On December 16, the pre-market decline of Chinese stock Beike Real Estate , which was listed in the United States, once expanded to 10%, and the US stock price of Beike , was soaring because Muddy Waters said it was shorting Beike. Muddy Waters Company short selling report showed that it is expected that Beike's revenue data in the second and third quarters will be exaggerated by 77%-96%, the total transaction volume of new houses (GTV) was exaggerated by 126%, and the transaction volume of existing houses was exaggerated by 33%. Muddy Waters said they think it was a huge scam. The last time the Muddy Waters company was shorted, the famous Luckin Coffee was delisted! Why is Muddy Waters so awesome? Why can a single announcement bring down many listed companies? Today we will talk about Muddy Waters companies that you don’t know.
Muddy Waters Research Company is the full name of the United States Muddy Waters Research Company. It is founded in July 2010 and its founder is Carson Bullock. Carson Bullock was born in 1977. His father is a securities broker. 's main job is to discover valuable companies in the small stock index and then sell the research report to hedge fund and other institutional investors.
Because of the unsuccessful start of a business in China, Brock was still depressed for a while and felt that he was not the reason for doing business, but the goddess of luck began to reach out to him. Once, his father asked him to investigate a Chinese company listed in the United States called Oriental Paper to see how the company was actually going. After receiving this task, Carson Bullock visited the Oriental Paper Company located in Baoding City, Hebei Province. Oriental Paper claimed to be the largest paper company in Hebei Province, but the actual situation is that few people in China have heard of , but it was listed on OTCBB in the United States in November 2007, and transferred to the New York Stock Exchange on December 17, 2009. This is one of the typical ways for Chinese stocks to list in the United States and is also the hardest hit area that was later sniped. So when Carson Brock sneaked into this factory, the scene shocked him. The factory's machinery and equipment were ragged, all the inventory was waste paper, the office was dark and humid, and it was just a small workshop. This was a company with revenue of more than 4.9 million US dollars, and there must be a lot of moisture in it. It was a fraudster's fake company. He told his father about this situation and asked his father to quickly sell the stock of Oriental Paper. This company was not worth investing at all.
Afterwards, he formed an investigation team of relevant people from law, finance and manufacturing industries to conduct a thorough investigation of Oriental Paper, confirming that Oriental Paper's financial fraud was not worth investing, and confirming his point of view. This incident gave him inspiration, why not set up such a company that specializes in investigating financial fraud? There is great potential here! He did it right away. In 2010, he established the "Musty Waters Investigation Company". On June 28 of that year, released a short report on Oriental Paper.
report on shorting Oriental Paper
In this report, Muddy Waters gave Oriental Paper a "strong sell" rating, with the target price of the stock below US$1, while the stock price of Oriental Paper was US$8 at that time, the report claimed:
- Oriental Paper from 2009 Since the beginning of the year, more than US$30 million of funds have been misappropriated;
- Oriental Paper has exaggerated its revenue in 2008 reached 27 times;
- Oriental Paper has exaggerated its revenue in 2009 reached 40 times;
- Oriental Paper has exaggerated its assets have reached 10 times.
Within 48 hours after Muddy Waters released its report, Oriental Paper's stock price fell by more than 50%. Then, the US SEC began to intervene in the investigation, and the investigation lasted for three years. Although the false performance claimed by Muddy Waters was not confirmed, at this time, Oriental Paper's stock price had fallen by 80%, and has not recovered yet. The latest stock price is only $0.25 so far. Compared with previous various surveys, the most impactful thing about Muddy Waters on investors was the on-site investigation that was tried and tested later. In the report on Oriental Paper, Muddy Waters also showed many such investigations. The report showed Oriental Paper's outdated production lines, smoke-filled workshops, and raw materials like garbage dumps. Compared with the data displayed by Muddy Waters, these on-site investigations may be more impactful to American investors. After this small trial, Muddy Waters easily earned $6,000. Then he pointed his finger at the green No Technology , which made him famous in one battle.
Linnuo Technology was founded in February 2003 and is mainly engaged in wastewater treatment, flue gas desulfurization and denitrification, energy conservation and resource recycling, etc. It is the environmental protection industry we are familiar with. Like the Oriental Paper, it was listed on the US OTCBB through reverse acquisitions, and transferred to the US Nasdaq stock market in September 2009. It was a successful case of Chinese stocks listed in the US at that time. Because Lunuo Technology has frequently replaced CFO and auditor in four years, Carson Bullock, who has a keen sense of smell, has set his sight on it, and he feels that there must be something tricky inside. So released a 30-page research report questioning GreenNuo Technology. The report said that the sales of FGD (flue gas desulfurization product) (accounting for 60% to 75% of the total revenue) data calculated by Lünuo Technology itself is much lower than the actual situation, and it was found that many of Lünuo customer relationships do not exist; Lünuo Technology's Chinese financial copy shows that its revenue in 2009 was only US$11 million, 94.2% lower than the revenue data reported to the United States; the amount of intangible assets on Lünuo balance sheet is surprisingly small for a manufacturing enterprise. Instead, it uses some low-quality assets to fill unknown returns; GreenNuo is not the leader in the FGD (flue gas desulfurization) industry as he claims. On the contrary, GreenNuo is not very famous among the large number of competitors in the industry; GreenNuo announced that the gross profit margin is 2 to 3 times higher than the actual situation, and its technology is also lower than the industry standard; and it also questioned the statement that its management "borrowed" $3.2 million to buy a luxury house in Orange County on the day of completing a US$100 million financing.
Subsequently, Muddy Waters rated it as "strong sell" with a target price of US$2.45 on the grounds of forging customer relationships, exaggerating revenue, and misappropriating funds raised by IPO. On the same day, GreenNuo Technology's stock price fell 15.07% from US$15.52 to US$13.18, and the decline exceeded 50% in the following trading days. Later on November 17, 2010, Lünuo Technology was suspended from to . On December 3, when Lünuo Technology admitted that its customer contract was falsified and its financial data was incorrect, Nasdaq issued a delisting notice. From Muddy Waters Company's report to delisting, a celebrity environmental protection company introduced its listing journey in just 23 days. Before being delisted by the SEC, the stock price was at least $3.15, which was quite close to the $2.45 given by Muddy Waters. Muddy Waters made hundreds of thousands of dollars in shorting, making a lot of profits and became famous in one battle.
After the successful short selling of Luno Technology, Muddy Waters has targeted more Chinese companies listed in the United States. China high-speed channel , Jiahan Forestry, Multi-universal Global Water , Huishan Dairy and other companies have all become their prey. Since 2010, the number of short-selling companies by Muddy Waters has been rising, from 2 in 2010 to 16 in 2020, making its reputation well-known in the financial industry. What they know most is Luckin Coffee.
Before being shorted by Muddy Waters, Luckin Coffee was a household name in China. Since its first store opened in October 2017, Luckin Coffee took only one and a half years to go public, which set a new record for listing in Pinduoduo and Qutoutiao before listing within three years.
On February 1, 2020, Muddy Waters Research posted a post on Twitter, saying that it had received a report from anonymous person. Muddy Waters believes that the content of the report is credible and has shorted Luckin Coffee.
In this report, investigators claimed that a total of 92 full-time employees and 1,418 part-time employees were hired, and surveillance of 981 Luckin Coffee stores lasted 11,260 hours, and collected 25,843 receipts.
According to the survey, the research report lists the ironclad evidence of Luckin Coffee's five financial frauds and six red flags. It also analyzes five defects in the Luckin business model. The core content is that Luckin Coffee has serious financial fraud, and the actual income data should be far lower than the data in the financial statements. At the beginning, Luckin Coffee vigorously denied financial fraud. After many parties intervened, on April 2 of that year, Luckin announced that it had admitted that there was financial fraud, which was as high as 2.2 billion yuan. On that day, Luckin's stock price plummeted by 85% at the highest and finally closed down 75%.
Muddy Waters Company won the gods in one battle!
Since the beginning, it only made $6,000 in shorting Oriental Paper. Later, it made $60 million in shorting Focus Media . Then, it made $60 million in shorting , and then to Luckin Coffee. Professionals expect to conservatively estimate that the profit will exceed $140 million. In just ten years, Muddy Waters has made a lot of money in shorting Chinese stocks. Carson Bullock, founder of Muddy Waters, did not shy away from making money. Every shorting report of Muddy Waters will be attached with a sentence at the beginning: "You should recognize the risks of using Muddy Waters research... Muddy Waters and its customers and employees, when publishing this report, have adopted a shorting strategy for the described stocks and will make profits from the stock decline.
