Weekend Longread: The Muddy Waters founder expresses confidence he’s done nothing wrong while under the cloud of a sweeping U.S. inquiry examining bearish investors
,Carson Block was on a Delta flight to New York when he felt blood pooling on his seat.
“The stock’s rocketing, I’m just physically ill, I want to vomit, and I’ve got a million things racing through my mind,” Block recalled. Yet a flurry of subpoenas the Justice Department has sent short sellers and their allies hint at serious concerns. The inquiries have sought information on trading in Tal, among numerous other companies, according to people familiar with the matter. Prosecutors and the Securities and Exchange Commission are examining whether short sellers are improperly teaming up to attack public companies -- part of a series of US inquiries into suspected market abuses.
During a day of interviews at his office, Block expressed confidence that he’s done nothing illegal. Yet at moments, he also questioned whether it’s worth the trouble anymore. More recently, he has sounded upbeat, expanding his operation and preparing new reports. He unveiled another trade just this week — pressing on while waiting to see whether the government takes any further action.
It’s a reminder of how short selling has been a lot more colorful since Block splashed onto the scene more than a decade ago. Muddy Waters’ evolution since then illustrates how short selling is made up of ever-changing alliances between researchers and money managers -- relationships that US investigators are now said to be mapping out.
From the beginning, Block said he figured he would be sued, or even investigated, from time to time, but that such things were the cost of doing business. All he needs are three or four big, successful shorts a year to make ends meet -- or as he put it, “feed the mouths of the research team and at the end of the day make it worth the bulls--- and the death threats and the dealing with litigation and all of the hatred on social media.”That hatred has been growing.
Block doesn’t hide that he takes money off the table quickly. “What he calls ‘smash and grab,’ we call risk management,” he said of Cohodes. Block said that happened when one of his researchers published a bearish report in 2018 and watched the price climb. He also worried about setting off algorithms when unwinding his bets against Tal on the flight to New York.
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