This Day On The Street
Continue to site
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

Orient Paper: Story Behind 'Fraud' Report

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

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

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
Stocks Under $10

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Submit an article to us!
SYM TRADE IT LAST %CHG
ONP $1.80 0.56%
AAPL $125.80 -2.25%
FB $77.56 -1.59%
GOOG $530.80 -1.85%
TSLA $232.95 1.06%

Markets

DOW 17,928.20 -142.20 -0.79%
S&P 500 2,089.46 -25.03 -1.18%
NASDAQ 4,939.3270 -77.6020 -1.55%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs