Mr. Block profited from the massive decline in Sino-Forest stock by short selling the shares, a bet that they would decline in value. He said he built his position before he published his report and remains short on the stock.
There are allegations, suggested by Sino-Forest and levelled by analyst Richard Kelertas of Dundee Securities, that Mr. Block “pre-marketed” his research to hedge funds before it was published. It is not illegal for investors to share information but there is the question of actively promoting work that is known to be false.
Sino-Forest has also complained Mr. Block didn’t contact the company before he issued his report. In the course of Muddy Waters’ research, Mr. Block has said he spoke to the company once, for two hours, with investor relations manager Louisa Wong. Ms. Wong said she had never spoken with him and Mr. Block on Wednesday admitted he didn’t identify himself as Carson Block from Muddy Waters.