The Sino-Forest Saga Gets Stranger (Or Not)

After last night’s news that John Paulson, formerly Sino-Forest’s ($TRE.TO, $SNOFF) largest shareholder had liquidated his entire position, I awoke this morning to find that I just got this emailed to me:

BriefingWire.com, 6/21/2011 – Washington, D.C., June 21, 2011 — The Securities and Exchange Commission has charged Carson Block and Muddy Waters LLC in a stock manipulation ring that allegedly published false information, causing a drop in the market prices of at least three stocks and generated more than $240.2 million in illicit profits when they sold shares short then repurchased the shares after a significant decline on the market.

Additional Materials

Litigation Release No. 21053

SEC Complaint

The SEC alleges that Carson Block, who resides in Hong Kong carried out the market manipulation schemes with others he met through a stock web site, which is operated by Matthew Brown of Aliso Viejo, Calif. Block, Brown, and other participants in the schemes often timed the manipulative trading to coincide with false or misleading press releases issued by Muddy Waters LLC. The three companies were Sino Forest Corporation, Duoyuan Global Water Inc., and Orient Paper Inc.

“As we allege in our complaint, Carson Block and his accomplices around the country met through the Internet and planned to short sell the stock in the companies prior to release of the Muddy Waters Report that made allegations of impropriety, fraud, and theft. Carson Block and his associates approaches several large hedge funds and investment firms first to market their “research” and promised great returns upon the release of their “research”. The results for each of the companies that were targeted were catastrophic and have resulted in a serious loss of market value and public trust in the management of these companies. ,” said Scott Friestad, Deputy Director of the SEC’s Division of Enforcement. “Carson Block went so far as to himself write some of the misleading press releases that denigrated these stocks so they could line their own pockets with hundreds of millions of dollars.”

The SEC’s complaint, filed in federal district court in Delaware, charges six others in addition to Carson Block:

According to the SEC’s complaint, these fraudulent schemes generally followed the same pattern. In 2010, Carson Block and his accomplices arranged for large blocks of shares to sell on the open market. The vast majority of the shares sold short were done through the accounts of Muddy Waters LLC for the personal benefit of Carson Block. The defendants then notified the hedge funds and investment firms of their intention to publish their report and were paid approximately $2.7 million dollars for “research” supplied by Muddy Waters LLC. As a result shares were sold short in the days immediately prior to the release. After artificially deflating the market price of the stocks, Carson Block and his accomplices then recovered the shares the sold short on the open markets and collected the illicit proceeds.

The SEC’s complaint alleges violations of the antifraud, registration, and other provisions of the federal securities laws. The complaint seeks to have the court permanently enjoin each defendant from future violations, require disgorgement of ill-gotten gains with prejudgment interest, and impose financial penalties. Additionally, the Commission seeks to have certain defendants barred from participating in stock offerings.

Complete article available at SEC newswire.”

Now, the first thing I tried to do was find this story on the SEC website. I could not.  Then I Googled “SEC Litigation Release No. 21053″  and this came up, an old story about a penny stock manipulation ring.

Is this BriefingWire.com story fabricated?  If so, in my opinion, it screams of desperation and points the needle even more heavily in favor of “SINO FOREST IS COMPLETELY FULL OF CRAP.”

Minor things to note:

1) the report says “Carson Block and his associates approaches”  when it should be “Carson Block and his associates approached.”

2) The grammar in this sentence is horrible:  “Carson Block went so far as to himself write some of the misleading press releases that denigrated these stocks so they could line their own pockets with hundreds of millions of dollars.”   That doesn’t mean that the SEC’s deputy director of enforcement didn’t actually say it, but it’s suspicious.

UPDATE:  BI reports that the SEC confirms that this press release is a HOAX

-KD

disclosure – I am long a teeny $SNOFF position from yesterday

 

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