{ "docId": "019dd923-622c-750b-8b95-b524c5d9c7a3", "docSlug": "4be0499ce775", "documentTitle": "Orient Paper Inc. (ONP)", "authorId": "51_Muddy_Waters", "authorName": "Carson Block and Sean Regan", "documentKindSlug": "shareholder-letter", "documentKindLabel": "Shareholder letter", "sourceTypeSlug": "short_seller", "sourceTypeLabel": "Short seller", "presentationDate": "2010-07-02 00:00:00", "orientation": "portrait", "aspectRatio": 0.77272725, "pageNumber": 3, "pageCount": 10, "prevPage": 2, "nextPage": 4, "slideType": "preempt_rebuttal", "function": "preempt_rebuttal", "density": "dense", "nDataPoints": 2, "notes": "The text serves as a narrative defense against accusations of bias and a factual attack on the target company's operations.", "elementsJson": [ "paragraph" ], "metadataConfidence": 0.9, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b95-b524c5d9c7a3/3", "deckHref": "/decks/019dd923-622c-750b-8b95-b524c5d9c7a3", "deckJsonHref": "/decks/019dd923-622c-750b-8b95-b524c5d9c7a3.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b95-b524c5d9c7a3#slide-3", "components": [ { "bbox": null, "kind": "paragraph", "text": "From my vantage point there seems to be a grand divide between buying stocks in the USA and understanding a Chinese companies fundamentals; products, people, plant and equipment. On all accounts, ONP fails the due diligence test.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "3573d020-c28e-4f51-aa1f-ac8462f0347d", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "paragraph", "text": "We knew that our report would not help Pearson’s career or reputation. However, we bore - and still bear - no ill will toward him. Nonetheless, we were surprised that he produced a video in which he’s standing in front of clearly antiquated machinery talking about how the stock is a double. No doubt that Pearson is a smart guy with numerous accomplishments, but as Sean writes above, two people with varying experience levels can look at something entirely differently. In the factory, we clearly have the advantage.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "5b134080-bdf2-409b-9710-21d60a543f9e", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "paragraph", "text": "Rick Pearson, Sean Regan, and I are alumni of the University of Southern California. I did not meet Pearson until after I graduated. A former Chinese professor under whom we had each studied introduced us. We met once or twice in Hong Kong in 1998 or 1999, and hadn’t spoken again until we met at ONP. Sean had never met Pearson prior to ONP. As Rick wrote, he and I caught up on the way to the factory, talking about the paths our lives had taken from just after graduation, including how he had gone from Deutsche Bank to China microcaps.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "5d4b904f-85d3-491a-95dc-eab972f5643a", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "paragraph", "text": "plant and equipment were dilapidated. The asset values reported to the SEC did not match what we witnessed. The ONP asset values are significantly higher than what similar equipment sells for brand new. We later confirmed this with more research, but I could see it in two seconds.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "94b07ba2-e079-41f8-a420-74797ef1879e", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "paragraph", "text": "In the following seven pages, I rebut the allegations in Rick Pearson’s article. I also address the allegation (which Rick made as well) that our report was a vendetta for ONP turning down a proposal for paid research. We were engaged to perform due diligence for a separate company that was in discussions to provide paid research services to ONP. ONP failed due diligence, and no such proposal was ever made to - nor rejected by - ONP. Muddy Waters, LLC was born of the realization ONP provided us - that there is a gaping need for due diligence in China equity research.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "c14755db-92d2-41b1-92fd-353a53c4d1e7", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "paragraph", "text": "The logistics needed to ship $102 million of paper products in China did not exist. The steam easily viewed in the video and water on packing tables refutes all claims of a quality paper product. One would not ship good quality production, paper included, uncovered in an open bed truck. The storage of millions of dollars of recycled paper in the open environment is irresponsible at best. And if that paper pile in the back of the plant is worth USD 4,600,000, save your office paper because you may be able to retire on it one day.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "e28d49c7-20af-4af5-9fd4-89668849c543", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [ { "name": "preempt_rebuttal", "slug": null, "matchId": "d7eb4b31-1ac1-4a77-8afd-ea327594148b", "evidence": "The text explicitly states 'I rebut the allegations' and addresses specific claims made by a third party.", "confidence": 1 } ], "arcBeats": [ { "to": 5, "from": 3, "beatId": "f84ca43a-c352-41f3-8efe-252311489d1a", "arcName": "The Consultant's Gambit", "arcSlug": "consultants-gambit", "beatName": "Problem & Complication", "beatSlug": "consultants-gambit-problem-complication", "evidence": "The document then addresses the complication and problem posed by Pearson's assertions.", "position": 1, "confidence": 0.8, "parentBeatName": "Complication", "parentBeatSlug": "complication" } ], "loops": [], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }