Muddy Waters founder may launch hedge fund

"It's something we've thought about," Carson Block told Reuters. "The short answer is 'maybe.'" Block, who used to be a practicing lawyer, got into short-selling having previously worked for his father's company, which produced research reports talking up the prospects of small companies. He takes short positions in stocks before publishing research that identifies alleged weaknesses.

Muddy Waters' biggest scalp is Sino-Forest, the Toronto-listed Chinese tree plantation operator that was backed by hedge fund Paulson & Co. among others. In June 2011, the short-seller accused Sino-Forest of overstating its revenues and assets by routing funds of its books to intermediaries in order to fabricate sales transactions.

Although an independent investigation found Muddy Waters' claims to be groundless, the company filed for bankruptcy protection in March. One of Sino-Forest's rivals, Hong Kong-listed China Forestry, a portfolio company of The Carlyle Group, faced similar fraud accusations.

Other companies targeted by Muddy Waters include Orient Paper, Rino International, China MediaExpress Holdings, Spreadtrum Communications, Focus Media, Fushi Copperweld, New Oriental Education and Technology and Olam International. But its influence arguably stretches much further, beating a path that has since been followed by numerous hedge funds and short-sellers.

The vast majority of Chinese firms listed in the US have seen their stock prices suffer after scandals were uncovered on the books of their counterparts. It has prompted company chairman to consider privatizations, ultimately with a view to re-listing on an Asian bourse. Both Focus Media and Fushi Copperweld are currently subject to private equity-backed management buyout offers.

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• Topics
• Fundraising
• Greater China
• Hedge funds
• China