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Carson Block Interview


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I am not defending Sino Forest but I am amazed that so many people, would put so much faith and risk so much money on Mr. Block’s completely unsupported accusations. Even if Block turned out to be right, is the market so fragile that a clown like Block can cause supposedly intelligent investors to dump billions in stock simply on his say so? With that in mind I would make the following remarks.


“The founder of Muddy Waters LLC”

That sounds rather prestigious for a ‘firm’ that has a dubious reputation, no employees, no office and no fixed address.


“I know a lot more about … China than these [analysts] will ever know,”

The guy is 35, runs a self storage business that he admits is barely solvent.


“This is the big leagues,” ... “These guys {Sino] have a lot of money.” 

Oops, I thought he said they were a fraud and Ponzi scheme worth zero?


“[Canada] is a totally different market where nobody knows us and we don’t have credibility.”  Precisely where exactly does Mr. Block have credibility?


“We know there will be immense pressure for somebody to be prosecuted so we have to be very careful to make sure we do not overstep. We know with some bad breaks we might be looking at the wrong end of that gun”

Well if the shoe fits....


“On disguising himself in a one-on-one meeting with Sino-Forest’s head of investor relations:”

“I even combed my hair forward for a “Dumb and Dumber” kind of look. I tried to sound really dumb and speak even more slowly than usual. I went in with a rumpled appearance. I just tried to seem like an idiot.” 

Did Mr. Block ever hear of the old saying “ask a stupid question, get a stupid answer”.



Couple of more points.

1) When Block released his unsupported accusations he promised that he would be soon be following up with the details. Does it not seem strange to anyone that it is now a month and a half later and he has produced no additional information?

2) Has anyone noticed that what was a  “multibillion-dollar Ponzi scheme,” is now “an overstatement of several hundred million dollars”?





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I totally agree!  That's why I said his conduct was fishy to begin with.


If you are going to play in the big leagues, and you are going to take pot-shots at people's livelihood, including the accumulated investments of private shareholders, then you better be willing to take the flak if you think you are right.  No one takes kindly to being spit upon, and if you are profiting from someone's downfall, there are always repercussions. 


Plenty of journalists take the same risks, and they don't take to this hiding under a rock behavior.  Take a look at David Baines, who is an investigative journalist for the Vancouver Sun for the last 20+ years, and he focuses on uncovering fraud here in Vancouver.  Numerous death threats that you can no longer even count, and he's uncovering fraud after fraud.  Yet, he never goes into hiding.  He just goes about his work doing the honorable thing, and he's never taken a payday from uncovering such fraud.  Cheers!

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Yes, and in case anyone misinturprets my position on Block and fraud, I want to make it clear that I hold anyone in the highest regard who uncovers actual fraud, whether they be an investigative journalist or a whistleblower. They are very brave people and deserve much more respect than they get.


Should Mr. Block turns out to be right in all his accusations and this turns out to be a mulit-billion Ponzi scheme, then I would grudgingly have some respect for him. However, if he is mearly throwing accusations around hopeing that something sticks and therby cost a lot of people a lot of money as well as hardship for a legitimate company while he makes money for himself, then he is truly a- cockroach.

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Great article, I really admire what people like Block are doing in the public markets!


As an aside: "An on-the-ground investigation in China by The Globe and Mail found discrepancies in Sino-Forests’ public statements regarding its timber holdings. A key Sino-Forest partner in Yunnan Province as well as Chinese forestry officials said the company controls far less timber than it has claimed"



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Guest Hester

Despite the fact that the article was probably trying to convey a negative portrayal of Block, I actually liked it, and thought it ended in a balanced way.

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Great article, I really admire what people like Block are doing in the public markets!


As an aside: "An on-the-ground investigation in China by The Globe and Mail found discrepancies in Sino-Forests’ public statements regarding its timber holdings. A key Sino-Forest partner in Yunnan Province as well as Chinese forestry officials said the company controls far less timber than it has claimed"


It should be noted that the company put out the following press release right after this article went to press:


Sino-Forest says Globe and Mail article incorrect


2011-06-20 08:42 ET - News Release


Mr. Dave Horsley reports




Sino-Forest Corp. has released the following statement in response to the incorrect portrayal of its business provided by The Globe and Mail in an article published on Saturday, June 18, 2011.


At the heart of The Globe and Mail's article is the assertion that there is a discrepancy between the company's public disclosure regarding its 2007 master agreement with Gengma Dai and Wa Tribes Autonomous County Forestry Ltd. for the purchase of plantations in the province of Yunnan (filed in the data room on the company's website); acquisitions made under it; and the description of the master agreement and related acquisitions apparently provided by Gengma Dai and Wa to The Globe and Mail. There is no discrepancy.


The chairman of Gengma Dai and Wa, Xie Hongting, was introduced by Sino-Forest to The Globe and Mail in an open attempt to address some of its many questions. After the interview with Mr. Xie, the company had its own background interview with The Globe and Mail, during which it became clear there were some factual misunderstandings regarding the company's ownership of trees in Yunnan. The company informed The Globe and Mail that Mr. Xie would clarify the relationship between both parties. However, The Globe and Mail chose not to wait for Gengma Dai and Wa's complete description of its relationship with Sino-Forest.


The company has provided the following status update with respect to its Yunnan tree ownership resulting from the master agreement entered into with Gengma Dai and Wa in 2007.


Sino-Forest entered into the first Yunnan master agreement in 2007 (filed in the data room on the company's website). The master agreement had a target to acquire approximately 200,000 hectares (three million mu (mu being the common Chinese unit of land measurement that is equivalent to 1/15th of a hectare)) of standing timber. The master agreement does not specify a maximum amount of standing timber to be acquired under the agreement (the phrase "up to" in The Globe and Mail's article is inaccurate and not a reflection of the company's public disclosures on this matter). As per Sino-Forest's 2010 annual information form, the company had acquired 190,300 hectares (2,855,000 mu) under the master agreement and retained holdings of 186,700 hectares (2.8 million mu) as at Dec. 31, 2010. As per the management's discussion and analysis (MD&A) that accompanied the financial statements for the first quarter of 2011, the company had acquired approximately a total of 230,200 hectares (3,453,000 mu) under the master agreement as of March 31, 2011.


In 2007, through its subsidiaries, the company entered into specific agreements to acquire standing timber and land-use rights on 12,667 hectares (190,000 mu) of Gengma Dai and Wa's land in Lincang, Yunnan. A sample of these agreements has previously been published on the company's website.


Subsequent to that initial sale, Gengma Dai and Wa has sold approximately 34,667 hectares (520,000 mu) of standing timber located in Lincang, Yunnan, to subsidiaries of the company. Of this amount, approximately 12,000 hectares (180,000 mu) comprised standing timber owned by Gengma Dai and Wa, and approximately 22,667 hectares (340,000 mu) comprised standing timber sold to the company by others. Gengma Dai and Wa acted as a purchasing agent in those transactions by arranging the sales of bundles of standing timber parcels to the company and its subsidiaries by the owners of such standing timber.


In addition, Gengma Dai and Wa has acted as the company's purchasing agent, under the master agreement, for the purchase of other standing timber elsewhere in Yunnan, beyond Lincang, totalling approximately 182,867 hectares (2.743 million mu).


As a result, in total under the master agreement, the company, through its subsidiaries, has acquired standing timber of 182,867 hectares (2,743,000 mu), plus 34,667 hectares (520,000 mu) and 12,667 hectares (190,000 mu), for a total of approximately 230,200 hectares, or approximately 3,453,000 mu.


Gengma Dai and Wa is currently continuing to work with the company on further purchases in Lincang, Yunnan.


This breakdown is completely consistent with the company's public disclosure of its total acquisitions of standing timber hectares in Yunnan in its first quarter 2011 MD&A of 230,200 hectares (3,453,00 mu) acquired pursuant to the Yunnan master agreement; it is also consistent with the comments of Mr. Xie of Gengma Dai and Wa to The Globe and Mail. When asked in the interview how much he had sold to Sino-Forest, he accurately said he had sold the company "almost 200,000 mu" (13,333 hectares); this represents land-use rights on land provided by Gengma Dai and Wa, and is an approximate total of the company's land lease certificates in Yunnan. In addition, Gengma Dai and Wa has sold standing timber for a total of another 34,667 hectares (520,000 mu) in Lincang both as owner and as agent, and acted as an agent on another 182,867 hectares (2,743,000 mu) elsewhere in Yunnan. For further clarity, the company attaches Gengma Dai and Wa's own statement on this matter, which was issued over the weekend, again consistent with what the company has set out in the preceding paragraphs. This is the clarification that the company asked The Globe and Mail to wait for prior to publication; however, the newspaper chose to publish the article without all of the facts on June 18.


The Globe and Mail's article is further inaccurate in a critical part of its research. It refers to "Gengma Forestry," with its "litter-strewn" office "up a dusty cement staircase" and its office manager, Zhang Ling. Very poetic, but completely irrelevant, because based on the information that The Globe and Mail provided to the company, the company believes that this is the address of a business known as Gengma Dai and Wa Autonomous County Forestry Industrial Co. Ltd.; it is a different organization from Gengma Dai and Wa Tribes Autonomous County Forestry, with which Sino-Forest has its master agreement, which is based at an entirely different address. Upon becoming aware of this incorrect description, the company provided the correct address for Gengma Dai and Wa Tribes Autonomous County Forestry to The Globe and Mail.


In addition, in support of its case The Globe and Mail quotes an unnamed broker, who stated that "most of the land with good trees around Gengma is all sold out." The scope of the master agreement encompasses the whole of Yunnan. For reference, Gengma county represents approximately 16 per cent of the land mass of Lincang area and less than 1 per cent of Yunnan as a whole.


Furthermore, regarding The Globe and Mail's reference to an unnamed Yunnan Provincial Forestry Bureau official saying that Sino-Forest manages far less than 200,000 hectares, as indicated in the company's written response to The Globe and Mail, the provincial-level bureau records land ownership and land lease transactions, but does not separately record sales of standing timber. As publicly disclosed, the substantial majority of Sino-Forest's purchases are standing timber. The provincial-level forestry bureau will therefore not have full details of the total area of timber purchases under the names of Sino-Forest and its subsidiaries.


The company would like to remind investors that most domestic and multinational companies with significant exposure to China, a country with a rapidly evolving business environment, have structures and operations that are complex and significantly different from the North American environment, and that can be complex to explain. For example, there is the distinction between ownership of standing timber and leasing the underlying land by plantation operators, whereas only the state and farmers' collective "own" the land that exists in China.


The independent committee has told the board that the review and examination being undertaken by the independent committee with the assistance of PricewaterhouseCoopers and its independent legal advisers will likely take at least two to three months, which is normal for such processes. The company fully understands that the pressure for answers is significant, but stands by its public disclosure and, as far as possible, asks that investors trust that process, and allow it to be conducted fully and definitively, not overjudging single articles or publications that are not produced by persons necessarily familiar with the forestry business or business practices in China, that might not be fully sourced or accurate. During the course of the independent committee's examination, the board expects it will provide updates from such process as appropriate. That is precisely why the company and independent committee need the time to complete the process.


Terms used in this announcement


Gengma county in Yunnan falls within the jurisdiction of Lincang metropolitan area.


We seek Safe Harbor.

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  • 9 years later...


This is pretty cool. Great value too, compared to a certain someone's Short Seller Skool courses for a few thousands bucks...

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