Carson Block is shorting British video ad company Blinkx Plc (LON:BLNX), but this time another researcher beat him to the punch. Benjamin Edelman, an associate professor at Harvard Business School, wrote a blog post detailing his evidence that Blinkx Plc (LON:BLNX) is engaged in black hat traffic generation that is unsustainable in the long run, recommending that people short the stock.

Carson Block

Carson Block interview

Carson Block said today in an interview on Bloomberg’s In the Loop that his research firm Muddy Waters had been working on a short thesis themselves and shorted the stock as soon as they heard about Edelman’s blog.

Blinkx allegedly uses black hat traffic generation

Edelman shows how Blinkx Plc (LON:BLNX) acquired Zango and AdOn, companies with reputations for deceptive online advertising practices including forced installations and click fraud, and alleges that Blinkx has continued those practices, partially through the company Verti that appears to be controlled by Verti.

“Zango began sending traffic to Blinkx Plc (LON:BLNX) during the winter 2013 holiday season — a time of year when ad prices are unusually high,” Edelman writes. “Zango’s popups of Blinkx seem to have ended as suddenly as they began — consistent with Blinkx wanting extra traffic and ad revenue when ad prices are high, but concluding that continuing this practice at length risks excessive scrutiny from both consumers and advertisers.”

“Comparing Blinkx’s revenues to competitors, I am struck by Blinkx Plc (LON:BLNX)’s apparent outsized success,” Edelman writes. “Reviewing Blinkx’s statements to investors, I was struck by the opacity. How exactly does Blinkx make money? […] If I traded in the companies I write about (I don’t!), I’d be short Blinkx.”

Muddy Waters benefits from not leading the charge

For his part, Carson Block isn’t very upset about having been scooped. Muddy Waters was able to take its short position before Edelman’s blog post really made an impact, and since then the stock has lost about a third of its value. It had started to recover yesterday, but Carson Block’s interview seems to have pushed the price even lower.

Carson Block also says that his team was still in the early phases of its research (with costs sometimes reaching half a million) so getting scooped actually saves him a good deal on overhead. It also means that his team doesn’t have to run the risk of getting sued or fighting in the media while it is still pushing the NQ Mobile Inc (NYSE:NQ) short.

For the conspiratorially minded, Edelman ends his post by writing that “I prepared a portion of this article at the request of a client that prefers not to be listed by name,” and it’s hard not to wonder if Muddy Waters’ story about getting scooped is just a story.