Carson Block sniffs out stocks trading on dodgily high valuations and bets against them, which unnerves his targets. Now, his reign of terror has spread to London. Jane Lewis reports.
Carson Block is arguably the world’s “most feared short-seller and fraud-sniffing dog”, whose ten-year “reign of terror” spread from China to France, says Jon Shazar on Dealbreaker. He is now smelling blood in London. Block’s hedge fund, Muddy Waters, has caused a sensation by launching a potentially ruinous “bear attack” against one of London’s hottest stocks, litigation finance specialist Burford Capital, says the Financial Times.
Blocks’ career was inspired by his father, Bill, an equity analyst “with a reputation for credulity”. That was “brought home” to a young Carson when an acquaintance mentioned he got his short-selling ideas “from looking at the stock Bill Block had been recommending”. Block, now 43, later went to work for his father – a period he describes as “very embittering” as he was “lied to by a parade of management” from internet firms. Soon after, he quit equity analysis for law school, cutting his professional teeth as a mergers and acquisitions lawyer for Jones Day.
An adventurous streak
Described by one ex-colleague as “an arrogant guy with [a] somewhat restless streak”, Block – who grew up in New Jersey– admits to having “discipline problems” from an early age, says businessinsider.com. But a brash personality and occasionally “questionable” tactics have never held him back. In his 20s, his adventurous streak took him to China. He co-wrote of his experiences in a 2007 book called Doing Business in China for Dummies, warning those planning on doing so that they may face “some of the most brutal negotiations” they’d ever seen.
His own venture there – a self-storage company called Love Box, which bombed – was testament to that, says the FT. When Block learned that the manager of the business park housing his facility was stealing his rental payments, he stopped paying rent himself, “stocking up on food, water and a generator, and fitting the windows with iron bars” to defend the premises. He claims the experience, “which eventually resulted in the US consulate stepping in”, was formative.
A new kind of activism
It was Block’s father who set him on the path to wealth and fame. Interested in Chinese firms listing in the US, he recruited Block to check out a company called Orient Paper. He visited the plant and discovered that “the machinery was basically scrap metal”, he later recalled.
Block’s new career as a corporate investigator took off a year later in 2011, with a typically forensic report accusing Sino-Forest, a Canadian-listed Chinese forestry company, of overstating its timber holdings, notes The Economist. The stock plunged 78% in days. More importantly for Block’s burgeoning reputation, he bested John Paulson, the legendary Wall Street hedge-funder, who lost $110m (£91m) in the affair.
Block’s research firm, the appositely named Muddy Waters, eventually evolved into a hedge fund with only around $225m in assets, says the FT. The main fund has performed solidly, however, returning 20% last year. Nursing its wounds this week, Burford (which lost around £1.2bn in a day when shares crashed 60% on news of Block’s short position) became the latest victim to describe his attentions as “a fundamental menace to an orderly market”.
Block has always rather loftily dismissed claims of cynical, parasitic behaviour. “Investing, historically, has been an amoral pursuit,” he once argued on CNBC. “The problem is that amorality is leading to increasing immoral outcomes.” The former rebel has become the standard bearer of a new kind of activist investment – the “moral short”.