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Another Article on Block


Parsad
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CNBC has an article on Block that also isn't very flattering.  Sounds like a frat boy turned attorney turned short seller.  Apparently, he's figured out he should now go long on some ideas, since he could make a heck of a lot more.

 

http://www.cnbc.com/id/43765929

 

On another issue, has anyone actually visited Block's father's company website - WAB Capital?

 

http://www.growthequities.com/wab_faqs.html#002

 

Not sure how they do anything different than the various investor relations firms, large and small, that push a company to institutional clients and investment banks.  In lieu, they usually get a cash fee and and equity stake through shares, warrants or options.  The stock goes up as the investment bank pushes the company on their retail client base, and the IR firm and investment bank liquidate their stake as the price rises. 

 

Hey, I guess they provide a much needed service!  Cheers!

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Carson Block rubs me the wrong way, too.  Objectively speaking, however, it's good that someone has called out the Chinese frauds.  I find this quote spot on: "Within the fraud-committing circles in China, the U.S. markets were a laughing stock. They thought of Americans as dupes willing to snap up any piece of garbage brought out of China.”  This perception of Americans as dummies may be starting to change among the fraudsters in China, and that's a good thing.

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Carson block aside, If I were a Chinese Regulator in the Securities Market I would be getting very concerned that the baby is going to get thrown out with the bath water.  If this persists it will kill legitimate foreign investment in China for years to come.  It may become a value investors wet dream one day.

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“If I were a Chinese Regulator in the Securities Market I would be getting very concerned that the baby is going to get thrown out with the bath water. If this persists it will kill legitimate foreign investment in China for years to come.  ”

 

Absolutely, and I think they have now gotten the message. Anyone who thinks these guys are stupid needs to rethink. They may not be as well organized as much of the rest of the world and they may do business in a different way but look at what they have accomplished in such a short period of time.

 

Look at the Sino situation. Are some people are letting prejudices interfere with their good judgement?

 

Does anyone really still believe Block’s statements that is a complete fraud and a multi Billion Ponzi scheme?

 

It is nearly seven weeks since Block’s report came out.

 

In that time Block has either backtracked (from a “multibillion-dollar Ponzi scheme,” to “an overstatement of several hundred million dollars”) or been proven wrong (misunderstanding of Sino’s business and standing lumber). And he has yet to provide the further details he promised.

 

On the other hand, 

 

Where are the management resignations? If there was imminent exposure of fraud, wouldn’t you expect to see some directors and management be jumping ship?

 

Where are the disgruntled employees offering to provide evidence against Sino? With nearly 4,000 employees wouldn’t you think someone would have spilled the beans by now?

 

Sino has been criticised by some here for doing nothing in their own defence. But they have posted over a dozen news releases and filings on SEDAR explaining in detail their defence and re-affirming their financials. When guys like Horsley sign off on submissions to SEDAR do they not risk serious consequences if that information prove wrong? Would he still be doing this if PWC were about to expose major fraud?

 

http://www.sedar.com/DisplayCompanyDocuments.do?lang=EN&issuerNo=00001894

 

There has been a big issue made of the fact that most analysts have suspended coverage. Why is that unexpected or a suggestion of fraud? There is an extensive, thorough, and independent audit coming out shortly. Why is it any surprise that they are waiting for that report before commenting further?

 

As Uccmal says  “It may become a value investors wet dream one day.” 

 

Perhaps that day is closer than we think. There may be some dirt here, but consider the situation if Block is discredited and shown to be some sort of clown out to make a quick buck. It may take a while for legitimate China stocks to recover from this but is that not the value investor’s opportunity?

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As someone who doesn't short and doesn't plan on investing in any Chinese companies any time soon, I do find it odd that so many on this board are so vehemently anti-shorts.  So long as people make their investments in an appropriate way, why so troubled?  No one seems to care when people are long and come out and tout their stocks, but when short and they tout that, it seems to be viewed as a very bad thing.  People seem to forget about the goose and the gander.  Just my 1 cent.

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Carson Block rubs me the wrong way, too.  Objectively speaking, however, it's good that someone has called out the Chinese frauds.  I find this quote spot on: "Within the fraud-committing circles in China, the U.S. markets were a laughing stock. They thought of Americans as dupes willing to snap up any piece of garbage brought out of China.”  This perception of Americans as dummies may be starting to change among the fraudsters in China, and that's a good thing.

 

I totally agree.  I just don't like the way he approached this whole thing, and I'm suspect of how covert he keeps his operations.  This strikes me more as Barry Minkow's "Fraud Investigative Unit", then say Bob Woodward and the Washington Post.  Cheers!

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As someone who doesn't short and doesn't plan on investing in any Chinese companies any time soon, I do find it odd that so many on this board are so vehemently anti-shorts.  So long as people make their investments in an appropriate way, why so troubled?  No one seems to care when people are long and come out and tout their stocks, but when short and they tout that, it seems to be viewed as a very bad thing.  People seem to forget about the goose and the gander.  Just my 1 cent.

 

I do have a problem with it.  I've had a problem with it for the last eight years.  And that isn't because of someone shorting stocks in and of itself.  But because disclosure rules for those with short positions, still aren't the same as those with long positions. 

 

They've talked about it...they plan on implementing it...but it still isn't the same yet.  Once they do I won't have a problem.  After that I'll move on to derivates traders and how their disclosure rules aren't adequate.  But until then, hell yeah shorts are on my scope!  The rules should be equitable, and no one should be given any special privilege in hiding their incentives or motives.  Cheers!

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Carson Block rubs me the wrong way, too.  Objectively speaking, however, it's good that someone has called out the Chinese frauds.  I find this quote spot on: "Within the fraud-committing circles in China, the U.S. markets were a laughing stock. They thought of Americans as dupes willing to snap up any piece of garbage brought out of China.”  This perception of Americans as dummies may be starting to change among the fraudsters in China, and that's a good thing.

 

I totally agree.  I just don't like the way he approached this whole thing, and I'm suspect of how covert he keeps his operations.  This strikes me more as Barry Minkow's "Fraud Investigative Unit", then say Bob Woodward and the Washington Post.  Cheers!

 

Yes, that's right.  Ideally, regulators like the SEC would uncover the obvious frauds so that investors can have confidence in all companies listed on the major stock exchanges, regardless of their country of domicile.

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As someone who doesn't short and doesn't plan on investing in any Chinese companies any time soon, I do find it odd that so many on this board are so vehemently anti-shorts.  So long as people make their investments in an appropriate way, why so troubled?  No one seems to care when people are long and come out and tout their stocks, but when short and they tout that, it seems to be viewed as a very bad thing.  People seem to forget about the goose and the gander.  Just my 1 cent.

 

I do have a problem with it.  I've had a problem with it for the last eight years.  And that isn't because of someone shorting stocks in and of itself.  But because disclosure rules for those with short positions, still aren't the same as those with long positions. 

 

They've talked about it...they plan on implementing it...but it still isn't the same yet.  Once they do I won't have a problem.  After that I'll move on to derivates traders and how their disclosure rules aren't adequate.  But until then, hell yeah shorts are on my scope!  The rules should be equitable, and no one should be given any special privilege in hiding their incentives or motives.  Cheers!

 

I can see an issue with disclosure on a general basis, but many of those that short are quite clear about their intentions and their positions.  So do you have a problem if someone says I am short ABC stock in X amount and I think the company is crap, here are my reasons?  Historically we've seen the treatment that people like Einhorn, etc. get when short and it is quite clear what they are doing.

 

By the way, disclosure on derivatives will never be satisfactory.  It really isn't possible in my view.  Valuation is subject to too many assumptions and most people don't understand the nature of the contracts to begin with.  Does anyone really think that a trader entering into a basket credit default swap, for example, is reading the long confirm that goes along with it? 

 

 

 

 

 

 

 

 

 

 

 

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“ I do find it odd that so many on this board are so vehemently anti-shorts”

 

If you look at the history fo Fairfax (this is a Fairfax based board) and their experience with some specific hedge funds who used unsavoury tactics (to put it mildly), you will see how some might be predisposed to have a bad view of shorts. However, Fairfax also made a lot of money in essentially shorting the mortgage industry (CDS).

 

Now while I really have a lot of trouble with the whole concept of naked shorts being allowed, I don’t have much problem with individual investors shorting stocks. It is when large investors unite or hedge funds get involved in intentionally trying to drive stock values down of an otherwise good company that the practice begins to smell. Add to that Parsad’s comments on the lack of regulation and you can see why “short” becomes a bad word.

 

In the case of Sino, if Carson Block proves to be right he has done the investment community a service.

 

However, if it turns that he simply made up most of his allegations simply for personal gain, would that not leave a bad taste in your mouth? If that turns out to be the case he will have cost investors billions in loses and have caused serious damage to a legitimate company. And then to add insult to injury, the company has almost no recourse or defence against these practices.

 

One final comment - people like Block would not have the influence they do without trigger happy people who are so willing to immediately believe everything negative that they read.

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I can see an issue with disclosure on a general basis, but many of those that short are quite clear about their intentions and their positions.  So do you have a problem if someone says I am short ABC stock in X amount and I think the company is crap, here are my reasons?  Historically we've seen the treatment that people like Einhorn, etc. get when short and it is quite clear what they are doing.

 

No, they should be filing any substantial position on EDGAR, just like longs have to.  That way it is legally binding and there is recourse for securities regulators. 

 

Just like you can see which longs have a substantial position in any one company, I think shorts should be required to do the same.  If this was done, then I have no problem with shorts.  Cheers!

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One more thing:  I think analysts, both long and short, should have to disclose the exact position they have in any company they are covering or reporting on, including holdings within their immediate family and any arms-length relationships they should appropriately disclose. 

 

I also think investment banks or institutions that take stock, warrants or equity in any company they are financing, should be required to file ALL purchase and sales in those businesses...or they should be vested for 3 years. 

 

I think there is a ton of unethical behavior in the financing of junior cap/small cap stocks by small to mid-sized investment banks.  Those institutions shuffle off the stock in these companies to their retail clients, whether they are appropriate or not for their portfolio, and then sell off their stakes as the price rises...leaving the retail investor holding the bag in crappy companies.  Cheers!

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In the case of Sino, if Carson Block proves to be right he has done the investment community a service.

 

However, if it turns that he simply made up most of his allegations simply for personal gain, would that not leave a bad taste in your mouth? If that turns out to be the case he will have cost investors billions in loses and have caused serious damage to a legitimate company. And then to add insult to injury, the company has almost no recourse or defence against these practices.

 

 

 

 

This is really the point though.  If he's right, he's done a good service.  If he's making it up, sure it would leave a bad taste in my mouth.  But if so, he should face legal action for that and possibly jail time.  No less so than if someone is long a stock and puts rumors out there that are positive, i.e. pumps and dumps. 

 

My point was simply that so long as things are done appropriately, than it shouldn't matter.  If it isn't appropriate, than obviously I have no time for that. 

 

 

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Carson Block is definitely a different type of analysts but maybe it took a Carson Block to bring this whole thing to attention. His hodgepodge of skills, experience and personality were exactly what you needed to burst the bubble of the Chinese stocks trading in America. (1) Financial expertise, from his father and schooling (2) understanding of chinese culture, from working in Shanghai and living in Asia (3) understanding of business practices in China, from setting up his business in Shanghai (4) ability to communicate his ideals effectively with investors, from his dad who runs an equity research firm (5) an irreverent attitude toward authority, not necessary for short sellers but seems to be a running streak.

 

I am not saying I want to take long walks on the beach with him, but maybe he was the right guy and the right time for all these Chinese frauds..no? 

 

disclosure: I am short some Chinese stocks, but none of the companies Carson Block has mentioned.

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Claphands -

 

“(1) Financial expertise, from his father and schooling.”

 

By his own admission he spent most of his time partying and had a low grade average.

“(2) understanding of chinese culture, from working in Shanghai and living in Asia “

 

Reportedly fraud is rampant in China. Block portrays himself as an expert on fraud in China. He seems to have mastered the craft. After a tour of Orient paper he reportedly demanded payment of $300,000 to write a positive report. When he didn’t receive it he published a very negative report.

 

“(3) understanding of business practices in China, from setting up his business in Shanghai “

 

Again by his own admission, he ran a small storage company - Love Box - that is essentially broke.

“(4) ability to communicate his ideals effectively with investors, from his dad who runs an equity research firm “

Check his father’s company website. Check the address for his research firm. Then run it through Google Earth. You will see that it is a residential condo in California. Something like the firm of Muddy Waters, with no employees or fixed address.

 

“(5) an irreverent attitude toward authority, not necessary for short sellers but seems to be a running streak. “

 

Does he strike you as a reputable person on who’s judgement you would base investment decisions?

 

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Claphands -

 

“(1) Financial expertise, from his father and schooling.”

 

By his own admission he spent most of his time partying and had a low grade average.

“(2) understanding of chinese culture, from working in Shanghai and living in Asia “

 

Reportedly fraud is rampant in China. Block portrays himself as an expert on fraud in China. He seems to have mastered the craft. After a tour of Orient paper he reportedly demanded payment of $300,000 to write a positive report. When he didn’t receive it he published a very negative report.

 

“(3) understanding of business practices in China, from setting up his business in Shanghai “

 

Again by his own admission, he ran a small storage company - Love Box - that is essentially broke.

“(4) ability to communicate his ideals effectively with investors, from his dad who runs an equity research firm “

Check his father’s company website. Check the address for his research firm. Then run it through Google Earth. You will see that it is a residential condo in California. Something like the firm of Muddy Waters, with no employees or fixed address.

 

“(5) an irreverent attitude toward authority, not necessary for short sellers but seems to be a running streak. “

 

Does he strike you as a reputable person on who’s judgement you would base investment decisions?

 

 

May I ask why you think the Ad Hominem argument trumps the objective evidence, particularly the satellite photos showing blatant fraud?

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Guest Hester

You can make ad hominem attacks on anyone you want, it doesn't change their argument. Francis Chou's background consists of being a blue collar telecom worker and never attending college. Watsa was a former door to door air conditioner salesman. Buffett's had a not so normal personal life.

 

Who cares.

 

It doesn't take away from their investing prowess, and it doesn't really change any facts about investments made.

 

I could care less what parties Block attended in college.

 

The problem is discussing the actual substance of the Sino's circumstance ends with the conclusion that something fishy is going on there at best, so people result to personal attacks against the messenger. This story is all too common in the China RTO space.

 

Nobody should base investing judgement on anyone's reputation, good or bad. I'll stick to the Sino specific facts.

 

Cwericb, would you like to sell me some puts?

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I really have no hand in this argument, but I do find it odd that people will attack Block personally.  Trying to attack his education has little to do with the facts he has presented.  I highly doubt that his style of investigative work is well correlated with academic performance! 

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I really have no hand in this argument, but I do find it odd that people will attack Block personally.  Trying to attack his education has little to do with the facts he has presented.  I highly doubt that his style of investigative work is well correlated with academic performance! 

 

Yeah, also his allegations are not reliant upon his personal standing. Block questioned the authorized intermediary model, the TRE responded, and investors were able to consider the arguments. He also pointed to signs of asset exaggeration, which can be disputed through legal evidence of ownership or purchase. However, Globe and Mail uncovered supporting evidence of misrepresentation and TRE cancelled an investor meeting.

 

This is not at all the same as an investment banking analyst, John Gwynn, claiming that FRFHF was hugely under-reserved and that the reinsurance didn't exist. In that case, there was no evidence, and the company could only prove its integrity over YEARS. One is an argument, and the other is a claim by someone who leveraged his soapbox to claim authority.

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I guess I don’t do a good job of making a point.

 

Point: Why do you all accept what Block says and nothing that Sino says?

 

Maybe you don’t like Sino, maybe you don’t like Chinese stocks or China in general. I don’t care. My question is simply why some here are so willing to accept Block’s accusations at face value and yet completely dismiss anything Sino says.

 

I am not saying Block is wrong. I am not saying Sino is right. The truth may lie somewhere in between. But I do find it a little hard to swallow Block’s statement that Sino is a milti-billion dollar Ponzi scheme.

 

Believe what you may, but if you are going to base your opinions on what someone else says than that individual’s credibility becomes very important.

 

Couple of comments:

“objective evidence”  

Haven’t seen any, let’s wait for the PWC report.

 

“Nobody should base investing judgement on anyone's reputation, good or bad. I'll stick to the Sino specific facts.”

Seriously?? And yet you believe Block’s unsupported accusations? And what ‘facts’ are you sticking to?

 

“However, Globe and Mail uncovered supporting evidence of misrepresentation and TRE cancelled an investor meeting.”

Okay, well firstly regarding G&M ‘supporting evidence’. Did you not read the reply to that filed by Sino on SEDAR?

Secondly, to say TRE cancelled the investor meeting is a distortion of the facts. To clarify matters, it was an analyst’s tour in China that was postponed. But it was the analysts that asked Sino to postpone the tour. Yes it was Sino's tour and therefore technically only Sino could cancel it but it was the analysts who asked that it be postponed. To simply say TRE cancelled the tour is misleading. Analysts correctly wanted to wait for the PWC report?

 

And furthermore I would hesitate to use Chou and Watsa’s name in the same sentence as Block. If anyone thinks that their backgrounds are similar than perhaps they haven’t researched these parties very well.

 

PS. Does it not concern anyone that Block serves his own interests by driving down the share price? Do you not think that may effect his credibility and objectivity?

 

 

 

 

 

 

 

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PS. Does it not concern anyone that Block serves his own interests by driving down the share price? Do you not think that may effect his credibility and objectivity?

 

I would suggest that the incentive for Block to see the stock go down, was even greater than Gwynn's incentive to see Fairfax's stock go down. 

 

People say that Block has to make a living, and he's being honest about his position, but he is an attorney is he not?  He could actually pursue fraud in court and represent investors through class-actions, ultimately receiving his compensation through contingencies.  Would that not achieve the same end result?  Would that not represent a more ethical way to uncover the fraud by going through the legal system and actually possibly returning capital to those same shareholders who have been defrauded? 

 

Presently, his behavior strikes me as someone who yells fire in a theatre, and as everyone flees, he goes in and steals the money and credit cards left in jackets and purses on the seats.  Whether there is a fire remains to be seen, or was it all just smoke blown up people's asses?  Incidentally, Sino-Forest has done little to shed light on the situation either.  Somebody should have given them a playbook on how to deal with such a crisis!  Cheers!

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PS. Does it not concern anyone that Block serves his own interests by driving down the share price? Do you not think that may effect his credibility and objectivity?

 

I would suggest that the incentive for Block to see the stock go down, was even greater than Gwynn's incentive to see Fairfax's stock go down. 

 

People say that Block has to make a living, and he's being honest about his position, but he is an attorney is he not?  He could actually pursue fraud in court and represent investors through class-actions, ultimately receiving his compensation through contingencies.  Would that not achieve the same end result?  Would that not represent a more ethical way to uncover the fraud by going through the legal system and actually possibly returning capital to those same shareholders who have been defrauded? 

 

Presently, his behavior strikes me as someone who yells fire in a theatre, and as everyone flees, he goes in and steals the money and credit cards left in jackets and purses on the seats.  Whether there is a fire remains to be seen, or was it all just smoke blown up people's asses?  Incidentally, Sino-Forest has done little to shed light on the situation either.  Somebody should have given them a playbook on how to deal with such a crisis!  Cheers!

 

You're joking right?

 

How long do you think a case like that, involving cross border dealings would take to complete? How much money? He's exposed 5 frauds in the last year, and let the market worry about it.

 

Also, going to law school does not make you an attorney.

 

 

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Guest Hester

People say that Block has to make a living, and he's being honest about his position, but he is an attorney is he not?  He could actually pursue fraud in court and represent investors through class-actions, ultimately receiving his compensation through contingencies.  Would that not achieve the same end result?  Would that not represent a more ethical way to uncover the fraud by going through the legal system and actually possibly returning capital to those same shareholders who have been defrauded? 

 

Presently, his behavior strikes me as someone who yells fire in a theatre, and as everyone flees, he goes in and steals the money and credit cards left in jackets and purses on the seats.  Whether there is a fire remains to be seen, or was it all just smoke blown up people's asses?  Incidentally, Sino-Forest has done little to shed light on the situation either.  Somebody should have given them a playbook on how to deal with such a crisis!  Cheers!

 

Good idea! Actually, whenever I find a good long, to correct the market inefficiency, instead of taking a position in the stock like an evil person, I post flyers on light poles and send out doves with the hand written message that the stock is undervalued and people shouldn't sell it. Isn't that the more ethical way to do it?

 

Seriously though, anyone who's followed this Chicom RTO fraud saga knows that there is no legal recourse to Chinese management or the company operating in China. As long as they are only listed in the US, and stay living/operating in China, and assuming the money stays in China (it does) there is no extradition treaty between the two countries and the fraud will go unpunished/the money will go uncollected. So taking legal action, while it might eventually end the fraud (highly doubtful and would take many many many years), it would result in no monetary compensation for the shareholders, and the lawyers wouldn't be paid much if anything. Besides if MW went the legal route, some other firm would eventually short the stock, write research and end the fraud much quicker than the legal process ever could.

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"Besides if MW went the legal route, some other firm would eventually short the stock, write research and end the fraud much quicker than the legal process ever could."

 

Once again you make the assumption that Block's allegations are correct. What, other than Block's say so and a belief that all Chinese stocks are frauds, leads you to this conclusion?

 

Just a note of interest to all those who put so much faith in Carson Block.

 

Do you just ignore the fact that Wellington has acquired 11.5% of this company. Do you really think they would do that if they believed this was a multi billion dollar Ponzi scheme?

 

And now it has just been announced that Richard Chandler Corp has just purchased 10.9% of the company at about $4.06 per share.

 

So, going back to the credibility issue, who do you believe? These separate funds, who have jumped in with both feet and invested hundreds of millions of their own money or Carson Block?

 

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One of the primary claims of fraud in Block's report relates to the alleged impossibility of selling $507.9 million of timber in 2010.  Block devoted 10 paragraphs to explaining the immpossibility, including analysis of harvest quotas, the amount of handsawing required for this volume, how far timber would have to be carried to roads, and the amount of truckloads that would be required to haul this much felled timber.

 

The problem?  Block either didn't understand the industry at even a basic level to know that the "standing timber" that the Company reported they sold isn't "felled timber," or he was so sloppy or anxious to identify a problem that he glossed over the fact that the sale was for standing timber.  Was this careless, amateurish, intentional, all three?  I don't know.

 

What's troubling to me is he has not acknowledged or apologized for this glaring error.  To me, this speaks volumes as to whether his primary interest is "shining light on the truth" as he claims or profiting from blatant manipulation.

 

So Hester, since you say you want to focus on the "actual substance" of the allegations, what do you have to say about this issue specifically and Block's failure to retract and apologize?

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