will provide any updates as appropriate. Following conclusion of the report, the key findings of the independent committee will be released to shareholders.

Allen Chan, Chairman and CEO of Sino-Forest commented: "We are committed to a high level of corporate governance and stand by the integrity of our company, our 16-year operational track record and our financial statements.  Our company has continuously retained the services of internationally recognized law firms, auditors and expert consultants from Canada, the US, Hong Kong and mainland China."

"It is important that our independent committee thoroughly address Muddy Waters' allegations, and they will have my full support and those of the management team in doing so. However, let me say clearly that the allegations contained in this report are inaccurate and unfounded. Muddy Waters'
shock-jock approach is transparently self-interested and we look forward to providing our investors and other stakeholders with additional information to rebut these allegations."

David Horsley, Senior Vice President and CFO of Sino-Forest commented: "I am confident that the independent committee's examination will find these allegations to be demonstrably wrong, as for example:

(a)  Muddy Waters fundamentally misunderstands and misrepresents the most basic items in our published Management's Discussion & Analysis with respect to revenue generated from Yunnan Province, which we report as being approximately 45.5% of the Company's standing timber revenue of approximately US$508 million. Muddy Waters alleges that it is impossible that such revenue existed because achieving such levels would greatly exceed allowable cutting quotas and it would be impossible to truck close to that volume in the period.

However, that revenue was very clearly disclosed in our MD&A filed for Q1 and Q2 of 2010 as revenue resulting  from the sale of the standing timber - there is no cutting or transport involved, as the trees were sold but not harvested and therefore are not considered part of the quota for the region until the harvesting is conducted by the buyers.

(b)  Muddy Waters alleges that the Company overstated the assets in Yunnan Province, based on its erroneous and narrow assumption that our only purchases in Yunnan Province consisted of purchases of 20,574 ha of plantations in Gengma county in Yunnan. However, this allegation ignores the fact that in addition to the purchased plantations in Gengma county, (as disclosed in our 2010 annual MD&A of a total of approximately 193,000 ha purchased in Yunnan Province) we have purchased approximately 173,000 ha of plantations in approximately 25 other counties in Yunnan Province as of December 31, 2010."

As at December 31, 2010, the Company had approximately US$1.26 billion in cash, cash equivalents and short term deposits as reported in the audited consolidated balance sheet.  As at March 31, 2011, the comparable amount was approximately US$1.09 billion. The Company continues to hold such cash, with the majority of it in banks in Hong Kong and offshore.

As previously announced, the Company intends to file its Q1 2011 results on June 14, 2011.


Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
FOC 1183's picture

Correct NFP to 53,999

FranSix's picture

You win some, you lose some.

The Shit Blizzard

Hephasteus's picture

The got those at sonic?

johnnymustardseed's picture

The bigger you are the harder you fall!

Ancona's picture


Justice, it's a bitch.

buzzsaw99's picture

no biggie, he's rich, his clients are rich, in fact, bennie b. will probably buy those stocks and bonds for a profit.

Urban Redneck's picture

one needs a bank license to get into that club

oogs66's picture

bonds are down about 50% now.  From 100 --> 50.  That will leave a mark.

NotApplicable's picture

A big red one. Will probably even burn and sting.

FunkyMonkeyBoy's picture

These crooks aren't in it for the money. They have more money than they could ever need. They are in it for the power... the power to control governments, which means the power to control YOU goyim scum.

RobotTrader's picture

Wow, lots of hedge funds probably folding this quarter.

Volatility and specific stock risk has been a killer.

Wonder if Paulson will have to dump is good stocks to meet all the redemptions.

Arius's picture

perhaps, somebody might be after some know some hard assets...

usually these stock frauds are designed for small investors not for sophisticated players...just wondering...

Papasmurf's picture

Small investors have left the scene.  This is evolution.

ebworthen's picture

Perhaps he gets a tax write-off of some kind from the loss that he needs and is making a killing on other inside information with tips from Chinese friends?  Paulson will eventually need someplace to escape to like his erstwhile friend Hank.

(I believe people were overzealous on the junk button RoboTrader, not I).

NotApplicable's picture

At this point, it's a conditioned response RT brought upon himself, regardless of the content of his current post.

I do find it interesting how many people care enough to junk him anyway.

baby_BLYTHE's picture

He should have listened to Marc Faber, the dude is like never wrong.

Short Term  Treasury rally- check

10% correction in the DOW- Check

China/Emerging Market slowdown- check

InconvenientCounterParty's picture

He was singin' that tune throughout 2010.

I'm a fan of Mr. Faber if for nothing else than his mix of dry humor and that authoritarian accent.

GeneMarchbanks's picture

Fuck John Paulson.

JuicedGamma's picture

You are so angry.  Now go take your pills like a good boy.

Franken_Stein's picture


Holy shit !

And Ackermann just 3 weeks ago called Paulson "the superstar on Wallstreet" !

Looks like they've forgotten to place a mole, erm, I mean an expert from an expert network, with Sino Forest.


Well, you can't always win.


sunnydays's picture

Couldn't have happened to a nicer guy.  Karma is a Bitch.........

InconvenientCounterParty's picture

Gold might not be an investment, but it's not a ponzi either.


Bay of Pigs's picture

Really? Wait until Paulson's GLD ponzi falls apart. 

The destruction of these fraud ridden ETF's will be spectacular.

Hephasteus's picture

Do you think they'll scream ponzai!!!! Before they die?


silvertrain's picture

haha..the sheep are shearing each other now..

zaknick's picture

The dirty jooooos did it! lol

JP had it coming... I imagine this is nothing compared to the blood bath that will ensue once true price discovery comes's gonna be an awesome spectacle. Which is probably why you'll see a (nukular?) false flag carried out by the joooooos again instead.

Bow down to AIPAC, bitchez!!

Double down's picture

Did he own any puts?  Just one phone call from someone within Muddy to Paulson.... Just saying what we should all at least entertain.

Another story is that this is a great blow to the Canadian securities industry and its beloved auditors.

Fedophile's picture

Well, yesterday groupthink became gangbang


Tyler, you're so elegant, I love it!

agent default's picture

And to think I am feeling butthurt because of the silver action lately.

Fish Gone Bad's picture

That is like being hit in the nose.  It stings really bad and makes ones' eyes water.  Then it is followed by a hit to the eye, and that just adds insult to injury.  In the back of one's mind, there is the now all too real fear that another punch to the face is coming.  Duck?  Cover?  Run? 

First one out of the pool wins.

John McCloy's picture

Oh it appears he is not so prescient when him and Goldman are not packaging up trash and then using their trading power to engineer short attacks in financial stocks.

pizzgums's picture


sux when the tables get turned, doesn't it...

ebworthen's picture

We are at war with China, we just don't realize it.

No actual shots of gunpowder or fueled projectiles but cyberwarfare attacks on individuals, military installations, and financial Lusitania's like this one.

China has funded Wall Street and Washington's orgy of mammon lusting, and the reasons are becoming all too clear; use the dark sides of capitalism and democracy to collapse them from within.

JuicedGamma's picture

The Chinese are very cagey and think they are smarter than US.  So did Japan in the 1990s and look at them now.

Rule number 1: Don't trust Russians, Don't trust the Chinese,  they are all still communist and corrupt.

ebworthen's picture

What is not communist leaning and corrupt about our government, the FED, the bailouts, and Wall Street rigged casino markets?

China is a completely different story and nation in so many ways and we have not nuked them into submission the way we did Japan.

Japan post WWII followed the American model and accelerated past us because of their small size and tight borders.

China has subs capable of taking down our carriers, has a billion people to throw at us, land mass, resources, a need for petroleum that will soon exceed our own, and a need for food that already does.

We are playing into their hands and rapidly becoming a second rate power industrially and financially while losing any moral authority we may have had.

Thisson's picture

Hey how are they going to get those billion people here, genius?  Charlie dont surf.

Use of Weapons's picture

Take your tonal pick:

#1 You have a track record of allowing farm animals to govern Alaska - if they want to, they'll walk, with a USA company probably paying them to build the road / bridges to get it done properly.


#2 The Mouse Army marches on its feet.


Pick the one suitable to your mindset regarding pessimism/optimism.



Shock and Aweful's picture

Marx said it 150 years ago...


"The Capitalists will sell us the rope with which we will hang them"


After the collaspe of Communism in Europe and the USSR, China was the last "communist" nation of any size on the planet.  They were our sworn enemy not even 30 years ago....

Maybe they looked around and realized that the only way to take down the U.S. would be to use our weakness for consumption against us. 



haskelslocal's picture

"Group think became Gangbang".... Fucking Priceless...

Korrath's picture

I like to start each day with a hot steaming cup of schadenfreude, spinkled lightly with mild contempt.  

I suspect I shall enjoy many a fine beverage like this for the next month or so.

gmrpeabody's picture

Schadenfreude (i /????d?nfr??d?/; German pronunciation: [??a?d?n?f???d?]) is pleasure derived from the misfortunes of others.[1] This German word is used as a loanword in English and some other languages, and has been calqued in Danish and Norwegian as skadefryd and Swedish as skadeglädje

mattwett12's picture


Probably shorted it.

Should I buy in for a rebound expecting them to "find a new forest" somewhere in the pacific ocean?