Either Sino Forest Is Completely Full of Crap, or I Am Missing Something

I was actually short Sino-Forest ($SNOFF) coming into Friday.  I remarked to a few friends of mine that I guessed it was probably a once in a lifetime event that I would be short a stock that would drop 70% in a single day, and it was too bad I had a minimal position, but it’s still good to be on the right side of a trade like this.   I covered my position midday, and actually bid for stock late in the day.  I didn’t get hit, and the stock rallied 15% or so from my “non”-level.  I was almost disappointed, in a way.  Why did I bid for stock? Because again, I thought that the OSC’s announcement that they were suspending trading of Sino-Forest might be overdone.  The OSC said that they had evidence of irregularities at Sino-Forest: that seemed to me to be something that was something that was already well priced in.   Irregularities?  File that one under “No shit, Sherlock.”  The OSC did NOT say that Sino-Forest was an outright fraud that was worth $0 per share.

Well anyway, I am no longer thinking about playing $SNOFF from the long side.  Their latest announcement falls into the “You are completely full of sh!t” category, and puts me squarely in the “You-don’t-get-the-benefit-of-any-doubt” camp.  I am now a full non-believer in Sino-Forest (although as I mentioned, I covered my short position).  What changed?  Read on:

Sino-Forest came out with a press release early Sunday morning, during a natural disaster.  Their release included the claim:

“In addition, Sino-Forest has placed three employees on administrative leave, during which they have been relieved of their responsibilities but remain available to assist the Company if required. A fourth senior employee has been requested to act solely on the instructions of Mr. Martin to assist the Company in certain matters relating to the work of the Independent Committee and the continuing operations of the Company’s business. These actions were undertaken by the Company after certain information was uncovered during the course of the Independent Committee’s review, subsequent to the release of the Company’s second quarter financial results, and before the OSC’s cease trade order was issued.”

In other words: “we discovered this wrongdoing in our own internal investigation, BEFORE the OSC news annihilated our stock to the tune of 71% on Friday, and we have this under control and are addressing it.”  To that I say: BULLSHIT.

If Sino-Forest had information from their Special Committee that there was evidence of fraud at the company, and they had placed 3 employees on administrative leave, that’s not the kind of thing that they can wait around until Sunday at 4am to release in a press release that they hoped would fly under the radar by some unseen miracle.  They should have disclosed it as soon as it happened, or at the very least, disclosed it after the OSC’s blockbuster intervention.

For Sino-Forest to step in now and play the “oh, yeah, sure, we already were all over this” card is, well, as I mentioned in the title of this post: a load of crap.

If you disagree with me, please voice your logic in the comments.

-KD

disclosure: no positions in SNOFF

 

 

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