Short lesson

15 Jun 2018 By Jeffrey Goldfarb Follow @jgfarb

Muddy Waters invoked Enron in its fraud accusations against $24 bln Tal Education. Complicated attacks can be hard for outsiders to parse, but corporate responses to bearish investors are often telling. China Internet Financial Services and AMD provide useful case studies.

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Investment firm Muddy Waters Research published a report on June 13 alleging that Tal Education, a Chinese after-school tutoring programme operator, has been fraudulently overstating its profit and compared some of its accounting practices to ones used by Enron, the U.S. energy-trading outfit that went bankrupt in 2001. Tal’s New York-listed depositary receipts fell by about 10 percent to $41.10.

The Beijing-based company said on June 14 that the short seller’s allegations contained “numerous errors, unsupported speculation and malicious interpretations of events.” It added that the board, along with its audit committee, would review the claims and “consider appropriate actions to protect the interest of its shareholders.”

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