Olam to file lawsuit against Muddy Waters in Singapore
- 21 November 2012
- From the section Business
Agricultural commodities trader Olam International has started legal action against US short-seller Muddy Waters Research and its founder, Carson Block.
Olam has filed its petition with the High Court of Singapore after Mr Block made allegations about the company's debt levels and accounting practices.
Muddy Waters stepped up its attack on Olam on Wednesday, claiming in a letter that the firm "will collapse".
Olam said the claims were "baseless and unsubstantiated".
Despite the latest criticism, Olam shares rose by more than 5% in Singapore on Wednesday, to close at 1.70 Singapore dollars.
The tussle between the two firms started late on Monday in London after Mr Block made comments about Olam while speaking at a charity event.
Mr Block's comments were reported by the Financial Times newspaper and the Bloomberg news agency, and prompted a drop in Olam's shares in the US over-the-counter market.
Olam asked Singapore's stock exchange to suspend its locally-listed shares on Tuesday, before allowing them to trade in the final part of the day's session.
The shares fell as much as 11% after the Singapore trading halt was lifted.
In a conference call late on Tuesday, Olam's chief executive Sunny Verghese said the allegations by Mr Block were "meant to create panic among shareholders".
He said that Muddy Waters was looking to profit from its short positions on Olam shares.
Short-selling is a trading technique used by investors to make money from the falling price of assets. For example, borrowing shares to sell into the market in the expectation that they will fall, then buying them back at a lower price and pocketing the difference.
Muddy Waters, which is known for shorting shares and for taking aggressive positions against companies it alleges have problems, defended its claims.
"Our research into Olam has been exhaustive, and we plan to resolutely stand by it, regardless of any attempts you might make to discredit it or us," Muddy Waters said in a letter addressed to Olam's chief executive.
"Know this: You voluntarily came to the market, you subjected yourselves to its forces, and you must bear the consequences of your ineptitude."
Mr Verghese, meanwhile, alleges that Mr Block visited Olam's Singapore headquarter earlier this month disguised in a T-shirt and baseball cap and that he used a fake name to do so.
"Shorting a company stock is not illegal, but impersonating someone else and lying and working in collusion is definitely likely to border on illegality," Mr Verghese said during the call.
In its letter, Muddy Waters said that Olam's response was "disproportionate" and that it "evidenced a bizarre fixation for baseball caps".
A spokesman for Olam told the BBC that the firm would not be responding to the letter.
Muddy Waters rose to prominence last year after it shorted shares of the Chinese firm Sino-Forest.
It published a report raising concerns about business practices at Sino-Forest, alleging that the company inflated its revenues and exaggerated the value of its timber holdings.
That resulted in Sino-Forest's shares plunging almost 80%. The Chinese company filed for bankruptcy protection earlier this year.
However, not all firms that it has levelled allegations against have suffered in the long term.
Last year, it accused Chinese advertising firm Focus Media Holding of overstating its assets.
Focus Media's shares fell 40% on the day but have recovered since then. Its stock has risen 60% in the past one year.
It has also received a takeover offer from its chief executive and a group of private equity firms, including the Carlyle Group, valuing the firm at $3.5bn (£2.2bn).