HONG KONG-Shares in China Minzhong Food Corp. fell by half in Singapore on Monday following the release of a damning report on the company by Glaucus Research Group, a short-selling firm based in California.
Shares in Minzhong, which is based in China’s Fujian Province and produces fresh and frozen vegetables, were suspended from trading in the late morning on Monday pending the release of an announcement by the company after Glaucus accused it of misleading accounting practices.
In a 49-page report, the short seller alleged that Minzhong had fabricated sales to its top two customers, doctored its historical asset and earnings filings in China and vastly overstated its capital expenditures â€" all in an effort to make its business look bigger to investors than it really was.
Minzhong ‘‘has so significantly deceived regulators and investors about the scale of its business and its financial performance that we expect trading in its shares to be halted and its shares to be worthless,’’ the Glaucus report said.
Dave Tan, investor relations manager for Minzhong, did not immediately respond to phone calls and e-mails seeking comment.
Minzhong’s 2010 initial public offering raised 237 million Singapore dollars, or $185 million at current exchange rates, and as of Friday the company had a market value of 665 million dollars. After the Glaucus report was published Monday morning, shares in the company fell 48 percent, to 53 Singapore cents, before trading in them was suspended.
In the past several years, short sellers like Glaucus, Muddy Waters and Citron Research have profited by placing bets against the shares of Chinese companies listed on overseas stock exchanges and then publishing critical reports questioning the accounting practices at those firms.
In some cases, such accusations have led to fraud charges being filed by regulators or to the companies being dissolved. High-profile examples include the Toronto-listed Sino-Forest, which filed for bankruptcy last year after Muddy Waters accused it in 2011 of being a ‘‘multibillion-dollar Ponzi scheme.’’
Glaucus was founded by Matthew Wiechert, a former investment banker, ‘‘to prod opportunities that appear ‘too good to be true’ in an effort to alert investors and regulators to companies providing misleading public disclosures and inaccurate financial statements,’’ according to a statement on its Web site.
In January of this year, Glaucus set its sights on China Metal Recycling, accusing the Hong Kong-listed scrap metal trader of dramatically overstating the size of its business. Hong Kong’s securities regulator investigated the allegations, and last month forced China Metal Recycling into liquidation after discovering the company had faked purchases from its main suppliers to make its revenues look higher than they were.
But in other cases, targeted companies have successfully rebuffed attacks by short sellers.
Last November, Carson C. Block, the founder of Muddy Waters, took aim at Olam International, a company partly owned by the Singaporean sovereign wealth fund Temasek Holdings. Mr. Block alleged that the Singapore-listed agricultural commodities company was ‘‘at risk of collapsing’’ because of its debt load and other factors. He likened Olam to Enron, the American company that went bankrupt in 2001, saying the Singapore company was ‘‘likely to fail.’’
Olam’s chief executive, Sunny Verghese, mounted a vocal defense, hosting a number of conference calls to address Mr. Block’s allegations and take questions from investors. Temasek offered support, increasing its stake in Olam, which sued Mr. Block and Muddy Waters for defamation in Singapore (the suit was later withdrawn). Olam’s shares slumped in the weeks following the Muddy Waters report, touching a low of 1.395 dollars in December, but have since recovered to about 1.50 dollars apiece.
