Fraud claim mauls China’s Rino by Colin Barr @FortuneMagazine November 11, 2010, 9:52 PM EDT E-mail Tweet Facebook Google Plus Linkedin Share icons Rhinos like mud for its cooling effect, yes. But investors in Rino International can’t be too crazy about a research firm called Muddy Waters. Rino , a Nasdaq-listed Chinese maker of desulfurization gear for steel plants, saw its shares plunge 20% Thursday after Hong Kong-based Muddy Waters put out a research report calling the company a fraud. Thick skinned? The latest annual financial statement on Rino’s web site shows the company made $56 million last year on revenue of $193 million. The company has by its own account been growing rapidly, having posted annual revenue of just $11 million in 2006. But Muddy Waters said those figures are made up out of whole cloth. “In reality its revenue is under $15 million, and its management has diverted tens of millions of dollars for its own use,” the firm says in its report. It says Rino’s true worth is just a fraction of the stock’s reduced trading price. Rino, whose shares recently fetched $11 each after trading as high as $35 around this time last year, is worth just $2.45 a share, “based on the cash we believe remains in the company,” Muddy Waters said. Rino didn’t immediately respond to an email seeking comment. It did put out a statement promising to look into the matter and said it might update investors on preliminary findings Tuesday, after its scheduled announcement of third-quarter earnings. RINO takes its responsibilities to investors very seriously and has launched an internal review of Muddy Waters’ allegations. RINO looks forward to providing investors with a timely and detailed response to the allegations upon completion of its internal review. RINO is scheduled to report its unaudited financial results for the third quarter ended September 30, 2010, after the U.S. market closes on November 15, 2010. RINO’s management will hold an earnings conference call at 7 PM on November 16, 2010 U.S. Eastern Time (8 AM on November 17, 2010 Beijing/Hong Kong time), at which time management will comment on the allegations to the extent possible based on the progress of internal review but will not hold a question and answer session. The takedown isn’t the first for Muddy Waters. It published a report in June making similar accusations about Orient Paper , a Chinese paper manufacturer whose growth claims Muddy Waters questioned. The stock dropped 30% in two days following the report, though it has recovered much of that ground since then. Update: A reader notes my failure to point out the disclosure statement Muddy Waters places in its reports, noting that it may benefit from driving down subject stock prices: You should assume that as of the publication date of any report, Muddy Waters, LLC (possibly along with or through our members, employees, and / or consultants) along with our clients has a short position in the stock (and / or options of the stock) covered herein, and therefore stands to realize significant gains in the event that the price of the stock declines. Rino was formed via the 2007 merger of a bulletin board company called Jade Mountain with a British Virgin Islands company called Innomind. A predecessor to Jade Mountain was Applied Biometrics, a Minnesota biotech company formed in 1984 that was dissolved in 2005. The boom in Chinese companies listing on U.S. exchanges through reverse mergers with shell companies has gotten some commentators’ juices flowing. Famed short-seller James Chanos said last month at the Economist’s Buttonwood conference that he sees the field as rife with interlocking transactions, poor transparency and questionable accounts. “We are having some fun with that,” he said, without naming any companies. Among the likely big losers in Thursday’s selloff are SAM Sustainable Asset Management of Switzerland and Dreman Value Management of New Jersey. They are the two top holders of Rino stock, according to Lionshares.com. Neither immediately responded Thursday to requests for comment.