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The Lunch

Carson Block: The man who felled a forestry giant Add to ...

He says he learned how “easily perceptions can be manipulated in China,” particularly the perceptions of Western business people. China, he says, “is the toughest market to do business in the world. The moment you show you are making money you have ten competitors knocking off your business model.”

On a humid weekday afternoon, Mr. Block has chosen The Cheesecake Factory to meet at. Perched above a local yacht club, it serves not only cheesecake, but also weighty portions of just about anything else typically found on a casual dining menu in the U.S.

He has arrived early, and by the time we meet has already consumed a Cobb salad and a mug of iced tea. We decide to switch to beer.

Mr. Block is dressed casually in a blue pinstriped dress shirt worn, tails out, over faded jeans. His speech is just as relaxed as his dress and peppered with popular slang. He says “dude” a lot.

Muddy Waters, which takes its name not from the American blues legend but the Chinese proverb “muddy waters make it easier to catch fish,” does not maintain a permanent office. When I ask him for his business card, Mr. Block says he doesn’t have one.

“It’s not a ‘too fly’ thing,” he explains. “It’s just generally I don’t want people to know.”

That’s a bit incongruous, given how many people now know about Carson Block. By going after Sino-Forest, which once boasted a market value of more than $6-billion and major shareholders that included legendary hedge fund manager John Paulson (his fund has since unloaded its stake), he is taking his game to another level. Before his report, Sino-Forest’s market value was larger than the combined value of all the other companies he has targeted.

“This is the big leagues,” says the former high-school baseball and football player. “These guys have a lot of money.” In addition, he notes, “[Canada] is a totally different market where nobody knows us and we don’t have credibility. We know there will be immense pressure for somebody to be prosecuted so we have to be very careful to make sure we do not overstep. We know with some bad breaks we might be looking at the wrong end of that gun, so to speak. We went into Sino-Forest prepared to go to war.”

Whether or not Mr. Block and Muddy Waters overstepped with the sensational June 2 report remains an open question, and in due course the company could disprove its critics. The forestry firm, whose share price has plunged to below $5 from more than $20, has strongly denied the allegations and initiated an independent investigation headed by PricewaterhouseCoopers to produce a report on the company’s finances, assets and business practices. It is expected to take several months.

In the meantime, questions remain. An on-the-ground investigation in China by The Globe and Mail found discrepancies in Sino-Forests’ public statements regarding its timber holdings. A key Sino-Forest partner in Yunnan Province as well as Chinese forestry officials said the company controls far less timber than it has claimed. Sino-Forest disputes The Globe report.

The Ontario Securities Commission has said it is also investigating “matters related” to Sino-Forest and Mr. Block says he wants to help the regulator and co-operate fully with the inquiry.

He won’t, however, disclose the size of his Sino-Forest short position or whether he’s already culled any profits from the stock selloff.

“None of the Ferraris in the parking lot belong to me,” he says.

Indeed, when the restaurant valet hands him his keys Mr. Block climbs into a late-model Toyota Camry and speeds off into the fading light of another comfortable Los Angeles evening.


Carson C. Block: curriculum vitae


Age: 35

Grew up in the wealthy Manhattan suburb of Summit, N.J. Was “No. 1 in class in parties hosted during junior and senior year,” he says.

Permanent residency: Unknown


1998: Earned a business degree from the University of Southern California, where he also studied Chinese.

2002-05: Earned a degree from Chicago-Kent College of Law.

Career highlights:

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