Why silencing short-sellers is futile

Hong Kong

ARNAUD Vagner is about to become a legal guinea pig. Noble Group, the Singapore-based commodity trader, blames the Hong Kong-based former credit analyst for conspiring to drive down its share price. A court is soon expected to hear its claim against Vagner, who it says worked for Noble until he was fired less than two years ago. This is the latest front in the ongoing battle between Asian companies and short-sellers. In one corner are investors who bet that share prices will fall, often by publishing detailed, critical research reports. In the other are corporations which adopt increasingly aggressive tactics to silence their critics. Despite the companies' overwhelming financial and legal firepower, their task looks futile.

Noble's battle started in March when a previously unknown firm calling itself Iceberg Research published the first of three reports criticising the commodities group's accounting policies. Iceberg described the company as "a repeat of Enron" - the US energy group that collapsed into bankruptcy in 2001. Iceberg claims to have no financial interest in its target's woes, but Noble's share price has fallen 22 per cent since Iceberg surfaced, equivalent to US$1.3 billion of market value. Many executives are alarmed by the notion that their company's value can be eroded by a disgruntled ex-employee armed with little more than a blog and a Twitter account - and with good reason. The appropriately-named Muddy Waters made its name exposing accounting irregularities at Chinese companies with US listings. More recently, Glaucus Research questioned the published reports of Hong Kong-listed scrap metal company China Metal Recycling. Shortly afterwards, the city's regulator wound up the business.