Carson Block reveals Muddy Waters' secret weapon: the SEC

Muddy Waters, whose analyst reports triggered US$7 billion in losses for mainland Chinese stocks, used an unlikely secret weapon for its research: the public website of the United States Securities and Exchange Commission.

Carson Block, the short seller who heads Muddy Waters, said he was an avid reader of letters from the SEC's corporation- finance experts to executives about the adequacy of disclosures in regulatory filings.

"The CorpFin accountants do a good job of spotting issues in the companies' filings," said Block, a co-author of Doing Business in China for Dummies.

"We've read some astute questions from CorpFin on a range of issues."

Informed by such correspondence, the research firm's 2010 report on Chinese waste treatment company Rino International helped drive that firm's stock from US$13 to almost zero, erasing about US$370 million in market value. It was not a fluke.

Block, a lawyer, gained fame for his short-selling calls on Chinese stocks after regulators halted trading in four of his first five targets, starting in June 2010.