Muddy Waters

Anyone following them here ? What do you think of their business model, which as far as I can tell consists of providing free research to publicise their own shorts ?

They issued a new report a few days ago on what appears to be a straight-up stock fraud in Hong Kong.

Here are random quotes that brought the lulz :

" The closest Superb Summit has come to not failing is in its forestry business …"

" Superb Summit continued its obsessive fantasy with the timber business …"

" Technically maybe Superb Summit did not fail in buying “not more than one billion cubic meters” per year of natural gas, as it appears to have bought none"

Source http://www.muddywatersresearch.com/research/

They sunk a company I followed closely for awhile in Sino Forest. I was momentum trading it back when I did that sort of thing. Thankfully I was short when it blew up. A friend of mine owned put options, figured he made a fortune. But he couldn’t exercise the puts due to the OSC cease trading order (couldn’t buy the share to settle). Lost the entire position. Anyway, these guys are pretty good. Worth a read in learning how they identify things. Unfortunately once they release their report, any trading opportunity is probably gone.

OMG this is crazy.

On topic, I have only read their last report. Pretty interesting. It almost seem to me more like private detective work in identifying schenanigans than financial work.

Did you guys discover Bro’s identity?

^ I actually wouldn’t be shocked. Viceroy: All their reports have a similar tone. Its pretty cool stuff. And they have a pretty decent track record.

I love Muddy Waters. Some of the best research out there.

It’s not me but I met Carson at a party earlier this year. Nice guy. Actually to be honest, I know almost all the best short sellers in the game and they are much nicer people in general than the average person I have met in the hedge fund world.

Bromion what do you think of their business model which consist of using their own research as a catalyst to the crash ?

I support smashing corporate fraud by any (legal) means necessary. It’s just like any other strategy to capture market inefficiencies to me.

this was a crazy case.

this article which states only those who bought puts as insurance could exercise them. brutal. pretty stupid in my opinion. so the buy buying a put is a speculator and gets nothing but the selling the put is a saint worth protecting and gets to keep the premium? most put sellers i know are speculators.

http://www.theglobeandmail.com/globe-investor/osc-softens-ban-on-exercising-sino-forest-put-options/article595625/

I’m no attorney but I would have sued. Since when does the exchange get to pick winners and treat different people within the same share class differently? That sounds criminal.

^^

Not going to say that I agree with that decision, but you have to admit that there is some logic to it.

Logic how? The logic imo is that it’s the same instrument regardless of why someone owns it.

You could exercise the put options, if you had shares to put onto the option writer. Unfortunately if you didn’t, you had no legal means of obtaining the shares as the cease trade order prevented anyone else from selling their worthless paper to you. It really opened my eyes to some of the risks of options that maybe aren’t widely considered. I felt really bad for this guy, he had a notional profit of half a million or something in his personal account but couldn’t execute. He actually did get some legal advice but the opinion was you’re largely SOL unless you could find some way to subversively obtain shares. Anyway, my point is the instrument was the same for everyone that held it. What was different is some held the underlying and could put the stock, and others didn’t and couldn’t legally obtain it.

^ I wasn’t aware of the Sino Forest options situation until this thread but I have heard of this in other cases. I was short a large amount of a stock that declined 90% in 3 days earlier this year and got halted. It is an abject fraud and it was unclear if it would ever unhalt (it did). I was only short the common as there were no puts, but I would have probably had to change my underwear if I had a million dollars of puts or something in it with the prospect of the stock never again trading. In some ways, the better the trade, the worse the puts, although that’s usually only a high class problem. Typically, you would see a case like GTAT where the common goes basically to zero in one day and then trades a bagilliony times the normal volume, which would allow you an easy opportunity to get out of the puts or the short.

Anyway, to me, this entire topic is about a flaw in the structure and functioning of the capital markets more than anything else, but it’s clearly something to be aware of either way.

Yeah, its a flaw but not one with an easy fix. Allowing someone to sell you the shares to settle your put option would unfairly advantage the seller over those stuck with worthless paper. And you can’t just cash settle as there isn’t really a market price on a stock that isn’t trading. It is a real potential mess.

trades should be wound up. premiums should be reimbursed to the maximum amount possible. option writers should not get away with a profit when shares are halted.

I meant more in an “operations” sense.

On one hand, it seems pretty simple to do, under the assumptions that you can produce quality research of course and that you can short.

On the other hand, it obviously leaves you very exposed to lawsuits.

Operationally it is much harder than it looks when you consider legal and distribution. There is a reason few people are doing that. Also keep in mind that his research prowess is in the top 1%. Most of the stuff that gets published is very bad, and I can only assume lots of the stuff that doesn’t get published is even worse.

So I guess this is worth subscribing to huh. Any other good sources?