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Muddy Waters Hits Back Against Accusation of Deceit on Report About Retailer Casino

Muddy Waters Hits Back Against Accusation of Deceit on Report About Retailer Casino

(Bloomberg) -- Muddy Waters LLC’s founder Carson Block hit back at French investigators following accusations of deceit related to its 2015 report on retailer Casino Guichard-Perrachon SA that triggered a share-price slump.

Block said the preliminary findings of watchdogs at the Autorite des Marches Financiers “are tainted by bias” against his firm following a Thursday report from newspaper Le Monde on the accusations.

Muddy Waters Hits Back Against Accusation of Deceit on Report About Retailer Casino

“We vehemently disagree with the preliminary conclusions of the investigation team,” Muddy Waters’ chief investment officer said in an email. “Our research on Casino and Rallye has proven prescient and accurate, with any suggestion to the contrary lacking credibility.”

Officials at the AMF highlighted a factual mistake concerning a 3 billion-euro ($3.4 billion) guarantee mentioned in the report published Dec. 17, 2015, that could make it wrong or deceitful, Le Monde said, citing unidentified sources. Muddy Waters erroneously said the guarantee had been granted to Casino when, in fact, it was given to its Brazilian subsidiary known as GPA, investigators told Block in an April 15 letter, according to the French paper.

Read More: Short-Sellers Set to Cash In as Casino Owners Seek Protection

The AMF investigators’ confidential findings are preliminary at this stage and no decision has been taken about sending the case to the regulator’s enforcement committee, which is the decision maker on any fines or bans. The AMF said in a statement that it doesn’t comment on the progress of its investigations.

Just as the December 2015 report was being published, Block said in an interview that Casino’s debt burden was dangerously high and criticized its “sharply deteriorating core business.” In the report, Block said the shares of Casino’s main shareholder, Rallye SA, were worth close to zero. Casino sank 12 percent in Paris trading and Rallye plunged 19 percent that day. The AMF has been probing the matter for nearly four years.

According to Le Monde, AMF investigators complained that while the publications issued by Muddy Waters are akin to analysts’ investment recommendations, the short seller didn’t comply with certain principles of integrity, impartiality and precision. It said the officials’ findings also note that Muddy Waters always favored pessimistic hypotheses without explaining why, published approximate figures and used a tone that was polemical and biased.

Create a Panic

It appears Muddy Waters sought to create a panic to impact shares given that it settled a large part of its short positions just after the publication of the report, AMF investigators said, according to Le Monde.

Casino and markets would have been better served if focus had been on its accounts and practices, Block also said in his email. “If necessary, we will defend our right to free expression and to criticize.”

Under attack from various short sellers for years, Casino Chairman Jean-Charles Naouri two weeks ago placed the retailer’s parent companies under protection from creditors in a bid to save the debt-burdened French group from collapse.

Casino’s parent company Rallye cited “persistent and massive speculative attacks against the group’s securities” when it filed for so-called “sauvegarde” proceedings on May 23. The retailer has been struggling to improve its profitability, raising concerns of its ability to pay off the debt of Rallye through dividends.

Casino declined to comment on ongoing legal proceedings.

--With assistance from Phil Serafino.

To contact the reporters on this story: Gaspard Sebag in Paris at gsebag@bloomberg.net;Luca Casiraghi in London at lcasiraghi@bloomberg.net;Lisa Pham in London at lpham14@bloomberg.net

To contact the editors responsible for this story: Anthony Aarons at aaarons@bloomberg.net, Peter Chapman, Chris Vellacott

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