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Carson Block’s crusade against French retailer Casino goes sour
by David Green
Friday Aug 23rd, 2019 2:34 AM
Carson Block and his infamous investment firm, Muddy Waters, is a major operator in the land of short sellers. Touting himself as a benevolent whistle-blower, he leans heavily on a reputation of exposing fraudulent or teetering companies.
This is a name that he established early in his career, unmasking questionable Chinese companies operating in the US. Over the past three years, he and his people have been hounding the French retail group, Casino, over its finances. For the investor-activist this has been something of a crusade. However, now it appears to be a campaign approaching an all too grizzly conclusion.

As a rule, Carson Block’s brash, aggressive, and critical reports generally act as force multipliers, being released just after his firm discloses that it is betting that stocks will fall – this can be debilitating for companies. To underline this point, in a single day in August, Block’s Twitter deeds alone caused a 10% drop in the Casino Group stock price, an event costing the company huge sums of money.

The tweet in question related to Casino having not yet filed all of its accounts. It did not matter that even casual observers were able to point out that the previous two filings had been completed later in October of their respective years as well. There was nothing out of the ordinary. Block’s approach has frequently had a resounding tabloidesque quality, with an emphasis placed on causing concern and spreading rumour over producing evidence to support his position.

The problem with this type of activity, in producing analysis that is critical of a company which you are actively shorting, is that it dances around the line of ethics and legality. Carson Block, in particular, has been effective in corroding value. He has, as a result of this harm, been a successful trader.

Either because of or in spite of Block’s reputation, the French market regulator, the AMF, decided to take a closer look at his practices after he began his focus on Casino. In a letter it went as far as to state that it suspected him of market manipulation.

This news, as one might expect, soured the short seller appetite, one that was fast becoming a staple in French investment news. AMF chairman and stalwart economist, Robert Ophèle, announced that the regulator would conclude its investigation in 2019. Naturally, this seems to have the Muddy Waters activist rattled. The firm no longer holds a short position on Casino, possibly looking to distance itself from events.

Speaking with the French newspaper, Les Echos, Ophèle voiced concerns that many have had regarding short seller activists. However, unlike some people, his disapproval might come with consequences. “A person cannot be portrayed as a ‘whistle blower’ if it is paid for that end. One cannot publicly say the accounts of a company are false or that it cannot pay a dividend without providing the proof,” Ophèle said.

Since 2015, Block’s firm has maintained that Casino was over-leveraged. He posited that the retail company’s debt was going to catch up to it, and that there were similar issues with the family of companies above and below it in the multi-tiered structure that it occupies. Governed by a pillar of the French economy, Jean-Charles Naouri – the very reserved mathematic prodigy cum businessman – Casino, has become a national symbol. The company has consistently refuted Block’s assertions.

At the centre of this episode, there seems to be a clash in schools of thought between Anglo-Saxon and continental European concepts of capitalism. After a protracted and damaging short campaign, Casino’s Naouri made the decision to request market protection through the French procedure de sauvegarde, a filing in line with the message of EU financial regulations adopted in 2015.

This allows the group 18 months of breathing space, during which its debt payments are halted to allow for appropriate debt restructuring and management. The idea behind such regulations, as is outlined in the EU briefing paper, is that they enable businesses “to address their financial difficulties at an early stage, when their insolvency could be prevented and the continuation of their activities assured.” Many EU states are experimenting with similar procedures to save profitable yet financially distressed businesses.

This is a practice which in US and UK media often gets conflated with bankruptcy filings, which are very different in nature. Misunderstanding the move might convince someone who does not understand the workings of the European markets as well as their own, that a victory was achieved, with European notions of protectionism being mischaracterized.

More than anything, the excesses of short seller aggression seems to have finally eroded the regulators’ patience.

Block seems unwilling to take responsibility for damage caused, however, and he may well see any response as justification for his conduct. Of course, when sounding certain earns you a lot of money, it is always difficult to find a measured tone, or indeed to admit when you are at fault.
by puzzled
Friday Aug 23rd, 2019 1:29 PM
There seems to be a presumption we have any idea who Carson Block is or are familiar with French companies.

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