Glaucus eyes Hong Kong, Singapore stocks after China Metal Recycling success

PUBLISHED : Monday, 12 August, 2013, 12:00am
UPDATED : Monday, 12 August, 2013, 4:19am

Californian-based short seller Glaucus says it is focusing on stocks listed in Hong Kong and Singapore for the next six months after unveiling alleged fraud at China Metal Recycling (CMR).

Stocks in the two markets were Glaucus' primary focus because of the cities' rule of law and level of transparency and limited opportunities in the United States and Europe, Glaucus' director of research, Soren Aandahl, told the South China Morning Post.

The short seller alleged in a report in January that CMR, the mainland's largest scrap metal recycler, cooked its books.

The Securities and Futures Commission last month exercised its statutory power to apply to have CMR wound up. The company has been put in provisional liquidation. Its founding chairman, Jacky Chun Chi-wai, is contesting the winding-up petition.

Aandahl said CMR came under Glaucus' attention in May last year after it found the company's revenue per employee to be unbelievable, its chief financial officer to have left the company a few months after its listing in 2009, and its chairman to be selling his shares in the firm.

"It's not rocket science," he said. "We worked out our thesis based on public information and haven't travelled to the mainland to do inspections or sought any advice from management."

Glaucus has issued reports on 10 firms over the past two years, of which eight involved corruption and fraud. Of the eight, two were delisted and CMR is on the verge of being wound up.

Former investment banker Matt Wiechert founded Glaucus in 2011. Aandahl, Wiechert's university schoolmate, practised law before joining Glaucus.

"We are transparent," said Aandahl, whose name card does not bear any office address out of "privacy" concerns. "We put our money where our mouth is."

He declined to reveal how many people make up the research team and which city the firm is based in.

Glaucus is one of several short sellers - others include Citron Research and Muddy Waters - that have caused problems for listed companies with research reports containing damaging comments and allegations.

Sixty-one Chinese entrepreneurs and executives last year signed an open letter accusing Citron and other short sellers of manipulating information and misleading investors in reports about Chinese companies.