This page has been archived and commenting is disabled.

SEC Charges Muddy Waters, Carson Block In Stock Manipulation Ring

Tyler Durden's picture




 

Update: As expected, this is a hoax. Someone is very pissed with the Muddy Waters boys.

Instead of taking another long hard look at its own practices, following the blow up of the biggest ponzi scheme since Madoff, the SEC has decided to instead target.... Carson Block and Muddy Waters. "The Securities and Exchange Commission has charged Carson Block and Muddy Waters LLC in a stock manipulation ring that allegedly published false information, causing a drop in the market prices of at least three stocks and generated more than $240.2 million in illicit profits when they sold shares short then repurchased the shares after a significant decline on the market." Bottom line - in Communist Amerika, if you publish research that is proven true, and profit on it, you are a criminal. That said, there is a chance this could be a hoax as it is only hosted by Briefing Wire, so take it with a pinch of salt: it very well could be the work product of a former buy or sell-side Chinese forest "analyst" with a lot of free time on their hands.

From Briefing Wire:

Additional Materials

Litigation Release No. 21053

SEC Complaint

The SEC alleges that Carson Block, who resides in Hong Kong carried out the market manipulation schemes with others he met through a stock web site, which is operated by Matthew Brown of Aliso Viejo, Calif. Block, Brown, and other participants in the schemes often timed the manipulative trading to coincide with false or misleading press releases issued by Muddy Waters LLC. The three companies were Sino Forest Corporation, Duoyuan Global Water Inc., and Orient Paper Inc.

“As we allege in our complaint, Carson Block and his accomplices around the country met through the Internet and planned to short sell the stock in the companies prior to release of the Muddy Waters Report that made allegations of impropriety, fraud, and theft. Carson Block and his associates approaches several large hedge funds and investment firms first to market their “research” and promised great returns upon the release of their “research”. The results for each of the companies that were targeted were catastrophic and have resulted in a serious loss of market value and public trust in the management of these companies. ,” said Scott Friestad, Deputy Director of the SEC’s Division of Enforcement. “Carson Block went so far as to himself write some of the misleading press releases that denigrated these stocks so they could line their own pockets with hundreds of millions of dollars.”

The SEC’s complaint, filed in federal district court in Delaware, charges six others in addition to Carson Block:

According to the SEC’s complaint, these fraudulent schemes generally followed the same pattern. In 2010, Carson Block and his accomplices arranged for large blocks of shares to sell on the open market. The vast majority of the shares sold short were done through the accounts of Muddy Waters LLC for the personal benefit of Carson Block. The defendants then notified the hedge funds and investment firms of their intention to publish their report and were paid approximately $2.7 million dollars for “research” supplied by Muddy Waters LLC. As a result shares were sold short in the days immediately prior to the release. After artificially deflating the market price of the stocks, Carson Block and his accomplices then recovered the shares the sold short on the open markets and collected the illicit proceeds.

The SEC’s complaint alleges violations of the antifraud, registration, and other provisions of the federal securities laws. The complaint seeks to have the court permanently enjoin each defendant from future violations, require disgorgement of ill-gotten gains with prejudgment interest, and impose financial penalties. Additionally, the Commission seeks to have certain defendants barred from participating in stock offerings.

Complete article available at SEC newswire.

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Tue, 06/21/2011 - 09:24 | 1388634 Goldtoothchimp09
Goldtoothchimp09's picture

Conglomerate Thugs.gov

Tue, 06/21/2011 - 10:25 | 1388781 Libertarians fo...
Libertarians for Prosperity's picture

Anyone familiar with the 36 Strategies of Ancient China, specifically this one: hun shui mo yu?  It can be found in Chapter 4, under the Confusion/Chaos strategy.  In short, it's a strategy to catch a fish/to win/to profit, by creating confusion.  

If you speak Chinese, it says everything you want to know about Muddy Waters. It's very derogatory...a very low brow, cheap way to fight.  The fact that they would choose Muddy Waters as a name speaks volumes, irrespective of their accuracy on this particular SNOFF bear attack. 

 

Tue, 06/21/2011 - 10:35 | 1388881 LowProfile
LowProfile's picture

Email your thoughts on this to the addresses here:  http://sec.gov/contact/mailboxes.htm

Tue, 06/21/2011 - 11:18 | 1389047 JW n FL
JW n FL's picture

+++++++++++++++++++++++ for the info!

Tue, 06/21/2011 - 09:24 | 1388635 Everybodys All ...
Everybodys All American's picture

unreal

Tue, 06/21/2011 - 09:25 | 1388637 Xibalba
Xibalba's picture

What a pathetic shame that 'commission' is.  

Wed, 06/22/2011 - 16:47 | 1388749 Zero Govt
Zero Govt's picture

Looks like Paulson is in a rage and thrown his toys outta the pram for being beaten to the short 

..the New York Parasite Clubs favourite protection racket, the SEC, with this latest is getting beyond a sick joke. Any investigation yet on the Silver take-down by the CME-WS-Hedge thugs? Nope. Paulson must have raked off his cream on that one

Tue, 06/21/2011 - 09:30 | 1388638 SheepDog-One
SheepDog-One's picture

Acting and profiting on FACTUAL information is now punishable by imprisonment! 

No question what actually happened here is some Wall St sell-siders toes got stepped on by these guys and they didnt get a new Ferrari last weekend.

Tue, 06/21/2011 - 09:26 | 1388639 casey13
casey13's picture

Apparently this may be a fake news release. There is nothing at the sec website.

Tue, 06/21/2011 - 09:25 | 1388640 alien-IQ
alien-IQ's picture

Payback for costing Paulson nearly a billion in losses?

Tue, 06/21/2011 - 12:00 | 1389162 Careless Whisper
Careless Whisper's picture

revenge. it happens. just ask adele

http://www.youtube.com/watch?v=lazyDlfaptM

 

Tue, 06/21/2011 - 09:30 | 1388642 Goldtoothchimp09
Goldtoothchimp09's picture

...and what of the Investment banks pushing this fraud ?!  Welcome to fascist America.

Tue, 06/21/2011 - 09:30 | 1388643 oogs66
oogs66's picture

is it real?  seems unbelievable?

Tue, 06/21/2011 - 10:01 | 1388759 gmrpeabody
gmrpeabody's picture

Which is what adds to the believability factor.

Tue, 06/21/2011 - 09:28 | 1388647 Cdad
Cdad's picture

I bet this is a Hong Kong release.

Tue, 06/21/2011 - 09:31 | 1388664 SheepDog-One
SheepDog-One's picture

Wheeeee and we're off to a green open across the board of course! DOW 12,000 (where we've been for 6 months avg BTW) must obviously be defended at all costs, for whatever reason DOW 12,000  seems to be the walls of Troy.

Tue, 06/21/2011 - 09:28 | 1388648 qussl3
qussl3's picture

Yawn what the hell did you expect?

Only resolution from this mess is well...... messy.

Tue, 06/21/2011 - 09:29 | 1388654 lizzy36
lizzy36's picture

I apologize in advance for reprinting this whole article. Terence Corcoran (editor of the Financial Post in Canada) probably best expresses how REGULATORS should be approaching this, from his article on June 8, 2011.

If Muddy Waters is right, it should be a hero of the investment community

To say that the value of Sino-Forest Corp. shares are uncertain at the moment is not saying much. The company’s market cap has gone from $4.5-billion to about $1-billion in one week, driven down by a report from a research firm that essentially portrays the China-based TSX-listed company as something of a fraud.

In return, Sino-Forest and its backers are essentially accusing research firm Muddy Waters of itself engaging in something of a fraud for having turned out a false report on Sino-Forest. All of which leaves the rest of us with a coin toss as to who is telling the truth. The Ontario Securities Commission, suddenly alert to a lot of muddy water lapping up against its regulatory system, has launched an investigation.

Regulators have to keep busy, of course, but this dispute looks like something that should be allowed to run its course in the market a bit. Either Sino-Forest is the solid, tree-rich company it claims to be or it is an overblown company that “massively exaggerates its assets” and “overstates” its timber resources.

As to whether Sino-Forest has the trees it says it has is impossible to know, and it’s unlikely the bureaucrats at the OSC are in a better position to unravel the conflicts than, say, investors and lawyers with a vested interest in getting at the facts.

Among those facts is a “forest valuation” report by the Beijing office of an international consulting firm, Pöyry Consulting, which appears to back the company. It shows colour pictures of Chinese employees of Pöyry out in what looks to be the uninhabitable wilds of northern China, measuring the width of some very thin trees as part of a vast acreage owned by Sino-Forest. Pöyry sets the value of the forests at US$2.6-billion.

Those of us who lived through the Bre-X gold mine disaster recall similar pictures of experts standing knowledgeably over drill cores extracted from the Indonesian jungle. The drill cores, supposedly filled with indications of gold, proved to be just rock.

Adding to the uncertainty over the value of Chinese forests were comments from a leading regulator, the outgoing head of the Hong Kong Securities and Futures Commission. Martin Wheatley said China is “the new dot.com,” an investment market marked by a “rush of Chinese companies” that are not being properly scrutinized by investors.

Is Sino-Forest part of dot.China? Or is it the victim of an aggressive short-seller who is perpetrating his own fraud by going after Sino-Forest, making the Chinese company the victim of a fraud?

Both story lines cannot be true at the same time, unless both are involved in creating an investor scam. Sino-Forest may not be the company it claimed to be, and Muddy Waters may be pulling its own scam by engaging in its own exaggerations and misrepresentations. Maybe they are both messing with investors.

What can the Ontario Securities Commission do about all this? It certainly had no capacity — legal or otherwise — to handle the Bre-X fiasco. It may still lack the wherewithall to get to the bottom of the Sino-Forest situation. China isn’t exactly an open book. The Muddy Waters report on Sino-Forest contains pages of supporting documentation in Chinese that would take a forensic linguist to unravel.

What the OSC should avoid is a campaign against Muddy Waters on the grounds that it broke various disclosure rules or engaged in market manipulation. At this point, that’s not at the heart of the Sino-Forest case. The main issue is who is right about Sino-Forest’s valuations, accounting and financial reports. If Sino-Forest is a solid company smeared by Muddy Waters, then Muddy Waters rightly becomes the target of investigation.

On the other hand, if Muddy Waters’ conclusions on Sino-Forest prove reasonably accurate and the company is a valuation scam, then Muddy Waters and its owner, Carson Block, should be hailed as the hero of the global investment community — no matter how much money they made short-selling Sino-Forest or allowing others to make money shorting the company.

The point is that before the OSC goes off on a hunt for alleged short-seller misbehaviour, it should first establish whether the allegations brought by Muddy Waters are valid. If they are, then Muddy Waters is exactly what market-based investment research is all about. They will have done what the securities regulators have not done.

Tue, 06/21/2011 - 10:03 | 1388768 gmrpeabody
gmrpeabody's picture

+100

Tue, 06/21/2011 - 09:36 | 1388655 firstdivision
firstdivision's picture

So he has to answer how his research is valid, yet not a single company they have attacked had to prove otherwise?  Even the article today on Bloomberg about Orient Paper shows that they have yet to release any details of the audit that they have performed.  This is going to be funny when it hits since Muddy Waters has released their reports publicly and the target companies have yet to do otherwise (with the exception of Sino-Forest which Reuters even showed TRE was a fraud). 

 

Am I the only one that thinks that there were plenty of politicians invested in Paulson's fund that lost out on Sino-Forest, and now they are retaliating?

Tue, 06/21/2011 - 09:33 | 1388656 Andy_Jackson_Jihad
Andy_Jackson_Jihad's picture

Everything Martin Armstrong said about the NY club using the SEC and CFTC as their hired goons is true.

RIP the republic.

Tue, 06/21/2011 - 09:31 | 1388662 snowball777
snowball777's picture

A warning to those who would both make and sell the news.

Tue, 06/21/2011 - 09:31 | 1388667 Jack Mehoff
Jack Mehoff's picture

Haven't you heard? Making money shorting anything is evil and criminal.

Tue, 06/21/2011 - 10:01 | 1388776 Bastiat
Bastiat's picture

. . . unless you're shorting a miner.

Tue, 06/21/2011 - 09:35 | 1388670 bruinsinruins
bruinsinruins's picture

Shouldn't the unemployed "forestry" analyst who used to work at Paulson have signed his name at the bottom of this Onion-like release? 

Tue, 06/21/2011 - 09:37 | 1388676 FranSix
FranSix's picture

The same happened to Timminco with their proprietary method for producing large quantities of solar grade silicon.  One analyst doubted these claims and said it was impossible.  Stock crashed.

Looks like money doesn't grow on trees, eh?

Tue, 06/21/2011 - 09:34 | 1388679 Downtoolong
Downtoolong's picture

How can I short the SEC, CFTC, and the Fed? Will someone write me a binary swap that pays out if one of them dissapears in the next 3 years?

 

Tue, 06/21/2011 - 09:38 | 1388681 firstdivision
firstdivision's picture

Send an email asking the SEC why they have not opened an investigation into these Chinese reverse mergers, and additionally how the companies do not have to prove that the reports are inaccurate.

http://www.sec.gov/contact/mailboxes.htm

Tue, 06/21/2011 - 09:38 | 1388682 Alex Lionson
Alex Lionson's picture

Who proved it??? Read Bloomberg please:

http://www.bloomberg.com/news/2011-06-21/paulson-dumping-sino-forest-may-deal-clients-720-million-loss.html

Allen Chan, Sino-Forest’s chairman and chief executive officer, has denied the allegations from Muddy Waters. He established an independent committee to investigate and appointed PricewaterhouseCoopers LLP to assist.

AND

Orient Paper Inc., target of a critical Muddy Waters report last year, urged overseas-listed Chinese companies to increase transparency to combat short sellers. Orient Paper’s shares are languishing 60 percent below their price before Block’s allegations, even after a four-month probe by Loeb & Loeb LLP, Deloitte & Touche Financial Advisory Services and TransAsia Lawyers found no evidence to support the claims.

Tue, 06/21/2011 - 09:43 | 1388701 firstdivision
firstdivision's picture

Read, and if you noticed no details of the Orient Paper audit were ever released, even Carson Block has been in contact with Orient Paper requesting info on the results of the audit.  Yet Orient Paper has stayed mum on the findings. 

Additionally, TRE's statement had massive holes poked in it by The Globe. http://www.theglobeandmail.com/globe-investor/key-partner-casts-doubt-on-sino-forest-claim/article2066110/

Tue, 06/21/2011 - 09:51 | 1388735 Hondo
Hondo's picture

Agree....this is a dead horse and even Paulson after losing$720 million in client funds figured it out.

Tue, 06/21/2011 - 10:53 | 1388935 Libertarian777
Libertarian777's picture

I would think if I had a $720 m investment in a company that has a clean audit by pwc whose stock dropped 90% I'd buy the rest of the stock and take the company private if there really was value there. E.g. I buy 10% of apple, and it drops 90% on news of jobs demise tomorrow, I'd buy the other 90%. If on the other hand the company doesn't actually produce anything ...

Tue, 06/21/2011 - 09:40 | 1388684 hedgeless_horseman
hedgeless_horseman's picture

Smells like an onion.

Tue, 06/21/2011 - 11:21 | 1389045 gmrpeabody
gmrpeabody's picture

rotflmao!

Tue, 06/21/2011 - 09:41 | 1388697 Gobsmacked
Gobsmacked's picture

hoax

Tue, 06/21/2011 - 09:44 | 1388703 Zodiac
Zodiac's picture

Just the way it was written screams fake: Litigation Release? Files in Delaware, not DC? The perjorative way MW actions were described?  Someone really needs to get SeeNo Forest up this morning!!

Tue, 06/21/2011 - 09:44 | 1388706 Hondo
Hondo's picture

A hoax......Litigation Release 21053 was in 2009 penny stock manipulaion.

 

http://www.sec.gov/litigation/litreleases/2009/lr21053.htm

 

 

Tue, 06/21/2011 - 09:46 | 1388719 TradingJoe
TradingJoe's picture

It does not really mater anymore, how long the US will be limping along, it is certain to me though that it will end in another civil war!

Tue, 06/21/2011 - 09:52 | 1388729 SheepDog-One
SheepDog-One's picture

Not long.

Tue, 06/21/2011 - 09:49 | 1388728 tallen
tallen's picture

CNBC just announced that it's a hoax.

Tue, 06/21/2011 - 09:51 | 1388736 Central Bankster
Central Bankster's picture

Maybe its best to not participate in the US markets because they are not "free"?  If you are wrong, you lose money, if you are right the government might come after you for being right?

Tue, 06/21/2011 - 09:56 | 1388742 swissaustrian
swissaustrian's picture

Didn´t they get the memo that selling recommendations violate us law?

Tue, 06/21/2011 - 10:00 | 1388771 The Axe
The Axe's picture

HOAX   No way the SEC could act this fast....impossible...  SEC  investigators  have 400 meetings to decide where to eat lunch.

Tue, 06/21/2011 - 10:04 | 1388783 jwalker46
jwalker46's picture

Didn't it occur to TD to check the SEC's website??  This notice is titled "Litigation Release No. 21053".  So, go to the SEC's litigation release page here:

http://www.sec.gov/litigation/litreleases.shtml

aand it is not to be found.  (The #21053 exists, a few years ago, but the defendants are different.)

 

Tue, 06/21/2011 - 10:12 | 1388797 lizzy36
lizzy36's picture

He posted with that caveat, that the initial PR maybe a hoax. The better question is who created the initial PR.

Tue, 06/21/2011 - 10:08 | 1388799 The Axe
The Axe's picture

Jwalker.....you are right about SEC website  but there is always a one day lag been press release and posting...usually

Tue, 06/21/2011 - 10:12 | 1388798 Fanatic
Fanatic's picture

http://www.streetinsider.com/Insiders+Blog/Muddy+Waters+and+Carson+Block...

"UPDATE: The SEC has confirmed that they did not issue the press release."

Tue, 06/21/2011 - 10:31 | 1388869 snowball777
snowball777's picture

Ancient Chinese secret, indeed.

Tue, 06/21/2011 - 10:14 | 1388802 jwalker46
jwalker46's picture

TheAxe: The release number is out of sequence, so it could not be a 2011 complaint.

Tue, 06/21/2011 - 10:15 | 1388824 The Axe
The Axe's picture

well done   you guys are like CSI....lol   good job

Tue, 06/21/2011 - 10:23 | 1388845 gwar5
gwar5's picture

Muddy Waters, doing the work the SEC is supposed to do. 

Tue, 06/21/2011 - 11:03 | 1389001 JW n FL
JW n FL's picture

Shhhhhhhhhhhhhhhhhhh! you will wake the Sheep!

Tue, 06/21/2011 - 10:54 | 1388941 r101958
r101958's picture

Hey, we had to find a way to funnel some cash to the Chinese for buying all our worthless treasuries.

Tue, 06/21/2011 - 11:06 | 1388997 JW n FL
JW n FL's picture

who here did not know that after giving Paulson a Public Black Eye.. that some misfortune was going to befall Muddy Waters.. "they even have a dirty name" I can hear being said.. LULZ BITCHEZ!!

Tue, 06/21/2011 - 13:15 | 1389419 Antipodeus
Antipodeus's picture

Tyler, keep up the great work!  Just a small request.  I'm sick of hearing about all these crap Chinese reverse-merger frauds.  It seems like one pops up every month or two.  I'm sure I recall 6 or so just in the last year or so.

How about a short article just summarising them all, over the last 5 years or so?  Just so we can all keep a sense of perspective.  I'm sure it would be very illuminating.  Thanks.

 

Thu, 08/04/2011 - 23:04 | 1525510 season0123
season0123's picture

If you intend to buy a bracelet give you love, it is a very good choice,the tiffany bracelets online cost me not much.This product variety, and tiffany rings, necklaces, and other products.Hope you to love to tiffany jewelry happy, bring you happiness.

Do NOT follow this link or you will be banned from the site!