TRE - Sino-forest put.

[cwericb]

"That being said, I didn't see that news article."

 

At least I'll concede points for honesty.

[given2invest]

I don't even know someone short this.  In fact, since you're long it - I hope it turns out to be legit and goes to 20.  Further, it would provide huge embarrassment to Paulson which would be hilarious to me. 

 

;)

[libor.plus1]

 

“Wow... umm. Sino forest postponed the analyst tour for their forests... the excuses they give are bullshit. This is really not a good sign.”

 

So Sino cancels the tour as they have something to hide? But if you read the story it plainly says.....

 

“Analysts confirmed that they advised the company to postpone the trip because it wouldn’t be helpful.”

 

So to be balanced, it was Sino’s tour, therefore only Sino could postpone it. However, it was the invited analysts that asked that the tour be delayed. It is a little misleading to suggest that Sino is doing it because they have something to hide. The analysts reasonably felt that it would make more sense to do a tour after the audit. Once that is in we should have a better idea of what is going on.

 

Let's just suspend belief for a moment, regardless of what side you're on.

 

The analysts have previously stated that they dropped coverage because of a lack of information. Now consider yourself an analyst. You have 5+ years and your reputation on the line. You don't know what's true and not. Are you really going to say "meh, I don't really see a point in this tour until the report is done..." or are you going to jump at the chance to see with your own eyes wtf is going on?

 

Know this like you would know to pull out of a girl who isn't on the pill: If you are accused of a fraud of this magnitude, you would do everything in your power to provide proof that you are legitimate. If this means that the analysts want Poyry there, you will make it happen. If that means the you dont sleep for a few days so you have more time to meet with PwC and tour with the analysts, you will make it happen. If that means firing the lawyers who apparently advised you a buyback is a bad idea, giving information to analysts on a tour is a bad idea, and keeping quiet is a good idea, then you fire the lawyers. Whatever it takes to make sure the analysts feel a  tour is worth their time and makes it happens.

 

Boy, this just keeps getting better. See my post directly above  ???

 

I do see your post. I assume anyone that's going to comment on the press release has read it and other relevant information, such as what the analysts themselves had to say as to the reasons they decided the tour wasnt worth it. The analysts specifically referred to two things, both of which I included in my post:

 

They would need to meet with Poyry, and that they need to get more info from mgmt/PwC. Apparently this isn't possible, and the only party in a position to tell that to the analysts is the company. Bullshit.

[cwericb]

given2invest

 

As far as long or short is concerned I wasn't even in this thing until a couple of weeks ago when I bought a very small amount, but right about now I wish I had bought a lot more.

 

Boy I wouldn’t like to be in Paulson’s shoes. He looks bad however this turns out. Right now he has lost a bundle. If it goes to zero he looks bad for getting into it in the first place. But if this thing recovers he will look even worse.

 

 

[Kraven]

I don't have any dog in this fight, but I find the situation interesting.  I have done plenty of DD in my time.  The fact that the analysts don't want to make the trip says nothing.  It doesn't change anything.  It's a long trip.  People are busy.  If the things they need to see and the people they need to meet aren't available, why waste the time.  It doesn't matter how urgent you feel it is, if you can't do it right, why bother.  That being said, the company's actions are curious.  I have known several crisis management teams and either this company doesn't have one working with them, or they aren't good at what they do.  I am not commenting on the substance of what the company is or isn't, but the perception and the news. 

 

The company should be wanting to put this to bed as quickly as they can.  As someone else mentioned, if that means they work all day and night so be it.  The auditors work for the company.  Believe me, if the company called up senior management there and said this is top priority, drop everything because we're in crisis, the auditors would have a team there doing it.  Now if the auditors feel their rear is on the line, they will hesitate.  Everyone is now trying to cover themselves.  The auditors feel they have potential liability here so they aren't going to move at lightspeed.  So that is the conflict.  The company may be pushing them to work faster, but the auditors aren't going to do that.  The company can't "fire" them now as that wouldn't look good even if nothing is going on.  It's a tough situation.  You would think that if everything is kosher they could fix this in due course.  The fact that this has lingered is probably not a positive sign. 

 

As my crisis management friends would say, be truthful, and get it out there fast, loud and often.  It's when the truth is grey (or there isn't truth, but lies) that it mushrooms.  I'll be interested to see how it all plays out.

[cwericb]

 

 

libor.plus1

 

I’m not sure of the point you are trying to make, but you keep confusing the G&M article with a press release. There could be a big difference in bias.

 

I also  don’t know where the BS comes in.

 

“Wow... umm. Sino forest postponed the analyst tour for their forests... the excuses they give are bullshit. This is really not a good sign.”

 

“They would need to meet with Poyry, and that they need to get more info from mgmt/PwC. Apparently this isn't possible, and the only party in a position to tell that to the analysts is the company. Bullshit. “

 

Anyone who has followed this for any time knows that we all have to wait for the PWC report to come in before we know what is going on and that is nothing new.  That is simply a fact and not BS.

 

 

Kraven

 

Agree with what you are saying, but don't you think that because things are not so simple in China and that this company is spread fairly wide, that this is why the audit will take a while. Also & I may be wrong here, but wasn't their regular auditors E&Y and now PWC is doing this special audit?

 

 

[Parsad]

Good post Kraven!  You're correct.  And unfortunately the longer the delay occurs, the worse it is for everyone involved.  Really, they should have opened up their books entirely to squash this.  The fact they didn't is either they realize there are gaps in their data, perhaps due to poor administration and oversight, or worse!  This all plays into the hands of MW's.  

 

So if the company isn't fraudulent, but more careless than anything else, this is killing their reputation.  If they are fraudulent, it will come out over time, but shareholders are biting their nails as they wait.  Cheers!

[Parsad]

Agree with what you are saying, but don't you think that because things are not so simple in China and that this company is spread fairly wide, that this is why the audit will take a while. Also & I may be wrong here, but wasn't their regular auditors E&Y and now PWC is doing this special audit?

 

If someone accused me of the same thing, I would tell all of the analysts and regulators that my books are completely open.  Please come and inspect them all and we will assist you in any manner.  I wouldn't wait for the auditors to do a special audit.  Either the cash is there or it isn't...show the bank and brokerage statements.  Either the land titles and leases are there, or they aren't...show the documents. 

 

Why aren't all these documents in PDF on the server at head office.  They should all be immediately accessible and not in some remote location.  The land titles should have complete surveyable data.  They should be spending thousands to take the analysts to the various locations where the bulk of the land assets are.  This could be done very quickly and should not take months.  This is poor administration and management.  Auditors will take their sweet ass time doing all of this, and in the meantime, the company and shareholders suffer while eventually footing a bill for millions.  Cheers! 

[Kraven]

 

Kraven

 

Agree with what you are saying, but don't you think that because things are not so simple in China and that this company is spread fairly wide, that this is why the audit will take a while. Also & I may be wrong here, but wasn't their regular auditors E&Y and now PWC is doing this special audit?

 

 

 

 

I don't recall whether they are using PWC as a special auditor or not.  I haven't followed the situation that closely.  There are a couple of points I can make.  If PWC is doing this special audit, apart from their regular accountants, that shouldn't really matter.  It does take time to get the lay of the land when you get a new piece of business (I'm talking about the accountants here), but this is what they do.  PWC obviously took the job.  They have been doing this for quite a while now if I'm not mistaken.  Is it weeks?  A couple months?  I don't even remember any more.  If company management called up PWC management and said "this is bad, we are being accused of something that is 100% false and we need help.  Send us your best people and as many as you can.  This needs to be done yesterday."  PWC should be able to do that.  This is what they do and they would want to make a great impression and try to steal the business from E&Y.  

 

You are right that things are different in China.  Different cultures do things differently.  That doesn't mean that things are fraudulent.  However, even if it's not done the way "we" would do it, there is a "way".  That is, there is a truth out there.  How long should it take to find that truth?  And if it's grey, that is, ownership is murky, that is obviously a very bad fact.  If it isn't grey, then find the papers, let the auditor sign off on it.  It's not like PWC doesn't have teams in China at this point who know the people, the language, the culture, the customs, etc.  

 

I suspect that at best it is very grey.  The truth won't be absolute in this case.  If it was, my gut tells me it would have come out already.  That means that there IS crisis control going on, but it's complicated and they are organizing things.

 

 

[Kraven]

Sanjeev, I agree completely.  Everything should be on pdfs.  It might not be which is careless of them.  But it shouldn't take this much time which is why I suspect at best the truth is grey.

 

Look, at the end of the day, we all want to say hey, if they're perfectly above board why should they have to do this?  And that is true, but unfortunately not the world we live in.  They have been accused of something, right or wrong, and they should have "opened the kimono" as we used to say in less pc times.  The fact that they haven't is a bad fact.

[Parsad]

I do SOX control work for Alnesh's accounting firm.  So we are involved in testing and setting up controls for various companies, from small junior exploration to TSX/dual-listed companies on larger boards.  I pretty much do the same thing as the auditors do, and I can tell you for a fact that I could examine all their accounts & documents, find inconsistencies, and verify assets within two weeks...by myself!  A week inspecting documents and a week travelling to inspect properties, inventory, etc.  Maybe an extra week if the area is extremely remote and it would take a few extra days getting there. 

 

There is no reason this has to take months.  Auditors just take their sweet time because they have so many other clients, and they expect to ramp up their billing for "at-risk" work such as this.  Meaning, if our reputatation is on the line, we are going to bill the hell out of you, so even if we are wrong, we still get something out of this!  Cheers!

[Kraven]

Good points, so think what they could do with a big team.  Nothing wrong of course with them billing extra for "hazard" work.  The only thing I would disagree with you about is them taking their sweet time because they have other clients.  I maintain that if the client (the company) calls senior management at PWC and makes a fuss, they will be all over it.  The fact that this hasn't happened isn't good.

 

A further thought Sanjeev to your earlier point.  If the gaps are simply due to carelessness and oversight, that obviously isn't good, but it isn't fraud.  Honestly, at this point, the answer would be that someone senior enough would become the sacrificial lamb and be hung out to dry.  They would say we are so sorry, we (management) did not exercise proper oversight and we are dedicating ourselves to putting proper procedures in place.  We have gotten rid of the bad apple and this will never happen again.  We will restate, as necessary, and we look forward to regaining your trust.  That this hasn't happened is again a bad fact.  I have no idea if this plays in at all, but in the Asian culture there is a lot of weight placed on face saving, pride and the like.  It is not a culture that likes to admit they are wrong.  All of these things could be weighing on the ultimate resolution of the issue.

[S2S]

I suspect at best the truth is grey.

 

I agree. Deloitte Touche was Longtop Financial Technologies' auditors, yet at the end of the investors were still left holding the bag (see article http://nyti.ms/jVFDuO). I find it hard to believe the difficulty these "namebrand" auditors have can merely be attributed to information being lost in translation.

[Parsad]

The only thing I would disagree with you about is them taking their sweet time because they have other clients.  I maintain that if the client (the company) calls senior management at PWC and makes a fuss, they will be all over it.  The fact that this hasn't happened isn't good.

 

No, not necessarily.  I see it all the time.  A client has a crisis and they contact the auditors or accounting firm last minute.  The firm tries to send out anyone they can spare, but that can be affected by seasonality of staffing, or even inability to outsource the work to contractors.  The last thing partners actually want to do is the actual grunt work...they've paid their dues!   ;D  So, generally the project may be extended over time when it is something that isn't tax related or needs immediate filing with regulators.  

 

In this case, the audit firm needs to make sure they've done their due diligence before providing any report, thus they are going to take as much time as they need to affirm their data.  And they definitely won't risk alienating any of their other clients who are in good standing and not at risk of being fraudulent.  

 

A further thought Sanjeev to your earlier point.  If the gaps are simply due to carelessness and oversight, that obviously isn't good, but it isn't fraud.  Honestly, at this point, the answer would be that someone senior enough would become the sacrificial lamb and be hung out to dry.  They would say we are so sorry, we (management) did not exercise proper oversight and we are dedicating ourselves to putting proper procedures in place.  We have gotten rid of the bad apple and this will never happen again.  We will restate, as necessary, and we look forward to regaining your trust.  That this hasn't happened is again a bad fact.  I have no idea if this plays in at all, but in the Asian culture there is a lot of weight placed on face saving, pride and the like.  It is not a culture that likes to admit they are wrong.  All of these things could be weighing on the ultimate resolution of the issue.

 

You are correct here.  There still may be a sacrificial lamb, and I suspect that the company really isn't fraudulent, but just truly horrible at maintaining records and oversight.  Whether people like it or not, there is definitely a cultural aspect to this...titles are received by paying off officials, regulatory oversight is minimal or non-existent, inter-company transactions are nebulous, and lastly the usual trait of saving face!  It's why we've never invested in Chinese companies.  It's tough enough understanding and grasping accounting rules, legal ramifications, tax laws and property rights in your own country.  How much more difficult is it to try and master it where there is a seismic shift in cultural differences?  Cheers!

[ubuy2wron]

The only thing I would disagree with you about is them taking their sweet time because they have other clients.  I maintain that if the client (the company) calls senior management at PWC and makes a fuss, they will be all over it.  The fact that this hasn't happened isn't good.

 

No, not necessarily.  I see it all the time.  A client has a crisis and they contact the auditors or accounting firm last minute.  The firm tries to send out anyone they can spare, but that can be affected of seasonality of staffing, or even inability to outsource the work to contractors.  The last thing partners actually want to do is the actual grunt work...they've paid their dues!   ;D  So, generally the project may be extended over time when it is something that isn't tax related or needs immediate filing with regulators. 

 

In this case, the audit firm needs to make sure they've done their due diligence before providing any report, thus they are going to take as much time as they need to affirm their data.  And they definitely won't risk alienating any of their other clients who are in good standing and not at risk of being fraudulent. 

 

A further thought Sanjeev to your earlier point.  If the gaps are simply due to carelessness and oversight, that obviously isn't good, but it isn't fraud.  Honestly, at this point, the answer would be that someone senior enough would become the sacrificial lamb and be hung out to dry.  They would say we are so sorry, we (management) did not exercise proper oversight and we are dedicating ourselves to putting proper procedures in place.  We have gotten rid of the bad apple and this will never happen again.  We will restate, as necessary, and we look forward to regaining your trust.  That this hasn't happened is again a bad fact.  I have no idea if this plays in at all, but in the Asian culture there is a lot of weight placed on face saving, pride and the like.  It is not a culture that likes to admit they are wrong.  All of these things could be weighing on the ultimate resolution of the issue.

 

You are correct here.  There still may be a sacrificial lamb, and I suspect that the company really isn't fraudulent, but just truly horrible at maintaining records and oversight.  Whether people like it or not, there is definitely a cultural aspect to this...titles are received by paying off officials, regulatory oversight is minimal or non-existent, inter-company transactions are nebulous, and lastly the usual trait of saving face!  It's why we've never invested in Chinese companies.  It's tough enough understanding and grasping accounting rules, legal ramifications, tax laws and property rights in your own country.  How much more difficult is it to try and master it where there is a seismic shift in cultural differences?  Cheers!

Parsad there is another reason other than fraud etc for the lack of records and secrecy in China. Often it is to hide the graft, my guess is to acquire these types of land holdings if they were acquired a lot of palms had to be crossed with a lot of silver ,this is unfortunately the way business is conducted in many parts of the world esp. in China. I agree with you that this is a silly exercise too hard to ponder pile for me it makes much more sense to me to figure out if I should short Netflicks or Lululemon than this thing

[dcollon]

From Bloomberg re: Paulson

 

http://www.bloomberg.com/news/2011-07-07/paulson-s-main-fund-lost-11-on-sino-forest-sale.html

 

[cwericb]

Couple of quick points

1) It is refreshing to see some objective analysis here for an change.

2) I think that we will see “gray” areas-, but how much & how gray is my concern.

3) Yes fraud is fraud, at least in the Western world. But in some other areas it is not so cut and dried. Payoffs under the table and off the books may be hard to explain, but are simply the cost of doing business in some place.

4) Being a Canadian company I thought they had to conform to GAAP accounting rules with audited oversight?

 

The saving factor for Sino may well be that it is a major player in a very important commodity for China

[Guest Hester]

 

It's tough enough understanding and grasping accounting rules, legal ramifications, tax laws and property rights in your own country.  How much more difficult is it to try and master it where there is a seismic shift in cultural differences?  Cheers!

 

It's much easier than that. 

Chinese companies, with Chinese management, living in China, do not have to answer to any laws as long as they commit their fraud only in America and only ripoff American investors. There is no extradition treaty between the PRC and the US. The crooks at many fraudulant Chinese reverse mergers (and a few IPO's) will never have to sit in jail or face fines as long as they stay in China.

 

This fact alone should preclude anyone from ever investing in a Chinese company solely listed in North America.

 

 

[lessthaniv]

Personally, I think its instructive to chronologically review what Orient Paper has overcome in the last 12 months. Funny how the original research report was given so much press, yet the end result has received very little press.

 

Jan 2010 :

 

In January of 2010, according to the company's CEO Mr. Zhenyong Liu, Orient Paper was visited by representatives of a research firm known as W.A.B. Capital , which is owned by Mr. Bill Block. The two representatives of W.A.B. Capital, Mr. Carson Block, who is Mr. Bill Block's son, and Mr. Sean Regan, toured the plant for less than an hour and then offered to publish a positive research report in exchange for a large sum of money and equity compensation. We refused their offer. The next we heard from these gentlemen was on June 28, 2010, when they published a 30 page report under the name of a new firm named Muddy Waters, LLC ("Muddy Waters"), alleging that our company was a fraud and that management had misappropriated investors' money

 

http://www.scribd.com/doc/55331985/Muddy-Waters-Research-ONP-June-2010

 

In the following article, Richard Kelertas, an analyst at Dundee Capital Markets suggests the sum discussed for the positive research report was $300,000. That sum is confirmed buy other new articles published on the matter.

 

http://www.workingforest.com/bay-street-veteran-fires-back-sino-forests-accuser/

 

May 2010:

 

Orient Paper trades around $8-$9 per share.

 

June 2010:

 

In June of 2010 Carson Block started a brand new research firm Called Muddy Waters Research. Other than a brief stint with his Dad's firm, Carson has no verifiable experience as a research analyst. He has no apparent industry experience in the Pulp & Paper industry. Carson Block does not carry credentials or licenses such as CFA, Series 7 or 63. If Carson Block was a member such organizations like the CFA society he would be in direct violation of its codes of conduct.

 

After being turned downed from Orient Paper for providing a positive research report in exchange for $300,000 and equity, Carson launches a scathing research piece (attached above) calling Orient Paper a fraud.

 

A summary of that report (as provided by Muddy Waters) is listed below (full report linked above):

 

We are confident that ONP is a fraud. Its purpose is to raise and misappropriate tens of millions of dollars.

 

   Approximately $30 million has been misappropriated since October 2009.

   ONP overstated 2008 revenue by 27x.

   ONP overstated 2009 revenue by 40x.

   ONP’s claims about its top 10 customers support our fraud conclusion.

   ONP overvalues its assets by at least 10x.

   The value of ONP’s Production Lines is greatly overstated.

   ONP’s inventory is overstated by millions of dollars.

   ONP’s claim of inventory turnover of 32.5x and 16.8x in 2008 and 2009 (respectively) are without credibility when compared to those  of China’s industry leaders, which range from 4.3x to 7.7x.

   ONP overstates its gross profit margin by hundreds of basis points.

 

Rick Pearson is a Beijing-based private investor focusing on U.S.-listed China small-cap stocks. Until 2005, Pearson was a director at Deutsche Bank, spending nine years in equity capital markets in New York, Hong Kong and London. Previously, he spent time working in venture capital in Beijing. Mr. Pearson graduated magna cum laude with a degree in finance from the University of Southern California and studied Mandarin for six years. He has frequently lived, worked and traveled in China since 1992.

 

Rick wrote the following linked article. He toured Orient Paper the same day that Carson Block and Sean Regan did and shares his experience with these two old classmates.

 

http://www.thestreet.com/story/10797742/1/orient-paper-story-behind-fraud-report.html

 

The company itself denies any wrongdoing, and shows some glaring errors in the Muddy Waters Research Paper. For instance this little beauty:

 

Among the many inaccuracies in the report, Muddy Waters points to a "smoking gun" that they claim proves Orient Paper "overstated its 2008 revenue by 27 times." The report claims that this supposed "smoking gun" is that the audited 2008 PRC financial statements for "He Bei Oriental Paper Co. Ltd.", which they claim is Orient Paper's China operating subsidiary, shows revenue of only RMB 16.3 million or approximately $2.4 million vs. the $65.2 million that Orient Paper claims HBOP generated in its SEC filings. The problem with this supposed "smoking gun" is that "He Bei Oriental Paper Co. Ltd." is not Orient Paper's China operating subsidiary. Orient Paper's China operating subsidiary is "Hebei Baoding Orient Paper Milling Co., Ltd". Even though the names may sound similar, "He Bei Oriental Paper Co., Ltd." is a very small paper manufacturer in Baoding and Orient Paper has no direct or indirect relationship with this company

 

July 2010:

 

In July 2010, plagued by a stock price that has fallen by 50%, the Audit Committee of the Board of Directors of Orient Paper firmly believing that the allegations made by Muddy Waters are categorically false and without merit decide  to take the exceptional step of retaining a top-tier international law firm and a Big Four audit firm to conduct an independent third-party investigation into these accusations in order to further reassure investors of the integrity of our financial statements, business operations, customer and supplier relationships, and the use of proceeds from our capital markets activities.

 

August 2010:

 

Deliotte & Touche together with Loeb & Loeb are hired.

 

Orient Paper launches a new corporate and investor relations website.

 

October 2010:

 

Orient Paper updates shareholders on the progress on October 25th. Almost 4 months since the initial research report from Muddy Waters.

 

"We believe we have conducted a detailed and thorough independent investigation over the last three months and are pleased to announce it has entered its final stage," said Mr. Drew Bernstein, Chairman of Orient Paper's Audit Committee. "We continue to work with Loeb & Loeb and Deloitte to complete the rest of the investigation on schedule and look forward to providing the results to the Board of Directors."

 

November 2010:

 

Independent Audit is completed with the following findings:

 

"We said at that time that this report was categorically false and provided extensive documentation to prove this. However, Muddy Waters and their confederates ignored the evidence and continued to publish false and misleading information regarding our company in a reckless manner that appears to have been designed to enrich themselves and other unknown parties while disrupting the orderly trading in our stock," Mr. Liu continued.

 

"Given the severity of the allegations, our independent board appointed the audit committee to conduct an independent investigation with the assistance of Loeb, Deloitte, and other experts. This investigation has now concluded and determined that there is no evidence to support the allegations made by Muddy Waters that Orient Paper misappropriated funds from investors, no evidence that we overstated our revenues, no evidence that we overstated the number of workers we employed and no evidence that our disclosures regarding our top 10 customers support charges of fraud. Orient Paper has been caused significant damages by the false and irresponsible reports published by Muddy Waters. But we were resolute in following best practices in corporate governance to put this matter finally behind us and provide our shareholders assurance as to the correctness of our actions. Our heart goes out to the hundreds of investors who suffered financial damages as a result of Muddy Waters and other unknown parties. We are now firmly focused on the future and executing our plans to grow our business and build long term value, just as we were on the day Muddy Waters first came to visit us, about ten months ago," concluded Mr. Liu.

 

Today: Stock appears to be recovering a bit. Trading around 4X earnings.

 

This was a classic "Short & Distort" campaign that should be used as a case study within exchange commission classrooms. Carson's errors in his Orient Paper analysis are so glaring (not even verifying he is commenting on the right subs) that I can only consider them extremely clumsy or purposeful. I side with later given his business model was to provide this report for "free" and make money by shorting.

 

Now, with that background .... think about Sino.

 

 

EDIT: Adding link to Rick Pearson's video of ONP. He is long the stock and builds a case for growth. You'll note Carson Block touring in the background too.

 

http://www.youtube.com/user/bfoxwebguy

 

 

 

[Parsad]

This was a classic "Short & Distort" campaign that should be used as a case study within exchange commission classrooms. Carson's errors in his Orient Paper analysis are so glaring (not even verifying he is commenting on the right subs) that I can only consider them extremely clumsy or purposeful. I side with later given his business model was to provide this report for "free" and make money by shorting.

 

Now, with that background .... think about Sino.

 

I agree Lessthan.  That's why I found MW's conduct to be foul.  But unfortunately the longer TRE takes to answer questions, the longer the stigma will stay attached to the company.  Barely anyone wants to touch Orient, even though there was nothing wrong.  They can file suit against MW, but what is the probability of a reasonable outcome, and how much would they have spent to fight the case.  How many millions has Fairfax spent, and they are a much larger company?  These guys have them by the nuts, and unfortunately there is little anyone can do about it.  Cheers!

 

[cwericb]

Not surprising that Block won't reveal his address. I'm waiting for the headline that says "Block Missing in China". 

[niels12think]

This was a classic "Short & Distort" campaign that should be used as a case study within exchange commission classrooms. Carson's errors in his Orient Paper analysis are so glaring (not even verifying he is commenting on the right subs) that I can only consider them extremely clumsy or purposeful. I side with later given his business model was to provide this report for "free" and make money by shorting.

 

Now, with that background .... think about Sino.

 

Barely anyone wants to touch Orient, even though there was nothing wrong.  They can file suit against MW, but what is the probability of a reasonable outcome, and how much would they have spent to fight the case.  How many millions has Fairfax spent, and they are a much larger company?  These guys have them by the nuts, and unfortunately there is little anyone can do about it.  Cheers!

 

Hope not to attract too much flame, but just want to share a little of my experience and thinking. I was also originally thinking that there was nothing wrong in Orient Paper and went long, but continued to do due dilligence and discovered a number of issues that made me change my mind.  It was relatively costly to me. I no longer have any position in ONP.

 

I ordered satellite photos of the factory, and from these it seemed evident to me that

1) the progress on the new line was no where near what ONP was claiming

2) the logistics of the factory was awful, making it a bad place to produce so much paper (missing roads, water access, room on factory site, to little waste paper, ...). Additionally, no trucks could be seen, as was expected on this time of the day, if it was really a very busy paper factory as claimed by ONP.

 

3) ONP according to themselves molested an old line to make room for the new line. Later they claimed that an audit (after the molesting) showed the old line *was* capable of producing what they claimed.

4) the machinery in the original video is very old and outdated - notice the old communist writing on the machine. This writing was then removed and do not appear on new photos from ONP web site (either the pictures from ONP was photoshopped, or ONP actually painted the old machine ...)

5) you only have ONP's word that MW tried to get money for issuing a positive report. MW themselves deny this. Now, if - and this is a speculative if - it's really ONP who are the crooks, then why wouldn't they lie also about this aspect.

6) ONP bought (or rather long term leased) a lot of farmland around their factory. This was in order to build the new line. But when allegations against their old lines emerged, then ONP instead tore down the old line in order to build a new on the existing premesis even if this supposedly would adversely interfere with the ongoing production.

7) ONP did an audit involving externals, but kept the actual result of the audit internal. Basically, ONP just issued a report saying that they found nothing materially wrong. But they did not say much about where and how deep the investigation was in detail. Nor did ONP disclose any evidence.

 

Cheers!

 

 

[twacowfca]

This was a classic "Short & Distort" campaign that should be used as a case study within exchange commission classrooms. Carson's errors in his Orient Paper analysis are so glaring (not even verifying he is commenting on the right subs) that I can only consider them extremely clumsy or purposeful. I side with later given his business model was to provide this report for "free" and make money by shorting.

 

Now, with that background .... think about Sino.

 

Barely anyone wants to touch Orient, even though there was nothing wrong.  They can file suit against MW, but what is the probability of a reasonable outcome, and how much would they have spent to fight the case.  How many millions has Fairfax spent, and they are a much larger company?  These guys have them by the nuts, and unfortunately there is little anyone can do about it.  Cheers!

 

Hope not to attract too much flame, but just want to share a little of my experience and thinking. I was also originally thinking that there was nothing wrong in Orient Paper and went long, but continued to do due dilligence and discovered a number of issues that made me change my mind.  It was relatively costly to me. I no longer have any position in ONP.

 

I ordered satellite photos of the factory, and from these it seemed evident to me that

1) the progress on the new line was no where near what ONP was claiming

2) the logistics of the factory was awful, making it a bad place to produce so much paper (missing roads, water access, room on factory site, to little waste paper, ...). Additionally, no trucks could be seen, as was expected on this time of the day, if it was really a very busy paper factory as claimed by ONP.

 

3) ONP according to themselves molested an old line to make room for the new line. Later they claimed that an audit (after the molesting) showed the old line *was* capable of producing what they claimed.

4) the machinery in the original video is very old and outdated - notice the old communist writing on the machine. This writing was then removed and do not appear on new photos from ONP web site (either the pictures from ONP was photoshopped, or ONP actually painted the old machine ...)

5) you only have ONP's word that MW tried to get money for issuing a positive report. MW themselves deny this. Now, if - and this is a speculative if - it's really ONP who are the crooks, then why wouldn't they lie also about this aspect.

6) ONP bought (or rather long term leased) a lot of farmland around their factory. This was in order to build the new line. But when allegations against their old lines emerged, then ONP instead tore down the old line in order to build a new on the existing premesis even if this supposedly would adversely interfere with the ongoing production.

7) ONP did an audit involving externals, but kept the actual result of the audit internal. Basically, ONP just issued a report saying that they found nothing materially wrong. But they did not say much about where and how deep the investigation was in detail. Nor did ONP disclose any evidence.

 

Cheers!

 

 

 

Thank you Niels for sharing your due dilligence investigation.  You have indeed followed the principle to: "Go see for yourself."  Satellite photos!  That's objective evidence that trumps subjective opinion.  Case closed as far as I'm concerned.   :)

[cwericb]

Niels, Satellite photos, I am impressed. Can you tell us where a person can order satellite images as I have trouble getting up to date imagery of areas I am interested in.

[Guest Hester]

Not surprising that Block won't reveal his address. I'm waiting for the headline that says "Block Missing in China". 

 

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