Toro vs. Muddy Waters: Those In Glass Houses Shouldn’t Throw Stones

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Things are heating up between Toro Investment Partners and Muddy Waters. Recently it was reported that Toro took a 5% stake in NQ Mobile Inc (NYSE:NQ), and shares of NQ shot up on the news. We reported yesterday that Toro’s position in NQ Mobile is highly leveraged, and Toro responded saying our numbers were wrong. However, our request for clarification from Toro was not immediately returned.

Toro complained about Muddy Waters’ track record

One of the issues we uncovered is that Toro has complained about Muddy Waters’ track record as a short seller. Writing on Seeking Alpha last month, Toro decried Muddy Waters’ short of NQ Mobile Inc (NYSE:NQ) and complaint that the company is a fraud. The firm also took shots at Muddy Waters’ track record, suggesting that to them, “the obvious trade appears to be getting long after a MW hit job.”

However, Toro’s track record isn’t so squeaky clean. Muddy Waters’ track record could be up for debate, but that’s not what we’re doing here. We’re simply pointing out that Toro’s track record could be debated as well.

Toro’s investment into an alleged Chinese fraud

Toro Investment Partners was one of at least two big-time investment firms which was taken in by a Chinese company called Ambow Education Holdings Ltd. The reason this is important is because a court in the Cayman Islands ordered Ambow into provisional liquidation in June after allegations about “sham transactions and kickbacks,” according to Reuters.


The same month Ambow was ordered into provisional liquidation, an article on Barron’s indicated that Toro managing member Taek-Geun Kwon believed shares of Ambow were worth twice as much as they were trading at around the time. Toro was bullish on Ambow around the same time it was being investigated for accounting fraud. The fund owned more than 8% of shares in Ambow, according to regulatory filings with the Securities and Exchange Commission.

So is it possible that Toro has been taken in once again by NQ Mobile? It certainly is. If you want to talk track records, every big fund has had its hits and misses. We may not know for a while whether Toro or Muddy Waters is right about NQ Mobile, but it could go either way.

We have reached out to Taek-Geun Kwon of Toro for further comment on this story. We will update if we receive a response.


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