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After graduating from the United States Merchant Marine Academy, I sailed the world on merchant ships for six years before settling down as a Port Engineer for the US Navy. I currently run all maintenance operations for two Navy Destroyers.
  • Muddy Waters Requires a Leap of Faith they don’t Deserve 47 comments
    Jul 31, 2010 4:39 PM | about stocks: ONP

    Much of the information that Muddy Waters LLC has put out on Orient Paper Company (NYSEMKT:ONP) and claimed as "factual information" has required us to go on good faith that we can trust Muddy Waters and their intentions. This information includes, amongst others, a transcript of a phone conversation they had with the paper machinery manufacturer, Henan Qinyang, as well as the phone calls they made to ONP's top ten client list. If this were a well respected research firm that has been in business for several years with a sparkling reputation, we would be much more inclined to believe that word. However, that same word from an unknown requires much more of a leap of faith. I personally find that leap of faith in Muddy Waters very hard to make, considering the contradictary statements and misleading information that they have put in writing, as well as the general lack of character that they appear to display.

    Oh What a Tangled Web We Weave...

    Indeed, Carson.

    Let’s take a look at the original intent of the visit to ONP as stated by Carson Block in his July 2nd rebuttal, which he states was on behalf of his father’s company, W.A.B. Capital, to accomplish due diligence. The first point I’ll bring up is what W.A.B. Capital states on their own web site in their FAQ’s section (http://www.growthequities.com/wab_faqs.html):

    How extensively does W.A.B. Capital research a potential corporate client?

    W.A.B. Capital’s research process takes several weeks. The first step is to thoroughly review a company’s SEC filings, press releases, and product / service information. Next, we hold an initial teleconference with the management to answer higher-level questions that we have relating to the company’s business and finances. Both parties then decide whether they would like to move forward.

    If we move forward, W.A.B. Capital will visit the company at its place of business. In a day-long meeting, we will ask about and discuss almost every facet of the company in detail. Following the meeting, we will ask to be put in touch with suppliers, customers, and other important parties with whom the company does business. At the conclusion of the process, we will propose an agreement with the company.”

    Now take a look at Carson Block’s own words from Muddy Waters’ July 2nd rebuttal (http://www.thestreet.com/stock-market-news/10798398/muddy-waters-research-responds.html):

    “On January 3rd, Sean and I were at Hong Qiao Airport in Shanghai for a number of hours due to the snow in Beijing. This was the first opportunity either of us had to look through the 10-K and recent 10-Qs. As we went through the documents, my jaw dropped a number of times. There were so many red flags, a number of which we covered in our report. By the time we finished our reading, we were convinced the stock was a short. “

    This statement by Carson Block says quite a lot. First, note that W.A.B. Capital says “the research process takes several weeks. Part of the first step is to thoroughly review a company’s SEC filings.” So on January 3rd, in the airport one day before their intended visit to ONP, this is the first time they even took a look at the 10-K and recent 10-Q’s? According to W.A.B. Capital, they thoroughly review a company’s SEC filings, press releases, and product/service information, as well as hold a teleconference with management to answer high-level questions before they even arrange a visit.

    Since the visit to ONP was already arranged, this leads us to one of two conclusions:

    1. W.A.B. Capital had already thoroughly reviewed these reports and didn’t see all the jaw-dropping red flags that Carson Block and Sean Regan saw in eight hours in an airport.

    Or…

    2. This is really the first time these reports were looked at by anyone from W.A.B. Capital, which means W.A.B. Capital is misleading about how thorough their research process is.

    So which one is it? Is Carson Block saying that his father’s company is incompetent in their research, or is he saying that his father’s company is misleading? Or is there a third option, where Carson Block is the one misleading everyone else?

    …When First We Practice to Deceive

    Carson Block makes the statement in his July 2nd rebuttal that, although no offer was ever tendered, compensation of 20,000 shares was deemed appropriate for W.A.B. Capital’s services. He also states that “Certainly that would have been an easier path to getting paid than we took with Muddy Waters, LLC.”

    Easier path? Debatable.

    W.A.B. Capital still needed to provide their services to ONP in exchange for these shares. These services, in addition to the research coverage, also includes “road shows and concerted exposure efforts”, according to W.A.B. Capital’s own web site. For Carson Block, he still had to fulfill his obligation to W.A.B. Capital, which they state as “In a day-long meeting, we will ask about and discuss almost every facet of the company in detail. Following the meeting, we will ask to be put in touch with suppliers, customers, and other important parties with whom the company does business.”

    Carson claims that he told his father, before even visiting the factory, that ONP was not a buy. So the “day-long meeting” where “we will ask about and discuss almost every facet of the company in detail,” suspiciously turned into a 90 minute tour of the factory and a question and answer session where Carson Block admits to not asking many questions. Apparently, when you are building a case for fraud, probing questions are no longer necessary. As far as the follow up research of being “put in touch with suppliers, customers, and other important parties with whom the company does business,” that was apparently going to be done either way.

    So Easier Path? Maybe. More lucrative path?…

    At the time of discussion of the 20,000 shares compensation in late 2009, the stock price for ONP at it’s highest in November was about $10 a share. So at the time of discussion, the shares would have a value of $200,000. Obviously the favorable review of ONP by W.A.B. Capital would have the intent of bringing in institutional investors and driving the price of the stock up. So even at triple the stock price, or a generous $30 a share, the compensation would amount to $600,000. However, this wasn’t going directly into Carson Block’s pocket. This was the potential take of all of W.A.B. Capital. “My father of course had in mind that I would conduct the due diligence. He offered me a portion of any economics on the deal.”

    Carson Block was going to receive a portion of the economics. How large of a portion? Well, W.A.B. Capital still needed to cover its own costs. It has two offices, one in California and one in China. It has to take ONP on a road show. It has employees. It has expenses. It also employed the use of an outside consultant, Sean Regan, for his factory expertise. “When he had a project with his father, he asked me to consult for them as a factory expert. Basically they would pay my expenses, fly me up and we would take a look. As he was a good friend, I was more than happy to help Carson out.” So either Sean Regan is being paid for his services by W.A.B. Capital, or he just does favors for his friend Carson Block, in which case it would also be a lot more lucrative for Sean Regan to take the Muddy Waters path.

    So how much compensation was Carson Block and Sean Regan poised to receive from W.A.B. Capital? Even half of the 20,000 shares would seem like a generous amount for a consulting job.

    The Muddy Waters path, which would include shorting the stock, and then potentially buying a long position at a much cheaper price, would appear to be the path to a vastly more lucrative return.

    So Where is Your Character?

    Carson Block was well aware of Rick Pearson’s excitement about ONP. In his July 2nd rebuttal, Carson states that Rick Pearson was, during the factory tour and in the car ride back, exclaiming “They’re printing money!” Carson himself says, “I was in a state of prolonged surprised that he could be so exuberant about this company.”

    But why was Carson Block so conflicted about telling Rick what he thought of ONP in the car ride back? Was he afraid to burst his exuberant bubble? He claims in the rebuttal that “I felt the company was a sham and I wanted to help Rick out by telling him so; but, to do so was illogical.”

    Apparently, to Carson Block, helping Rick Pearson out means letting him go home and invest his money and reputation in ONP while you go home and accuse it of fraud. If Carson had genuinely wanted to help Rick Pearson out, he would have had a professional discussion as to how he felt about ONP during that car ride. If Rick, in his own professional opinion, chose to ignore Carson’s insight, then it would be at his own peril and he would deserve what was coming to him. But for Carson to never say anything while claiming he “wanted to help Rick out,” it really brings into question Carson Block’s character and motives.

    Or maybe it was just illogical…

    Tell me, is that the type of character you want to base your Leap of Faith on? 



    Disclosure: Long ONP
    Themes: Muddy Waters Stocks: ONP
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Comments (47)
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  • Justin M. Hall
    , contributor
    Comments (753) | Send Message
     
    Interesting.
    31 Jul 2010, 05:05 PM Reply Like
  • Business Economics Analyst
    , contributor
    Comments (2565) | Send Message
     
    This article makes the mistake of focusing on the messenger, rather than the message. The question at issue here is the investment merit of ONP, whether its representations are true or false. By focusing on Muddy Waters, this article provides no assistance in making a decision about ONP.
    Take the first issue about calling ONP’s top ten customer list. Muddy Waters provides the Chinese names of the companies, as well as the phone numbers, which ONP does not do. Muddy Waters provides the statements of the customers. If you don’t believe Muddy Waters, you could call the customers yourself. That type of report might be useful.
    The rest of the article is simply irrelevant, as it attempts to attack Muddy Waters – a logical fallacy referred to as “ad hominem” or attack the man. I don’t care if the devil himself did the Muddy Waters report, what is important is to analyze the content of the report.
    Basically, it is unwise to blindly rely on anyone, do you own due diligence. Should you rely on well respected research firms that have been in business for several years that have a sparkling reputation? Well, I don’t know who is being referred to, almost all are simply sales arms. Let me take a guess, perhaps he is referring to Moody’s Investor Service? Or Standard & Poor’s? or Fitch Ratings? Tell that to the guy who had his 1 billion dollars of CDO’s that had been rated AAA appraised as worth $0.00 dollars. Yes, that is zero dollars.
    No, don’t rely on anyone. Be skeptical of everything you read, including anything I post. Find out the facts and evidence yourself, and do sound reasoning therefrom. Use your common sense. Focus on the company that you are considering investing in, don’t waste time on a bunch of innuendo about the person doing a report on a company. Look at the content of the report and try to verify and analyze it.
    The Muddy Waters report is, in my opinion, by far the best report on ONP. The best part – they provide you plenty of information to verify what they say yourself. If you don’t believe them, use the information to verify their information independently. Reports about that are worthwhile. Reports going into detail about why Carson Block didn’t tell Rick Pearson of his views of the company are simply a waste of time and deserve their place in the circular file.
    In summary, I don’t think you should take a leap of faith either. Instead, read the facts and evidence. Do you own due diligence. Come to your own conclusions. I found the Muddy Water’s report helpful. You might too but do it based on facts, evidence and reasoning – not on a leap of faith..
    Disclosure: Short ONP.
    2 Aug 2010, 03:37 AM Reply Like
  • urbusted
    , contributor
    Comments (2) | Send Message
     
    Seasaw, This is not about ONP, it is about how reliable the investigators are. You found Muddy Waters report helpful because it furthered your cause, not because it was fair, relaible and accurate investigating. The W.A.B. Capital (William A. Block) & Muddy Waters (Carson Block)... the dynamic duo Daddy and Son team working from W.A.B. Capital's basement home office? Get real shorty, start knitting something other than wool blinders.

     

    2 Aug 2010, 06:36 AM Reply Like
  • Business Economics Analyst
    , contributor
    Comments (2565) | Send Message
     
    urbusted:
    you are wrong. When I read the Muddy Waters report, I was long Orient Paper, Inc. It hurt my cause at the time. Believe me, I wished it was not true. Upon reading it and re-examining ONP"s SEC filings and website and other research, I agreed with Muddy Waters and sold my stock at a substantial loss. Only after further work did I then go short ONP.
    I find it a sad, descipacle, and logically flawed tactic when promoters of ONP spend their time attacking Muddy Waters and others who present facts and evidence showing Orient Paper's business is not what it says it is.
    If you could refuse the facts and evidence in the Muddy Water's report, I believe you would do so. Since it appears that you cannot, you degenerate into the tactic of attacking and insulting them. Doesn't reflect well on you.
    2 Aug 2010, 10:38 AM Reply Like
  • megisto387
    , contributor
    Comments (18) | Send Message
     
    Author’s reply » seasaw:
    Muddy Waters makes no representation as to the accuracy, timeliness or completeness of the information they provide. To say that "Muddy Waters provides the Chinese names of the companies, as well as the phone numbers, which ONP does not do," I have to reiterate my point that we're going on Muddy Waters' word that the Chinese names and numbers they provide are true. If they are true, why are they reluctant to attest to that fact? Given the serious degree of their accusations, I would expect nothing but a verification that their statements and facts are 100% accurate.
    The only "factual" information they provide to us that can be verified is the 10-k's and 10-q's. ONP provides easy access to that information on their own website.
    Muddy Waters' entire research report is based around stating something from a 10-k or 10-q, and then explaining why they question that report by citing their own "due diligence", not actually providing access to facts that can be verified.
    To give merit to a research report written in this manner is as logically flawed as you say "attacking the man" is.
    2 Aug 2010, 12:28 PM Reply Like
  • Business Economics Analyst
    , contributor
    Comments (2565) | Send Message
     
    Megisto387:
    If you doubt ONP, then just call up the numbers that ONP provides and give us your own report. It would take less time than your continued posts on this issue, which provide no information and are simply noise. You provide not a single piece of evidence to doubt Muddy Waters. I am waiting for ONP to provide the information - give us the Chinese names and phone numbers and websites of all your customer snad suppliers as well as a contact them there, as well as the contracts in English and Chinese.
    See hwo easy it would be to put an issue like that to rest for ONP> They haven't done that.
    2 Aug 2010, 12:52 PM Reply Like
  • megisto387
    , contributor
    Comments (18) | Send Message
     
    Author’s reply » seasaw:
    And Muddy Waters does not provide a single piece of "evidence" to doubt ONP. They provide us a their own skewed view of the facts and filings that have always been in plain view. ONP is taking the road of having an independent audit done to dispute the accusations, as simply saying Muddy Waters is wrong would only provoke another "ONP is lying" response out of them.
    2 Aug 2010, 01:06 PM Reply Like
  • Business Economics Analyst
    , contributor
    Comments (2565) | Send Message
     
    Megisto387:
    I suggest that anyone who wants to see if Muddy Waters provides a single piece of "evidence" to doubt ONP simply go to muddywatersresearch.com and see for themselves. Somebody like yourself can simply write anything they want without any evidence or support not matter how false what you say is.
    So my response is for people to read the report and decide for themselves.
    ONP decided they needed to have the audit to "reassure investors" as they just raised over $23 million dollars from investors in a capital raise. It appears that they were unable to "reassure investors" with their responses.
    2 Aug 2010, 01:48 PM Reply Like
  • megisto387
    , contributor
    Comments (18) | Send Message
     
    Author’s reply » seasaw:
    Once again you are ignoring the basic premise here. I am simply stating that we are left to assume that Muddy Waters' research is based on facts. I absolutely encourage anyone to read the report for themselves, but keep in mind that outside of the 10-k's and 10-q's, there is nothing to substantiate their "due diligence". If I am wrong about this, please point to a specific instance where they provide accurate factual documents that back up their opinion. Also, since you state that what I say is false, please point out where I have made any false claims. My article uses factual information backed by clear sources. I simply state those "facts" and draw my conclusions based upon those facts. Why does this offend you?
    2 Aug 2010, 02:52 PM Reply Like
  • Business Economics Analyst
    , contributor
    Comments (2565) | Send Message
     
    megisto387:
    I don't know how much simpler I can make it. If you doubt Muddy Waters, Muddy Waters provides you the phone numbers so you can call up the companies themselves. You could do that in a lot less time than it takes to write this article or make these posts about 'a leap of faith' you have to take, when you don't need to take a leap of faith at all - just follow-up yourself.
    Again, I recommend people just read the Muddy Water's report themselves and they can see the information. It seems pointless to continue arguing about the characterit as you simply ignore my points. People can read the Muddy Water's report themselves, rather than rely on your characterization of it or mine for that matter. I will make it easy for you, here is the link, muddywatersresearch.com, where you can find what I say for yourself.
    I am not offended but your article is a waste of time for evaluating ONP as an investment decision because the issue is ONP, not Muddy Waters. What is true about ONP or not is what is worth looking at. Your attack on Muddy Waters is a red herring.

     

    As I have explained infinitum, you are wrong that we are left to assume that Muddy Waters' research is based on fact. For example, as I said before, call the customers and suppliers yourself. You could do it in a lot less time that making these posts that contain no facts.
    No point arguing back and forth - anyone can read the Muddy Waters report themselves and see the what they provide.
    2 Aug 2010, 03:03 PM Reply Like
  • Michael Anderson
    , contributor
    Comments (321) | Send Message
     
    You also have to remember that they do not provide the info for some of the customers and question whether some are real and contact info for all of the companies could have been accessed shortly after the reports came out. So by just providing a phone number to some, that is not factual information into the contracts with these customers and their revenues. What makes you think that these companies would just readily give out information to anyone? As others have stated, MW has provided no actual facts and they have no evidence to verify their claims. You keep stating that you are using facts, but what facts? Where is your proof? All you are doing is questioning certain aspects and you are lacking in much information. I would also imagine that many of the customers and suppliers language is Chinese, making it difficult for those who do not speak the language. Do you speak Chinese? Have you called these customers and suppliers? If so, what was the response? Have you checked the AIC website to verify the information that ONP provided in its press release? Have you contacted Qinyang? Have you spoke to other paper companies to see if the equipment could cost $27 million? I am pretty sure I know your answers, but I would like to see your response. Myself, I am still working on getting as much info as I can and I do not speak Chinese so some of the research is difficult and takes a lot of time. Have you researched other paper companies? the questions could go on and on, but all you are doing is providing claims without actual knowledge or facts and trying to call out others that they are not providing substance with their comments. It goes both ways. Again, can you tell me the advertising costs for the other paper companies?
    2 Aug 2010, 03:28 PM Reply Like
  • Business Economics Analyst
    , contributor
    Comments (2565) | Send Message
     
    michael anderson:
    I have done my own instablogs on ONP. My point is that you can see the contradictions, problems and issues with ONP from their ONP's own SEC filings and website(s), as well as the videos by the two promoters.
    The first instablog uses representations solely from ONP to show the problems with the company and their representations. That instablog is entitled "Orient Paper (ONP): Does It Add UP? Questions for Tomorrow's Conference Call" and can be found at
    seekingalpha.com/insta....
    The second instablog is entitled "another bad video for Orient Paper Inc. (ONP) by a promoter of the company" and can be found at seekingalpha.com/insta....
    I continue to do my own research. It entails some of the work you ask about but not all of it. It also entails a lot more work that you do not ask about.
    I tend to focus on the representations of the company and I have found these inconsistent and disturbing. Please read my instablogs for facts, evidence, and what I believe is sound reasoning therefrom.
    It does not matter in the least that Muddy Waters does not provide all the information concerning the customers as they have to put limits on their work. Indeed, none of the analysts, Roth Capital, Hudson Securities, or Harbinger, or ONP for that matter, has provided the chinese name or phone number of any of the suppliers or customers as far as I know. Muddy Waters has provided by far the most information, so I am not going to criticism them for providing even more.
    Plus, even 1 misrepresentation by the company, much less multiple representations, is very problematic for me. It does bother me that the company does not provide information regarding the customer and supplier's phone numbers.
    Yes, I have seen the advertising and promotion costs for other paper companies and they are much higher. These are public companies and you can look at their 10ks and 10Qs yourself. Take a look at International paper at their website under investor relations, or take a look at 9 Dragons. Take a look at any publicly traded paper manufacturer that you wish.

     

    the second instablog
    2 Aug 2010, 03:48 PM Reply Like
  • megisto387
    , contributor
    Comments (18) | Send Message
     
    Author’s reply » seasaw:
    I do not have the ability to read, nor to speak, any Chinese, as is the case for most people following along from outside of China. Most people simply do not have the ability to follow up based on Muddy Waters' list of company names and phone numbers. In fact, nobody on the long or short side has made any claim of following up on this information. And this is the one and only piece of information that Muddy Waters' gives for anyone to try and follow up on.
    Muddy Waters does state how they came about these phone numbers. For the sake of argument, if Muddy Waters fabricated a few phantom phone numbers, how would we be able to verify any information for ourselves? There is no claim as to the veracity of these phone numbers. If I call and don't get an answer, what am I to assume? Does the company not exist or did Muddy Waters fabricate a bogus phone number?
    2 Aug 2010, 04:04 PM Reply Like
  • megisto387
    , contributor
    Comments (18) | Send Message
     
    Author’s reply » seasaw:
    It does matter that Muddy Waters does not provide all the information concerning the customers. They made the incredibly serious accusation of fraud. Without giving accurate and substantial information to support that position, they are the equivalent of a hit and run, and their argument loses credibility.
    2 Aug 2010, 04:27 PM Reply Like
  • esther heyman
    , contributor
    Comments (24) | Send Message
     
    Muddy Waters is perpetrating one of the more transparent stock manipulations. A couple of guys from USC travel to China and offer to write a glowing research on Orient Paper in exchange for hundreds of thousands of dollars.

     

    Upon being rebuffed, they short ONP and buy puts. They then write their VERY FIRST research report, filled with factual inaccuracies and unsubstantiated allegations.

     

    Investors panic, the stock falls by half, and - VOILA - a couple of guys from USC make a killing.

     

    The day of legal reckoning is fast approaching for Carson Block and Sean Regan. As of last Thursday, Orient Paper had hired a legal team to pursue prosecution based upon stock fraud. The company has also hired a Big Four accounting firm to publish an objective third-party audit.

     

    When the dust clears, ONP will be going up, whereas Block/Regan will be going down.
    2 Aug 2010, 07:01 PM Reply Like
  • FRALUC7682
    , contributor
    Comments (86) | Send Message
     
    Well I am a Belgian investor and are looking more and more in this Chinese market, and believe it or not, I like what I see.
    What I do not understand from you Americans in general is the way you seems to refuse the reality. Most of you, not all of course looks only to your markets, were the real power today is not there anymore.
    It are not only the Chinese, look in your back garden South America, use your eyes.
    Look, I am not anti America, in the contrary.

     

    Look in the history of the old world, upcoming and fading of powers and civilisations, and keep in mind... history repeats itself.
    Concerning ONP, I also invested in this stock and since the mw report I do not now what position to take. More and more I start to believe that MW just made false statements for their own profit. If that is the case how in hell are you convincing other nations to trust the Americans? More, how can thy trust the American stock markets?
    On the end of the story, suppose it comes clear that MW was wrong with their statements, what can you legally do? See their disclaimer.
    For sure in a lot of other nations this should result in a lot of problems for the composer.
    3 Aug 2010, 05:04 AM Reply Like
  • Business Economics Analyst
    , contributor
    Comments (2565) | Send Message
     
    meisto387:
    I am sorry. I did not know that you lacked the ability to do due diligence on Chinese companies, such as following up with customes and suppliers. Since that is the case, I am not sure why you are investing in them or writing articles supporting them, but, of course, that is your choice. Good luck to you but I have difficulty taking seriously any comments you have on ONP at this point if you lack the skills or abilities to follow up on Muddy Waters.
    Now I understand your post - you think you have to take a leap of faith to believe Muddy Waters. I suggest you realize that you have to take a leap of faith to believe ONP. You can easily see the problems and issues with ONP by reading their own SEC filings and looking at their website(s). I detailed this out in my instablog on ONP.
    Do you think ONP should provide all the information about the customers and suppliers? After all, they are the company who the investment decision is about and they have all the information. They haven't done that. They haven't provided any other than an English name that can't be translated into Chinese accurately without more information. Even with that paucity of information, ONP only provides the top 10 customers. Shouldn't they have provided all the customer and suppliers? ONP makes Muddy Waters look super thorough regarding customers and suppliers.
    Do you think roth Capital, Hudson Securities, or Harbinger should have provided all the information about he customers and suppliers? They didn't provide any information.
    Muddy Waters was able to do the due diligence that you admit you have lack the skills and ability to do. When you do a report, you cannot do everything or you could be working forever. Muddy Waters did a 30 page report. Did you want it to be longer. At some point, they needed to stop. they provided much more information on the customers and suppliers than anyone else and you are going to criticize them for not providing more? Especially when you can't even figure out how to get any and ONP and the analyst don't come close to provide the amount of information Muddy Waters does?
    Finally, if ONP is providing false information on even one customer and supplier, that is very problematic and worth putting into a report without mentioning any other customers or suppoiers. Here, Muddy Waters provided information that was problematic about a number of customers and suppliers. If you catch someone robbing a bank and report it, are you subject to criticism because you don't know or haven't reported all the times they stole from a bank or didn't steal from a bank? No.
    I am sorry, Megistor, but you simply make no sense to me.

     

    Good luck to you. I didn't realize you don't have the skills or ability to follow up on the information Muddy Waters provides, which is much more than customer and supplier information. If that is the case, I would be very careful if I were you investing in China at all. You app

     

    I didn't realize you didn't have the skills or abilities to follow-up with the information that Muddy Waters provides. I didn't realize you can't figure out all the information that Muddy WaI don't think it is that difficult.
    3 Aug 2010, 10:33 AM Reply Like
  • Business Economics Analyst
    , contributor
    Comments (2565) | Send Message
     
    Esther and Fraluc:
    You are accusing Muddy Waters of a fraudulent report without providing a single bit of evidence or support. In fact, you don't list anything in the Muddy Water's report you actually dispute or can disprove.
    In contrast to you, Muddy Waters did a 30 page report with facts, evidence, and sound reasoning there from. They provided interviews, names and phone numbers, pictures, cites to documents, etc.
    You make learn from Muddy Waters the due diligence you should put in before you start accusing someone of fraud.
    3 Aug 2010, 10:35 AM Reply Like
  • esther heyman
    , contributor
    Comments (24) | Send Message
     
    Begin with this outrage:

     

    "The main focus of the negative report was that ONP had somehow successfully deceived its auditors, BDO, as well as public and private investors, along with Roth Capital, which managed the last offering, and that its actual revenue numbers were a mere fraction of what was being reported to U.S. investors -- i.e., fraudulent.

     

    However, according to the emergency press release put out by the company on June 30, my former classmates were using the wrong data. 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. Still, Muddy Waters stated in a release Thursday that "our thesis that ONP is a fraud remains unchanged."

     

    In the new posting, Muddy Waters confirms that the 2009 financial numbers are in fact correct..."

     

    www.thestreet.com/stor...

     

    That's game/set/match, seasaw. These thieving clowns shorted Orient Paper and then publicly accused ONP of fraud based upon the financials of a totally unrelated entity.

     

    Block and Regan belong in prison.
    3 Aug 2010, 11:08 AM Reply Like
  • megisto387
    , contributor
    Comments (18) | Send Message
     
    Author’s reply » seasaw:
    I did not realize that length equals substance. In that case, I should go write a 31 page report on ONP with a few phone numbers, because that would make my report more credible than Muddy Waters'.
    ONP made their own detailed response, complete with links to photos, receipts, documents, and bank statements to back their response:
    www.sec.gov/Archives/e...
    The information in the response is also backed by auditors and actual companies in the paper industry that can be identified, which adds much more credibility than Muddy Waters.
    ONP is doing the right thing in waiting for the full results of the independent audit before they make any further responses.
    Also, I really enjoyed the fact that you pointed out on multiple occassions my lack of "skills and ability" in being able to research their customer list. Since you admit to being long and then short ONP, I'm assuming you have the "skills and ability" to do the research. By your own admission, it would take less time than writing posts and instablogs. If so, there are many people who would love to hear what you found. If not, then as you said to me, "I would be very careful if I were you investing in China at all."
    On a side note, I'm sure you'll try and sidestep this question, but what are your thoughts on my original article about Muddy Waters? Don't give me your "ad hominem" respones, either. Do you actually have a thought on the inconsistencies between what WAB Capital claims they do and Carson Block's story of what happened? There are actual facts there that can be verified.
    3 Aug 2010, 11:56 AM Reply Like
  • esther heyman
    , contributor
    Comments (24) | Send Message
     
    If you're short ONP, be afraid.

     

    Be very afraid:

     

    Orient Paper Audit Committee Announces Engagement of Deloitte & Touche Financial Advisory Services
    Tuesday, 03 August 2010

     

    Orient Paper, Inc. a leading manufacturer and distributor of diversified paper products in Hebei, China, today announced that the international law firm engaged by the Company's Board of Directors to conduct an independent investigation into the issues raised by Muddy Waters LLC, Loeb & Loeb LLP, has retained Deloitte & Touche Financial Advisory Services Limited ("Deloitte") to assist it.

     

    Deloitte will provide support to Loeb & Loeb, which is working with the Company's audit committee, in connection with the independent review of the accounting aspects of the issues raised and the investigation of the relevant financial transactions and customer relationships.

     

    "We are pleased that Loeb has retained Deloitte, which has outstanding capabilities, to support the full investigation of these issues," said Mr. Drew Bernstein, Chairman of Orient Paper's Audit Committee.

     

    pr-canada.net/index.ph...
    3 Aug 2010, 01:48 PM Reply Like
  • FRALUC7682
    , contributor
    Comments (86) | Send Message
     
    Good morning America;

     

    The handing thing to be a European is that I can compose this clarification when you are sleeping.

     

    Now returning on ONP, I wish to point out to ‘seasaw64' that I had no intention to accuse MW as fraud. What I just wanted to make it clear is their disclaimer.
    What I also wanted to point out is that it is possible that other games could be going on.
    On the other hand, MW is accusing ON as being a fraud.

     

    In my native langue there is a saying “wacht en zie” translated, wait and see.
    4 Aug 2010, 07:36 AM Reply Like
  • Business Economics Analyst
    , contributor
    Comments (2565) | Send Message
     
    Megisto:
    I disagree with you on ONP's response to Muddy Waters. For example, you say it gave paper companeis that could be identified, but it did not list a single customer or supplier in its response and did not provide any identifying information for these. I already commented on your original article above. I could careless about the information on W.A.B. and Carson Block, it is a red herring as I am only interested in assessing ONP, as it is the investment decision at hand.

     

    Esther:
    Most successful investors make a big point of saying that they only make investments decisions on facts, evidence and sound reasoning, not on emotion. You seem to think the opposite important. Furthermore, historically, when have you ever seen the board decide to hire a law firm to investigate fraud allegations against management and see it turn out good for the company?
    Finally, the investors required, in the capital raise, that the 3 new board members be appointed. Those 3 board members are the sole members of the audit committee and were the ones who decided to do the investigation. The investors will get 3 million more shares for free if ONP reports $0 net profit for 2010. The biggest investor, POPE Management, already sold out its shares. Any predictions as to the net income that ONP will end up reporting this year? Think the CEO will still be around?

     

    Fraluc:
    Again, the dislaimer is a red herring. ONP provides disclaimers. Each of the analyst, or the ex-analysts as Roth Capital and Hudson Securities have suspended coverage, have disclaimers. I disclaim putting much stock into making any conclusions just because a disclaimer exists. And, I disclaim that as well.
    4 Aug 2010, 10:01 AM Reply Like
  • megisto387
    , contributor
    Comments (18) | Send Message
     
    Author’s reply » seasaw:
    The focal point of your entire argument revolves around the customer list, and yet you continue to not disclose any information you found from researching the customer numbers that Muddy Waters provides.
    When you provide proof that the information Muddy Waters provides is factual, then yes, attacking their credibility becomes a desperate attempt at avoiding the truth. Since you have made no claim to making any attempt to verify the accuracy of the customer list, you are essentially saying that you are more inclined to believe Muddy Waters just because they provided a piece of information (whether real or made up) that ONP did not.
    That is why ONP has brought on a big four audit firm, Deloitte and Touche...to confirm as an independent and unbiased third party that ONP's information checks out.
    4 Aug 2010, 11:14 AM Reply Like
  • Business Economics Analyst
    , contributor
    Comments (2565) | Send Message
     
    Megisto:
    I just use the customer and supplier list as an example. I am not going to go through the entire Muddy Waters report to explain it for you all the places they provide ways to independently verify their information. It is also just one example as to why ONP's response is unsatisfactory. Again, I am not going to go through each point.
    Why I am not going to go through each point? Well, because I don't think we need to go beyond ONP"s own representations in the SEC filings, on their website, and in their promoter's videos to see the inconsistencies, issues and problems. I have detailed some of these in my own instablogs.
    As far as the Deloitte's financial advisory firm that was hired to assist Loeb & Loeb's investigation, there may be a conflict between the new board members and management. The new board members were placed on the board in compliance with ONP"s agreement with the investors in the recent capital raise. Another term in the capital raise is that the investors are entitled to and additional 3 million shares for nothing if ONP reports $0 net profit this year or a percentage of the 3 million shares equal to the percentage ONP fails to meet the $18 million net profit "make good" requirement by. These same board members hired the law firm and the financial advisory side of Deloitte to conduct the investigation into fraud. Any prediction as to ONP"s net profit reporting for 2010?
    4 Aug 2010, 11:31 AM Reply Like
  • megisto387
    , contributor
    Comments (18) | Send Message
     
    Author’s reply » seasaw:
    All I'm asking you to explain is your own personal research into the customer list, which you repeatedly avoid addressing. At this point, it's looking like less of an oversight on your part and more like a deliberate ommission because you have no valid information.
    4 Aug 2010, 02:27 PM Reply Like
  • Business Economics Analyst
    , contributor
    Comments (2565) | Send Message
     
    Megisto387:
    I have not focused my energies there because I do not believe that it necessary for me. If you find it necessary, go ahead to your heart's content. For me, the claimed increases of revenue by ONP with the reported changes in their product mix and the claimed size and turnover of their customer list, along with all my other research, was more than enough to disbelieve ONP's reported revenue. My internet searches, which I did not document, failed to find the claimed nonexisting companies, while I could easily find other chinese companies. ONP claimed on numerous occassions that it had long term relationships and contracts with customers that did not appear to be verified by the turnover. Add to that the detail that Muddy Waters was able to provide as an outsider researching the situation compared to the lack of detail that ONP provided in response, despite being the insider having all the information, added further confirmation to my belief.
    Likewise, my research into the supplier picture was enough for me. China is resourced starved, forced to import most of the raw materials they use to make paper. ONP itself report 34 other paper mills and International Paper, one of the largest paper making companies in the world, has a cardboard box plant right in Boading, Hebei. ONP had released press releases where it said (1) it was going to import paper; and (2) it was going to merge with other companies that had the raw materials to make paper. ONP was looking for raw material suppliers. Now, the report is that the ONP's has had long term, stable suppliers of raw materials? the main supplier turns out to have owned shares in ONP? And it turns out to be owned by the Chairman and not disclosed? And it turns out that its financial data reports little to no activity or revenue?
    Why don't you come up with some research and data of your own about ONP, rather than just harassing other people?

     

    Likewise, the undisclosed ownership of ONP's

     

    For me, a review of the claims of ONP regarding their business, their revenue and the reported turnover of the claimed customer list was sufficient to conclude that I did not believe ONP's revenue. Add to that the undisclosed ownership of the "alleged" main supplier by the CEO
    4 Aug 2010, 03:15 PM Reply Like
  • esther heyman
    , contributor
    Comments (24) | Send Message
     
    "Finally, the investors required, in the capital raise, that the 3 new board members be appointed. Those 3 board members are the sole members of the audit committee and were the ones who decided to do the investigation. The investors will get 3 million more shares for free if ONP reports $0 net profit for 2010. The biggest investor, POPE Management, already sold out its shares."

     

    According to Orient Paper CFO Winston Yen (Phone: +1-562-818-3817), the above statement is false.

     

    Care to provide documentation for your claims, seasaw? That is more than Muddy Waters has been able to do.
    4 Aug 2010, 03:19 PM Reply Like
  • esther heyman
    , contributor
    Comments (24) | Send Message
     
    I will hold long into the audit.

     

    You hold short.

     

    But make sure that you're on the ground floor when the news hits, lest your self-defenestration result in serious bruising.

     

    Even allowing for schadenfreude, the financial trauma that you are about to experience will be quite sufficient.
    4 Aug 2010, 03:29 PM Reply Like
  • Business Economics Analyst
    , contributor
    Comments (2565) | Send Message
     
    Esther:
    See ONP's 8k filed On October 7, 2009, wiht the SEC. Here is a link: www.sec.gov/Archives/e....
    Here is a link to a report of Pope's portfolio. www.fatpitch.biz/cgi-b....
    I must disagree with you about Muddy Waters. I found their claims well documented and ONP's claims not to be well documented.

     

    ONP entered into a securities purchase agreement with, among others,Pope Investments II, LLC. The Securities Agreement has a "make good" clause, requiring ONP to escrow 3 million shares and, if they don't meet the performance threholds for 2010 for net income, either all - if net income is $0 or less - or a percentage - if net income is less than the performance threshold but greater than $0 - gets distributed pro rata to the purchasers.

     

    PSee ONP's 8k filed 10-8-2009 which summarizes the Securities Purchase Agreement with, among others Pope Investments II, LLC, and attached the agreement as on Exhibit..

     

    DEF 14C filed 10-2-2009 with the SEC.

     

    Are you familiar with SEC filings? ONP files those. I read them.
    Ah, Mr. Yen, former CFO to Chilco River Holdings.

     

    www.sec.gov/Archives/e...

     

    Sure, Muddy Waters has provided documentation for their claims and I will continue to provide documentation for mine. Are you familiar with SEC filings, Esther? You can find the information in ONP's SEC filings - it comes from them.
    4 Aug 2010, 04:15 PM Reply Like
  • esther heyman
    , contributor
    Comments (24) | Send Message
     
    You repeatedly forget to respond to the first order of business, the point at which Muddy Waters thermo-nuked its own credibility:

     

    "The main focus of the negative report was that ONP had somehow successfully deceived its auditors, BDO, as well as public and private investors, along with Roth Capital, which managed the last offering, and that its actual revenue numbers were a mere fraction of what was being reported to U.S. investors -- i.e., fraudulent.

     

    However, according to the emergency press release put out by the company on June 30, my former classmates were using the wrong data. 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. Still, Muddy Waters stated in a release Thursday that "our thesis that ONP is a fraud remains unchanged."

     

    In the new posting, Muddy Waters confirms that the 2009 financial numbers are in fact correct..."

     

    Oooops!

     

    That's like declaring Apple Computer insolvent, then having to admit that the financial reports you reviewed were actually of Crabapple Computer.

     

    Amateur hour at best.

     

    More likely, Short The Stock And Then Libel The Company hour.

     

    Just stay short the stock, seasaw.

     

    Just stay short the stock.
    4 Aug 2010, 05:12 PM Reply Like
  • Business Economics Analyst
    , contributor
    Comments (2565) | Send Message
     
    Esther:
    You ignored my cite to the SEC filings about the 'make good' agreement. Did you conclude the CFO lied to you? Are you upset about it? Do you trust anything from ONP now?
    We weren't discussing your first order of business. But the company's response and your post make no sense, causing extreme doubt of the company's credibility. ONP focused on the difference between the English names as translated. However, a chinese name can be translated several ways into English, so that is unimportant. What is important is the Chinese name, which Muddy Waters showed was the same.
    You can't translate the english name back into the chinese name without more info. ONP had to know the importance was the Chinese name, not variations in the translations into the English name. Therefore, ONP was making a defense that they had to know made no sense if one knew about english and chinese and translating between the two.
    4 Aug 2010, 05:20 PM Reply Like
  • esther heyman
    , contributor
    Comments (24) | Send Message
     
    Stop with the sophistry:

     

    "In the new posting, Muddy Waters confirms that the 2009 financial numbers are in fact correct..."

     

    The 2009 numbers are universally stipulated to be correct, therefore this statement of yours is false:

     

    "However, a chinese name can be translated several ways into English, so that is unimportant. What is important is the Chinese name, which Muddy Waters showed was the same..."

     

    Wrong. Muddy Waters acknowledges they screwed up, but you continue to toe a party line that even the party now renounces.

     

    Prior to discussing your other points, I want to see you admit that Muddy Waters falsely accused ONP based upon reviewing the financial statement of an unrelated company. If you cannot bring yourself to do that - despite the fact that Muddy Waters has already stated as much - then you are simply oblivious to reality.
    4 Aug 2010, 05:58 PM Reply Like
  • Business Economics Analyst
    , contributor
    Comments (2565) | Send Message
     
    Esther:
    are you deliberating leaving out words in sentences to make false representations? Muddy Waters does not agree that they made a mistake or that the numbers for ONP that ONP claims are correct. Anyone can easily see that at their site muddywatersresearch.com.
    I can't tell if your reading comprehension is poor or you are just making misrepresentations intentionally.
    Anyway, the important question is whether ONP, not Muddy Waters, is truthful. Did you get own taste of their deception? If so, why would you ignore that as ONP's credibility is what is important here?
    In other words, who care about Muddy Waters? Muddy Waters could be the devil itself, but it will not help you if you believe ONP's representations and their representations are false. the investment decision being discussed is in ONP, not Muddy Waters.
    4 Aug 2010, 06:04 PM Reply Like
  • esther heyman
    , contributor
    Comments (24) | Send Message
     
    I found the assertion by Muddy Waters that you referenced, and it does differ from Pearson's claim that they had acknowledged error. However, it consists of providing an SEC dead link, which is consistent with the inadequate quality of their/your analysis:

     

    www.muddywatersresearc...
    4 Aug 2010, 07:09 PM Reply Like
  • esther heyman
    , contributor
    Comments (24) | Send Message
     
    And then there's this via MuddyWatersResearch.com:

     

    July 22, 2010 – One Billion Chinese People Can’t Be Wrong That ONP is a Fraud

     

    As of the time of publication, 90.7% of respondents to an online poll conducted by Sina.com. (Nasdaq: SINA) believe that ONP is committing fraud. (survey.finance.sina.co...)

     

    www.muddywatersresearc...

     

    ONP is proven guilty by an online poll!

     

    Seasaw, you and Block and Regan should be careful not to follow the elephants too closely or you will ruin those big shoes of yours:

     

    www.marnieweber.com/im...
    4 Aug 2010, 07:22 PM Reply Like
  • Business Economics Analyst
    , contributor
    Comments (2565) | Send Message
     
    Esther:
    Thank you. The SEC filings are publicly available to everyone through the internet through MSN and Yahoo. I suggest you try to find the document as it will help you get used to navigating through SEC documents, which is essential if you are providing commentary on publicy traded companies. When you get used to it, you will find it very easy to find.
    I don't know what that means about following the elephants too closely. Listen, I don't like the name Muddy Waters. I don't like the title "1 billion Chinese agree." I don't find everything in the Muddy Waters report persuasive.
    However, I have done my own due dligence and research. I have utilized some of the facts and evidence and sound reasoning therefrom that I obtained from the Muddy Waters report and followed up on these issues myself.
    I recommend each person do their own work and due diligence and come to their own conclusions. When you have done some due diligence, research and work of your own, let me know. Thanks.

     

    It is very easy to find the SEC filings. You can find them through looking up the company by its ticker symbol in the financial section of MSN or Yahoo.
    5 Aug 2010, 12:04 AM Reply Like
  • esther heyman
    , contributor
    Comments (24) | Send Message
     
    Thank you for the continuing condescension and endless ad hominem diatribes. Using them as substitutes for logic and reason represent your tacit admission of defeat .

     

    When your due diligence belatedly produces one fact that proves ONP malfeasance, please be kind enough to share it.
    5 Aug 2010, 07:36 AM Reply Like
  • Business Economics Analyst
    , contributor
    Comments (2565) | Send Message
     
    Esther:
    Defeat for what? You ask for cites and I provide them. For some reason, you keep ignoring them.
    I have already done 2 instablogs on ONP on Orient Paper based on it own representations in its SEC filings and on its website. a
    I have also done a 3rd one on the outlook for the Chinese Paper Industry.
    5 Aug 2010, 10:13 AM Reply Like
  • esther heyman
    , contributor
    Comments (24) | Send Message
     
    post script

     

    The mendacious seasaw is now on yahoo message boards promoting the long side of ONP. He is enthusiastically bullish:

     

    Buying 100,000+ shares tomorrow 9-Aug-10 06:15 pm
    before ONP's incredibly good earning release. FYI, used to be short, now long because I've come to realize there's no way ONP can go down lower than it has already.

     

    seasaw6496

     

    messages.finance.yahoo...

     

    And Muddy Waters? Well, having done their damage to ONP they are moving on to their next con job:

     

    Research

     

    Muddy Waters, LLC Moving On

     

    Barring any unforeseen events, Muddy Waters, LLC is “moving on” from our work on ONP. We are focusing on confidential contract research for institutional investors, and on advising investment committees on their China investments.

     

    Although more could be written on ONP, we do not expect to publish additional research on it (barring any unforeseen circumstances). Given that the internal investigation is underway and other researchers are now focused on ONP, Muddy Waters’ resources are best directed elsewhere.

     

    For institutional investors interested in our research and advisory services, please contact us at:

     

    Email: info@muddywatersresear...
    Telephone: +852 3757 7702

     

    muddywatersresearch.co.../
    10 Aug 2010, 04:25 PM Reply Like
  • Business Economics Analyst
    , contributor
    Comments (2565) | Send Message
     
    disclosure: I am short ONP.
    11 Aug 2010, 02:18 AM Reply Like
  • Guest3585
    , contributor
    Comments (7) | Send Message
     
    That disclosure looks eerily similar to another one I've seen...
    11 Aug 2010, 02:49 PM Reply Like
  • Business Economics Analyst
    , contributor
    Comments (2565) | Send Message
     
    Guest3585:
    People are creating names with seasaw and other numbers on the end and saying they are long the stock. I was originally long the stock. After seeing the Muddy Water's report and redoing my own due diligence, I concluded I was fooled, sold the stock, and then, after more work, went short the stock several days later. I have been short ONP since. Just wanted to make sure there was no confusion with these other posters who have adopted the name seasaw.
    11 Aug 2010, 03:16 PM Reply Like
  • jack789
    , contributor
    Comments (148) | Send Message
     
    Looks like Muddy Waters was right. See Business Week, Jan 17 2011 pp 58-63. Right about ONP and a bunch of other Chinese wonder stocks.
    16 Jan 2011, 03:23 PM Reply Like
  • lmcat
    , contributor
    Comments (8) | Send Message
     
    Maybe Citron and Muddy Waters should be aware of the consequences available for their attack on CCME.
    Barry Minkow's New Scandal
    A judge slams the purportedly redeemed con man with huge sanctions
    A A AComments (10) By Beth Barrett Thursday, Jan 6 2011
    A Miami judge has ruled that former Los Angeles con man Barry Minkow lied, concealed material witnesses and destroyed or discarded key evidence in the libel and extortion lawsuit filed against him by home-building giant Lennar Corp. By doing so, Minkow has forfeited his right to defend himself in the case, the court said.

     

    www.laweekly.com/2011-.../#
    9 Feb 2011, 12:06 AM Reply Like
  • Business Economics Analyst
    , contributor
    Comments (2565) | Send Message
     
    I don't think there is anything analogous between Barry Minkow's conduct in litigation, which is what he got in trouble for, and Citron and Muddy Water's reports on CCME, which appear completely accurate. CCME's conduct is more analogous to Barry Minkow and so they should be more worried about whether a similar fate will befall them.
    11 Feb 2011, 03:50 AM Reply Like
  • Ricard
    , contributor
    Comments (3829) | Send Message
     
    I don't remember how I got referred here, but this was a fascinating read.

     

    Given the 18 months since the ONP allegations came out, it's hard to have any good words to say about Rick Pearson's judgment, or to have continued reservations about Carson Block's due diligence.

     

    Regarding this comment:

     

    "Apparently, to Carson Block, helping Rick Pearson out means letting him go home and invest his money and reputation in ONP while you go home and accuse it of fraud. If Carson had genuinely wanted to help Rick Pearson out, he would have had a professional discussion as to how he felt about ONP during that car ride. If Rick, in his own professional opinion, chose to ignore Carson’s insight, then it would be at his own peril and he would deserve what was coming to him. But for Carson to never say anything while claiming he “wanted to help Rick out,” it really brings into question Carson Block’s character and motives."

     

    "Or maybe it was just illogical…"

     

    Well, it would be "illogical" to tell a journalist you were considering shorting the stock when you had not finished all of your due diligence. It would also be illogical to tell anyone about your intended position until AFTER you took it. Some may cite conflict of interest, but IMHO a "real" conflict of interest would be someone pumping up something that they were actively shorting in secret (i.e., Goldman Sachs). After all, Warren Buffett waxes prolific over positions he's taken, not positions he's intending to take.

     

    All I see is smart business on the part of Carson Block. He was in the right place at the right time with the right skillset and connections. We can only wish to have such luck in our endeavors.
    18 Jan 2012, 03:19 PM Reply Like
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