Earlier this week, a new "research" company called Muddy Waters published its first report in which it alleged that Orient Paper is a fraud and assigned a price target of less than $1. They suggested the company had misappropriated private placement funds from investors, cooked the books and prevented them from doing their studious due diligence on site. It's had a disastrous impact on thestock price of ONP. Earlier this week, before the report came out, the stock was trading at close to $9. Yesterday, at the height of panicked selling, the stock touched $4.11.Rick Pearson (a fellow contributing writer onTheStreet) came out last night with a strong responseto the Muddy Waters report.
I wanted to provide some additional comments, as I've spoken with the CFO, Winston Yen, several times in the last week, and one of my colleagues, Chris Lau, visited Orient Paper's headquarters yesterday in China to meet the CEO, Zhenyong Liu, the CFO and other members of the management team.
 |
| The writer (left) with CEO Zhenyong Liu (center) and my colleauge Chris Lau. |
One of the first and most remarkable things Orient Paper's CFO told me about Muddy Waters is that the firm originally contacted the company last fall asking to write a positive research report about the company for a fee. Winston said they asked for hundreds of thousands of dollars in cash plus an unspecified amount of ONP stock and warrants for their services. (Editor's note: Muddy Waters, in a press release today, disputes the cash-for-coverage allegation.)
Orient Paper said it declined the offer. They don't believe they should have to pay for an analyst to write about them. Additionally, Liu has always disliked warrants because they are dilutive to shareholders.
Muddy Waters has disclosed that it has been short ONP's stock (and possibly also have owned put options) before the report came out.
Before getting into the allegations, let me say that, whenever I invest in a company, I do so with my own capital. Neither I nor any company I have ever been affiliated with has ever been paid by a company to write about them or promote them. I would never do this. When I went to ONP in March, I did so on my own dime. When I have written about the company, I have always disclosed my long position. As my articles on TheStreet since 2008 show, I write positive and negative pieces about companies.
 |
| Orient Paper's new digital photography line opened in March. |
........
[** This post is an excerpt of the full article, which is available on TheStreet.com by clicking here. Free Site.**]
