Muddy Waters Bets Against Silicon Valley, Warns Of ‘Pretenders’

Updated on

Muddy Waters and its founder, the well-known short seller Carson Block, are shifting their focus to a new target in the U.S.: Silicon Valley. Recently Block said he was shorting the U.K. lender Standard Chartered PLC (LONG:STAN) (LON:STAC), saying that the quality of loans the bank made were “deteriorating,” but now he’s turning his attention to the U.S.

Muddy Waters Bets Against Silicon Valley, Warns Of ‘Pretenders’

A Shift Toward Silicon Valley

Block began shifting his short focus away from China and toward Japan, India, the U.S. and other parts of the world in the second half of last year. Now he says that while Silicon Valley is the home of many “truly innovative companies,” it is also the harbor for companies which are “more pretenders.” Speaking with Wall Street Journal reporter Juliet Chung, he also emphasized that Muddy Waters won’t exclusively be targeting tech companies in the near future.

Has Carson Block Lost His Edge?

According to Chung, some are questioning whether Block and his Muddy Waters firm are losing their edge. The last three opinions of the well-known short-seller haven’t made any kind of lasting impact on the companies’ stock prices. In addition, the takedown reports the firm has become known for seem to have vanished. We haven’t seen one in over six months.

Some experts say the Chinese companies targeted by Block previously were easier to take on because less regulatory oversight in the country led to fraud in several cases. However, another well-known short-seller, Citron Research’s Andrew Left, told Chung that Silicon Valley presents a new challenge for Block. According to Left, the stock prices of many of the tech companies in the U.S. have “valuation problems,” although not usually fraud.

Carson Block’s Targets

Chung reports that four of Block’s first five Chinese target companies ended up being delisted from the foreign exchanges where they were listed. The stock price of at least one of those companies plummeted 40 percent in the wake of his report.

When Chung asked Block about Silicon Valley, he said he didn’t believe the companies he was planning on targeting had fraud problems like so many of the companies he targeted in the past. However, he claims that some tech companies are exaggerating their growth through various methods like the use of nonstandard accounting methods. Block did not name any of the companies Muddy Waters will be researching and possibly targeting in Silicon Valley.

Leave a Comment

Signup to ValueWalk!

Get the latest posts on what's happening in the hedge fund and investing world sent straight to your inbox! 
This is information you won't get anywhere else!