Skip to main content

Sinoo-Forest's Gaoyao Particle Board operation in the city of Gaoyao, province of Guangdong.

Sino-Forest Corp. shares are getting creamed -- or were, before being halted -- in the wake of a report from a little known research firm that makes serious allegations about Sino-Forest's business practises.

So just who is Muddy Waters Research, the firm that put out the report calling Sino-Forest a "strong sell" and alleges the company commits fraud? (Sino-Forest didn't immediately return a call seeking comment on the allegations.)

Muddy Waters is a year-old firm founded by a U.S. lawyer, Carson Block, who spent time in China and now runs a company that he says "sees through appearances to a Chinese company's true worth." (That's from the company web site.)

But it's not just research. Muddy Waters also buys and sells stocks that it follows.

According to the Muddy Waters web site, "You should assume that as of the publication date of any report on this site, Muddy Waters, LLC (possibly along with or through our members, employees, and / or consultants) along with our clients has an investment position in the stock (and / or options of the stock) covered therein, and therefore stands to realize significant gains in the event that the price of the stock increases or declines, as the case may be. Following publication of any report, we intend to continue transacting in the securities covered therein, and we may be long, short, or neutral at any time hereafter regardless of our initial recommendation."

Mr. Block has said he got into the business of researching Chinese stocks after law school. As he told Barron's in this interview , "After law school in 2005, I went to China because I figured it would offer me more entrepreneurial opportunities. I chose Shanghai because I thought the post-legal opportunities would be better. I came across a stock that was a substantial fraud. It happened to be a reverse merger, and that is how the whole Muddy Waters saga started."

Muddy Waters, according to the firm's web site, comes from a Chinese proverb that says "muddy waters make it easy to catch fish."

Mr. Block has plenty of other ventures. He is the owner of a storage company in Shanghai called Love Box Self Storage and he is listed as an author of "Doing Business in China for Dummies."

In his bio for that book, he lists himself as "founder and Managing Director of YBS Investment Consulting, which is based in Singapore. In this role, Carson advises high networth individuals and families on their investments. He also advises companies and investment firms on China-related investments."

He's also listed as an adjunct professor at the Chicago-Kent College of Law.

There, he is billed as "founder and owner of Ltd ( which helps enterprises save money and minimize risks when entering China." He also lists a stint at CIBC World Markets in corporate finance.