This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Orient Paper: Story Behind 'Fraud' Report

Stocks in this article: ONP

In other words, it is my opinion that the purpose of the visit was not to find out information on the company but rather to simply "check the box" and say that they had visited the company to lend credibility to their report.

In one respect, I have to pay very high compliments to my former classmates. Their timing was impeccable. Not only did they choose to launch the report into a tanking stock market, but it also happens that I am not in China at the moment. I am back in the U.S. for the Fourth of July holiday and so am not able to do video tour Round 2 at ONP's facilities. The result of the well-timed report is that ONP has fallen by as much as 50% in two days, from over $8 to as low as $4.11.

I was quickly on the phone to the company, to its IR firm and to other major investors who own the stock. Everyone was equally shocked by the report, and the company vowed to respond immediately. I know a number of investors who have toured ONP, met management, and invested in public and private offerings by the company. The investors have all expressed interest in buying at these levels.

The main focus of the negative report was that ONP had somehow successfully deceived its auditors, BDO, as well as public and private investors, along with Roth Capital, which managed the last offering, and that its actual revenue numbers were a mere fraction of what was being reported to U.S. investors -- i.e., fraudulent.

However, according to the emergency press release put out by the company on June 30, my former classmates were using the wrong data. They were trying to match up the financials of ONP with a Chinese paper company called He Bei Oriental Paper Co. Ltd.. Unfortunately, that is the wrong company, and is in fact a different paper company located in Baoding. The correct name of the operating company is Hebei Baoding Orient Paper Milling Co., Ltd., and according to ONP, the numbers match what has been disclosed in U.S. generally accepted accounting principles. Still, Muddy Waters stated in a release Thursday that "our thesis that ONP is a fraud remains unchanged."

In the new posting, Muddy Waters confirms that the 2009 financial numbers are in fact correct (for example, revenue of $102.3 million) yet stands by other qualitative judgments that ONP is a fraud based on various observations from Block and Regan's due diligence visit.

3 of 5

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs