The biggest loser in the latest apparent Chinese reverse merger fraud is John Paulson.
Paulson, the hedge fund manager who made billions betting against the housing market at the end of the bubble, is the biggest shareholder of a company called Sino-Forest (snoff). That stock lost two-thirds of its value this week, including 17% Friday, after a short-seller released a report claiming the company was a fraud.
The selloff leaves Paulson, whose firm held 14% of Sino-Forest as of April 29, with a paper loss of $340 million. That isn’t a huge hit to a firm whose latest securities filings lists $34 billion in U.S. stock holdings, but it obviously won’t exactly bolster Paulson’s reputation as the smart money either.
Carson Block of Muddy Waters Research in Hong Kong said in a report this week that Sino-Forest “massively exaggerates its assets.” He said Sino-Forest overstated the value of its timber holdings by $900 million.
The report sent shares of Sino-Forest plunging, not least because Block has a history of identifying problematic Chinese reverse merger companies. He issued scathing reports on accounting questions at Rino International (rino) and China MediaExpress (ccme) before they were delisted and their shareholders largely wiped out.
Sino-Forest didn’t probably help its case by issuing this oddly worded nondenial denial:
Of course, it’s a little late for extreme caution now, as Paulson and other Sino-Forest shareholders are all too aware.