The Soul of a Short-Seller

Summary

Podcast Summary: "The Soul of a Short-Seller"

Podcast Information

• Title: The Compound and Friends
• Host: The Compound
• Episode: The Soul of a Short-Seller
• Release Date: May 9, 2025
• Description: Guests include industry experts discussing the latest in business and investing.

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Introduction In this compelling episode of The Compound and Friends, the hosts—Downtown Josh Brown and Michael Batnick—invite Carson Block, the founder of Muddy Waters Research, to delve into the intricacies of activist short selling. The conversation offers listeners an insider’s perspective on the challenges and motivations behind short selling, the impact on the market, and Carson’s personal journey in the field.

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Market Dynamics and Defensive Stocks The discussion begins with an analysis of the current market environment, focusing on the resilience of large-cap companies amidst signs of a potential recession.

• Michael Batnick discusses how despite economic slowdown indicators, earnings growth remains robust:

  “The S&P is increasingly looking like the biggest companies that matter the most are actually defensive.”
  (00:07)

• Josh Brown adds that companies like Netflix benefit from changes in consumer behavior even during downturns:

  “Who's pulling the plug on their Netflix?”
  (00:32)

This segment highlights how the defensive nature of major tech firms is reshaping traditional views on economic slowdowns and their effects on the stock market.

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The Role and Evolution of Short Sellers Carson Block explains the transition from traditional short selling to activist short selling, emphasizing the need for transparency and accountability in publicly traded companies.

• Carson Block elaborates on activist short selling:

  “We look for companies that are scammy, whether they are stock promotions, they are frauds...”
  (10:36)

He differentiates his approach from traditional short sellers by focusing on uncovering fraudulent activities and actively speaking out against them, rather than merely betting against declining stocks.

---

Challenges Faced by Short Sellers The conversation moves to the obstacles in the short selling landscape, including the shift from active to passive management and the prevalence of share buybacks among major companies.

• Michael Batnick points out discrepancies in company performances despite significant buybacks:

  “Apple's doing a record setting $100 billion buyback and it still manages to so substantially underperform Microsoft...”
  (04:31)

• Carson Block discusses how passive management has reduced the active scrutiny of stocks:

  “So, if you are short a stock, it's like, they are part of index flows and share buybacks...”
  (01:45)

These insights reveal how passive investment strategies and robust buyback programs can obscure fundamental company weaknesses, making it harder for short sellers to find and act on fraudulent activities.

---

Carson Block’s Origin Story and Methodology Carson Block shares his journey into short selling, recounting his early experiences and the development of Muddy Waters Research.

• Carson Block recounts his first major short-selling effort with Orient Paper:

  “It was a Potemkin factory... The loading dock that supposedly would, you know, was servicing 100 trucks a day just didn't exist.”
  (50:22)

• Michael Batnick reflects on the impact of these early actions:

  “You went there?”

  Carson Block: “Yeah, we knew there were serious problems.”
  (50:20)

Carson’s meticulous research and willingness to confront deceptive practices laid the foundation for his reputation as a leading activist short seller.

---

Notable Case Studies

1. Sino Forest

   • Carson Block discusses the high-profile case of Sino Forest, a Canadian-listed Chinese company:

     “They lied since day one... Their SAIC filings had forged documents and inflated asset values.”
     (58:38)

   • The fallout led to significant market repercussions and highlighted systemic issues in auditing practices for foreign companies listed in the U.S.

2. Applovin

   • Block explains his short position on Applovin, citing violations of platform terms of service:

     “They created persistent identifier graphs that violate all the platforms' terms of service.”
     (37:16)

   • His reports led to increased scrutiny and a subsequent drop in Applovin’s stock price.

3. Sunrun

   • An unsuccessful short attempt on Sunrun due to market noise overshadowing his report:

     “We published our report the next day after a significant climate bill announcement, and the stock surged instead.”
     (56:53)

---

Perception and Challenges of Being a Short Seller Carson Block addresses the negativity often directed toward short sellers and the misconceptions surrounding their role in the market.

• Carson Block on backlash:

  “There is a common perception... People don't like to see a stock get ganged up on by multiple short sellers.”
  (48:07)

• Michael Batnick adds:

  “People just don't automatically think of themselves as the person who would invest in a fraud.”
  (48:36)

The hosts discuss how short sellers are often misunderstood and vilified, despite their role in maintaining market integrity by exposing fraudulent practices.

---

Motivations Behind Short Selling The episode delves into what drives Carson Block beyond financial gains, highlighting his commitment to uncovering the truth and fostering market transparency.

• Michael Batnick inquires about Carson’s motivations:

  “What are you still doing this for in your mind, besides the money?”
  (83:09)

• Carson Block responds by emphasizing personal and professional growth, along with a desire to expand into new markets:

  “We are now mostly long oriented in the junior mining space... expanding into India as well.”
  (84:05)

This section underscores the broader impact of Carson’s work on the investment ecosystem and his continuous pursuit of uncovering market abuses.

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The Future of Activist Short Selling Carson Block shares his vision for the future, including diversification into long positions and exploring opportunities in emerging markets like India and Vietnam.

• Carson Block expresses excitement about new ventures:

  “There is opportunity to grow... we have to look at it.”
  (84:10)

• Michael Batnick reflects on the unique position of activist short sellers:

  “You're trying to say, something's wrong with this company in a more problematic way.”
  (73:02)

Carson’s adaptation to changing market dynamics ensures that Muddy Waters remains pivotal in exposing corporate fraud and safeguarding investor interests.

---

Conclusion The episode concludes with a heartfelt discussion about the personal aspects of Carson Block’s life, including his involvement in coaching Little League, illustrating the human side of a prominent short seller.

• Carson Block shares his personal interests:

  “I coach my son's Little League team.”
  (86:58)

• Josh Brown and Michael Batnick acknowledge the importance of mentorship and teamwork, drawing parallels between coaching youth sports and investment strategies.

---

Notable Quotes

• Carson Block:

  “We are looking for companies that are scammy, whether they are stock promotions, they are frauds...”
  (10:36)

• Michael Batnick:

  “Apple's doing a record setting $100 billion buyback and it still manages to so substantially underperform Microsoft...”
  (04:31)

• Carson Block:

  “The US markets now are really driven by passive.”
  (04:31)

• Josh Brown:

  “Carson, any short bombs you're working on?”
  (83:09)

---

Final Thoughts The Soul of a Short-Seller offers an in-depth exploration of activist short selling through the lens of Carson Block’s experiences. Listeners gain valuable insights into the mechanics of short selling, the ethical considerations, and the personal drive that motivates those who challenge corporate malfeasance. This episode serves as both an educational resource and a compelling narrative on the importance of vigilance in investing.

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Follow Carson Block To stay updated with Carson Block’s latest research and insights, follow him on X.com.

Transcript

[Josh Brown]

Josh, you were on TV today where what was the talk around interest rates? Because the two you were screaming today, did that come up?

[Michael Batnick]

I don't even think interest rates came up. The big thing going on on the show today is like, if we're, if we're in the foothills of a recession, why is earnings growth still posting 12% growth year over year? Like how defensive are the largest cap companies in the country? Because they, they, the tech companies now look more like consumer staples. Like honestly, who's pulling the plug on their Netflix?

[Josh Brown]

And that's where the growth is coming from.

[Michael Batnick]

Even if, even if they lose their job, who's like really canceling? And if they cancel, do they go from premium tier to ad supported tier? Because that's even better for Netflix. More profitable consumer. So if the S and P is increasingly looking like the biggest companies that matter the most are actually defensive, it's a different mindset about what does it even mean to have an economic slowdown in terms of the stock market. So that's kind of the debate. And the obvious thing to say is, yeah, yeah, yeah, it's different this time. Just wait. Of course. And nobody wants to be the idiot saying, no, you don't understand. Apple's a consumer staple. It's not consumer electronics. Therefore the recession won't hit the stock market. Of course it will. But that's like the big debate people are having. I don't. Do you think like big picture kind of stuff or you worry less about that?

[Carson Block]

No, I mean when we're thematic, it's usually just in the rear view mirror. When we say like, oh wow, we did a bunch of fake ESG company type shorts or even some that would be deemed real ESG companies but are actually pretty horrible companies. So no, we don't usually think along those lines. Now that said, it affects your output though.

[Michael Batnick]

Like it affects the results.

[Carson Block]

Well, I mean, what, what I worry more about are our flows and technical factors. So stuff in the S and P. I mean the S and P is driven by the largest names in the index. And what, you know, the way I look at it now is that the fundamentals matter more and more just on the margins as opposed to the flows. So if you get a lot of, and the main drivers of the flows are 401k plans or 401 relentlessly.

[Michael Batnick]

So.

[Carson Block]

Right.

[Michael Batnick]

Every two weeks.

[Carson Block]

Right. But if you get a situation in which there's increasing unemployment and the flows became net negative, then you would see all of this go in reverse. So you know, that's.

[Josh Brown]

I Mean we say all of what go in reverse? The flows, the flows never go in reverse.

[Carson Block]

Well, but if you had net redemptions from 401ks, because people I know, I know where I'm not waiting around for that day. But that's the point that I make to people when, you know, like I get asked, you know, I, I hate if I go on TV and the host is not well prepared and they're like, oh, what do you think of Nvidia? Doesn't it seem expensive? It doesn't matter. Like don't you understand? It's about the flows. The flows will keep coming. Oh well, what'll change that when people have to redeem from the 401ks?

[Michael Batnick]

Please close out question number six.

[Josh Brown]

No, but wait a minute, hold on. But Carson. So I think I still believe that earnings drive companies. I would imagine that you believe that.

[Carson Block]

To a certain extent it depends on the company. I mean if it's a major part of a major index, then less so. All right, okay.

[Josh Brown]

So for the last three years I don't have the exact data, but I was just looking at this because it surprised the shit out of me. Over the last three years there are a lot of companies in the s and P500 that are down 30% or more.

[Carson Block]

A lot.

[Josh Brown]

And they're generally companies that have not performed. Like the businesses are not performing and therefore the stocks are not performing either.

[Carson Block]

Okay, well but the thing is you have fewer and fewer people out there taking fundamental views, no doubt on these stocks. That's part of the problem. You've had this big rotation from active management to passive management. And one of the main drivers in addition to index flows is also companies buying back their own stock. So if a company is cash flowing, you know, that marginal buyer of stock, then it's not going to be the fundamental fund manager that's trawling the mid cap universe looking for the stuff that's unloved. It's going to be the company itself. So to the extent that company cash flows equal share buybacks and inflows into the stocks, then yes, there's a link to fundamental performance. But you know, I just think so much of it is so much of this. The US markets now are really driven by passive.

[Michael Batnick]

The two worst, the two worst mag7 names this year, Apple and Tesla. Apple's doing a record setting $100 billion buyback and it still manages to so substantially underperform Microsoft that the two charts overlaid look unrecognizable. So if we're saying it's buybacks and it's. And its indexes. Why isn't Apple doing as well as Microsoft? I think the answer is because the fundamentals aren't as good right now.

[Josh Brown]

It's not growing.

[Michael Batnick]

Well, so it's not growing and Microsoft is.

[Carson Block]

So without seeing a chart, I mean I'm guessing that there's a correlation to when we, you know, went into Liberation Day land. Right. In terms of ish it was it pre.

[Michael Batnick]

So the underperformance of Apple versus Microsoft definitely predated that. But it was probably caused by that. I would say. I'd say you're. You're probably 80% right on that. But still, if it's mostly buybacks and indexing the marginal dollar that's either coming from Apple's corporate coffers or the index buyer who's price insensitive doesn't give a shit. It's not pushing Apple up the same way it's pushing Microsoft up. So I think there are still people doing that work and attempting it. Just less of them. There's less of them.

[Carson Block]

Yeah, no, there are some but I mean it's. There's such a disconnect between. Especially when you look at valuations. I mean the valuations I don't sit there and think about like oh what should Nvidia trade at? But I mean it's so hard to find these companies that are Mag7 and say like oh wow, what a great value this is.

[Michael Batnick]

I got one. Alphabet is selling it at 60% of the market multiple is a MAG7 on sale relative to its own price, earnings history relative to the S and P for like, for good reason. But it's there. Somebody wants to take the risk and buy Alphabet. With search now falling, you know, plus.

[Carson Block]

The concern about the recession coming and dent in advertising revenue and anyway, why.

[Josh Brown]

Are we Talking about the Max 7 you said?

[Carson Block]

Yeah, well the question that's definitely not my.

[Michael Batnick]

I guess what I'm trying to say is the flows are 100% probably pushing up multiple over the very long term like just cape ratio now versus its own history, it's a higher multiple than ever. But inside of the index, Even amongst the 10 biggest stocks, there's pretty big dispersion these days. In 2023 there wasn't right. Those stocks all went up every day for any reason. It didn't matter. Good news, bad news.

[Josh Brown]

Let's start the show.

[Michael Batnick]

Ready to start the show?

[Carson Block]

Yep.

[Michael Batnick]

Let's get it going.

[Carson Block]

Three clocks coming in.

[Michael Batnick]

Oh my God. You gu.

[Carson Block]

Whoa, whoa, whoa.

[Josh Brown]

Stop the clock. Here's A word from our sponsor.

[Michael Batnick]

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[Carson Block]

All opinions expressed by Josh Brown, Michael.

[Michael Batnick]

Batnik and their castmates are solely their.

[Carson Block]

Own opinions and do not reflect the.

[Michael Batnick]

Opinion of Redholtz Wealth Management.

[Carson Block]

This podcast is for informational purposes only.

[Michael Batnick]

And should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. Ladies and gentlemen, welcome to the best investing podcast in the world.

[Carson Block]

Parson.

[Michael Batnick]

We're known for our modesty. It's kind of our whole stick. I am so excited for today's guest. We've never talked before. Like, I think I've met you in passing, but we never had this conversation.

[Carson Block]

Not a long one. I think we spoke on the phone once, but yeah.

[Michael Batnick]

All right. I have admired you from afar and I've always followed your stuff. And I'm not a short seller. Michael's not a short seller. We don't know how to do that.

[Josh Brown]

But I shorted Amazon in 2011.

[Michael Batnick]

How'd that work out?

[Josh Brown]

Pretty good.

[Carson Block]

All right.

[Michael Batnick]

We don't know how to do that, but I'm friends with short sellers. Jim Chanos is a friend. And we've talked a lot about how much respect Michael and I have for Jim. And we look at you guys like. We look at you guys like just these. These people operating on the market in a way that's counter to what everyone else is doing. But I think you guys are part of the health of the overall ecosystem. When done correctly, short sellers will uncover things before journalists, way before regulators. And it's needed because if the executives of publicly traded companies have no fear that anyone's gonna catch on to what they're doing, five years of that, you could imagine what our markets will turn into.

[Josh Brown]

So you are a governor of bullshit. We need more short sellers.

[Michael Batnick]

Yeah. So I wanna start with there. And where I wanna go from just making that statement to you is to just give the listeners and the viewers a sense of like, how did you wind up becoming a dedicated short seller or an activist short seller? I'm not exactly sure how you couch what you do, but tell people the origin story.

[Carson Block]

Yeah, sure. Well, it's okay. I'd like to just explain a little bit about activist short selling.

[Michael Batnick]

I would love that.

[Carson Block]

And so where Jim and I differ, Jim will short companies for fundamental reasons as well as if he thinks they're scammy. And actually, if you short a scammy company, whether it's a stock promotion, which is, you know, just on the right side of being legal, or it's in the gray zone or a fraud, it's actually really bad short unless and until somebody tells the world what's going on. So if you're a traditional short seller, where you put some risk on and then you don't really talk about it, you'd actually want to stick to the fundamental, fundamental space. So, you know, at least the way Jim used to run his portfolio, there were 70 to 80 names in it at any given time. And in a year in which the market screams, he expects to lose money on an absolute basis. But he's there selling alpha. Now, what we do as activist short sellers, we are, I mean, most of us who are in this space, we're only able to really speak on five or six companies a year. And we're looking for companies that are scammy, whether they are stock promotions, they are frauds, they're doing something they shouldn't be doing, and the management is hiding the ball in some respect from investors. And so then we take short positions and we speak about them. So if you just say, theoretically, the universe of shortable companies were 100, what would fit into our category would be something around like 5.

[Michael Batnick]

5%.

[Carson Block]

Yeah, I think 5% of what people would consider the shortable universe. And I'm just.

[Michael Batnick]

Are you making the case that in order to be a short seller of scams and frauds, you have to be an activist? Because if you don't speak up, then the thing can go on for way longer. And it's not a real way to invest these days.

[Carson Block]

You do, you mentioned previously journalists and regulators. And the thing is, if the financial media still had investigative journalists, I mean, there are very few. What's happened, obviously since the dawn of the Internet is that newsroom budgets have been cut on a per employee basis. The people who knew how to do the work are Expensive older employees, they're laid off.

[Josh Brown]

No more Herb Greenbergs.

[Carson Block]

Yeah, no more Herb Greenbergs. I mean, and he even tried being an activist short seller for a little while, but.

[Michael Batnick]

So there were more reporters who were willing to run down something that looked fishy than there are today.

[Carson Block]

And it's, well, it's really a problem at the publication level. Like the publications don't make money off of your long form deep dive research anymore. Cause everybody wants clickbait headlines, quick hits. Yeah. So they're not there on the regulator side. A lot of people misunderstand what regulators do and don't do. And same is true of auditors. But regulators are not there proactively looking at the universe and saying like, oh, who, you know, who seems like they're cheating. They wait for a blow up. As, as Jim puts it, they're financial archaeologists basically, they're not detectives. But the other thing is where regulators do have a role. Well, I'd say they've had a very negative role to play in. What I've seen since the financial crisis is that they made a decision post Enron in the US Government. There was a feeling after Enron that the government response was too harsh, especially with respect to Arthur Anderson.

[Michael Batnick]

Yeah.

[Carson Block]

And so they've basically treated a lot of the managements and the people around them with kid gloves ever since. And so you have this, you know, the probability of getting caught now doing something you shouldn't do is lower than ever. The government generally has less appetite to litigate difficult cases that are in the gray zone. And the rewards. And this is the crazy thing, when I started doing activist short selling in 2010, you know, the way I thought about it then is if you were able to scam $50 million out of investors out of your company, like that puts you at the big boy table today. That's a laughably low number. Like you're still sitting with the kids at Thanksgiving dinner. Right. Like the numbers. Because of the inflation of asset values. The numbers, the rewards are so great in absolute terms. So yeah, the incentives.

[Michael Batnick]

The rewards for cheating.

[Carson Block]

The rewards for cheating. So I think in modern times the rewards for cheating have never been greater and the probabilities of getting caught have never been lower. And you also have this entire market or investor class that's really anesthetized to risk and frankly doesn't care a lot of times.

[Michael Batnick]

I think I was going to interrupt this. The hallmark of a conversation with me is everything you say generates like three questions in my mind. They're anesthetized to Risk, because they're not taking as much single stock risk in the way prior generations of investors did. They're not living and dying with individual companies. They're buying baskets of stocks. And if one rotten apple is in the basket, it all comes out in the wash and they end up okay versus somebody 20 years ago who had a portfolio of 20 individual stocks. And if one of them was a fraud and went to zero, it would make a real impact on their brokerage account.

[Carson Block]

Well, look, that's part of it, but I think the other factors are that kind of amazingly, I'd say we've had two generations of professional investors enter the market since the GFC. So to them, what is risk? 2018, Fed decided to cut again. 2020 risk is opportunity for them. Like, oh, things are going to blow up. Balance sheets are too fragile. Awesome. That means Silicon Valley bank, somebody's going to come in and bail everything out. Like, this is fantastic. And that's not the way markets should work. I don't think it's the way the markets will work in perpetuity. But that's part of the reason why on a single stock basis, if you're talking to investors about, like, hey, I think this company has some issues here. I think management. No, no, no, don't talk to me. And like the people on the long side, you used to get compensated on the long side for caring about that, for caring about risk. After, I'd say, 2013, they became the butt of everybody's joke. Like, that guy's a value investor. Ha ha ha. You know, like. So I think that that's the bigger issue is that all of the emergency monetary policy that way outlasted the emergency and went into the next emergency, which led to even greater emergency monetary policy. I think that has anesthetized investors to risk. So even as an activist short seller, a lot of times, you know, I felt that every year the bar to find stories, for lack of a better word, that people would care about got higher. You know, it's like, yes, the market caps the most dysfunctional companies got larger, but people just didn't care. And, you know, we still, we still face that situation.

[Michael Batnick]

So Elizabeth Holmes was unmasked by the Wall Street Journal. It's not a public company. They kind of get to it first before because that was on an IPO track. From my perspective, I'm sure there's every bit as much fraud in the market as there always has been. Maybe there's more. It sounds like you think there's more, but from my perspective, why even bother commit the fraud with private companies then you're just dealing with venture capitalists. That almost seems like the wild west right now. And nobody can short those stocks because they don't trade on an exchange, can't borrow them. But like from my perspective, it looks like, it just seems like it would be way easier to commit fraud in that part of the world. In that part of the world is now trillions of dollars worth of non public equities. So I mean, what do you think about that idea?

[Carson Block]

Yeah, I mean, I wouldn't assume that there isn't rampant fraud or misrepresentation. And I had this discussion several years ago with somebody who was in a pretty high profile litigation with Snap. He's actually a crypto God now. Anthony Pompliano, Sure. I don't know if you remember that litigation. He'd come out of Facebook and we were, we were discussing how in the private markets when these companies go to raise money. So obviously, you know, the financial are irrelevant, right, because they are, they're nascent businesses and so they're audited. But the auditors don't look at the user metrics and so let's look at the money. Well, but there's hardly, it's just like, oh, money hit the accountant and they spent it. So the key thing, I mean when these companies raise money, it's based on their user metrics. And it turns out that very few to zero of the VC firms actually try to diligence these numbers. And the way that Anthony explained it to me and when I've talked to a number of other people since it made sense, is that it's like your typical software startup. It's a few people working in the proverbial garage. Okay, you build this, you build that and they kind of draw straws to see who has to build the user, the user measurement systems. Like who gets the short end of the stick here? Ah, shit. Like nobody wants that, right? Nobody wants to do that. It's not sexy. You don't put a lot of effort into it typically. So it's poorly done raise money. You know, user growth goes, you know, starts to hockey stick. Nobody has updated the measurement systems. And so even if you intend to accurately represent your user metrics, it's really hard because you have a very poorly done system for it that got no love once you started to raise money. Now against that backdrop, you also have people who are willing to, to exaggerate or misrepresent or even outright lie. And there's, it's very Difficult. Again, when you're talking about a system that's, you know, kind of thrown together in the most efficient way possible, maybe not most efficient way, and in the laziest way possible, it's pretty difficult to.

[Michael Batnick]

Contradict that Charlie Javiz is going to jail. So she saw the startup. She sold a startup with fake user data to JP Morgan. You would think JP Morgan, being one of the most sophisticated financial players on earth, would have maybe done a little bit more due diligence before the fact. But whatever they discovered after, they sent an email to all the users and they looked at the response rate, which was effectively nothing, versus when they normally send marketing emails to other populations of email addresses, and they knew right away we bought a fraud. They convicted her. I think she's going away.

[Carson Block]

Yeah. And I don't know that case in detail, but based on what I do know, I don't fault J.P. morgan because that's hardcore fraud. Okay. From what I understand, deliberate. Right. She went to somebody and said, hey, create a bunch of user profiles that look entirely random and look real. And so if you're JP Morgan and you're buying a business and you see that data and it looks real. Yeah. I mean, you're going to assume that most people are not going to risk going to prison for this.

[Michael Batnick]

It's completely insane.

[Carson Block]

Yeah. It was a stupid fraud.

[Michael Batnick]

Theranos, like Elizabeth Holmes at Theranos, seemed equally insane. Pretending that you can detect medical issues with a blood sample when you know you can't. How. I guess the only thing you could say there that might have been like, even a dose of sanity is she thought she could fake it until she made it and eventually the technology would work. Other than that, this is insane behavior.

[Carson Block]

So I saw. I was on a spoke at an event a few years ago. One of the speakers was Alex Gibney, and he's the one who produced the documentary on Theranos bad blood that was based on the Carrie Roux book. And he also did the Smartest Guys in the Room. So he's done. And he's done a number of financial fraud documentaries in the interim. And he had what I thought was a really insightful comment, which is that the vast majority of people who end up committing fraud like she did, like the Enron guys, it's not their goal at the outset, it's that they do something where it's a little bit over the line and, you know, then they figure, okay, that's it. But it doesn't get better. And so then the next time they Move a little bit further and a little bit further. It's very incremental. And before you know it, they're, they're just, I mean they're so far gone. I mean that's like the story of ftx.

[Josh Brown]

I don't think Sam Bankman Fried started FTX to, to commit a fraud.

[Michael Batnick]

I think that's Madoff. I, I, I think Madoff got away with it once and then like over decades, the whole operation springs to life. But where it starts, I think is not being embarrassed in front of your friends and family.

[Carson Block]

Right.

[Michael Batnick]

That's almost always the origin of 100%. So Madoff cleaned out the North Shore Country Club. He cleaned out the temples, Florida and New York. He's bicoastal, very talented. He cleaned all these people out who were his friends. I don't think at the outset it was like, let me rob my friends and family. It was, I can't admit to these people that last month might have been a bad month for my portfolio.

[Carson Block]

See, I'll take the other side on Madoff. I think that guy was a hardcore psychopath. Well, eventually the reason I think that is because this guy had a very successful trading business. He was a pioneer.

[Michael Batnick]

Yes.

[Carson Block]

This is not somebody who needed the accolades, the returns or the money, frankly. So I, I put him in a different category of, because, you know, especially in this, in this business, I'm sure you've met people where you think, okay, that's a smart, talented person, they could have made money the legitimate way, but I think they just enjoyed stealing it too much.

[Michael Batnick]

Oh, that exists.

[Carson Block]

Yeah.

[Michael Batnick]

I know people where I've gotten that feel, that feeling.

[Carson Block]

And that's, look, I never met Madoff, but I put him in that category.

[Josh Brown]

So, so getting back to the area that you play, the publicly traded companies, when you talk about these scammy companies, these fraudulent companies, who is benefiting and at whose expense are they benefiting?

[Carson Block]

Sure. So it's, it's always, it's almost always management. So the CEO, the founders of the company, they have a ton of stock and basically as the stock ramps, they're going to sell it. And so they're effectively taking money from the public investors. And the thing is, so if you go all the way back, and I did start paying attention to this in the 80s when there was that theory that came out of academia, like, hey, we need to align incentives between management and shareholders. So let's think about equity compensation. And in theory that's great. And up to a certain amount of compensation, it makes sense. But the thing is, companies started hiring compensation consultants, or the boards did, and they're always saying, oh, no, you got to increase this guy's pay. Because, you know, and since the board is always the CEOs buddies, you just got this arms race where everybody was giving their CEOs more and more stock compared to. So you get to this situation where the incentives are completely misaligned because you could. You can throttle a company, you can make things look good while mortgaging the future of the company. You can play that game for two or three years, get a lot of stock, comp. Sell it, and then when things blow up, you're fine. And one of the biggest mistakes investors always make in that situation is, oh, gee, you know, he still owns, you know, blah million shares. It's like, yeah, but, you know, when you've taken $250 million off the table already, like, that's the idea.

[Michael Batnick]

The compensation committees are a cartel, too. Like, these numbers don't materialize out of nowhere, or maybe they do, but the reason why they actually get paid is because the CEO down the block at a rival company is getting the same thing, right? It's not. There's not like. It's not like it's a thing where everyone's operating independently of what's happening around them, right?

[Carson Block]

And it just keeps raising the bar. But then my favorite dysfunctional behavior when you think about companies and compensation is mergers and acquisitions, right? It's like they acquire a company, they get bigger. It's like, well, you know, all of my peers who, you know, run companies of similar size now, they get paid more. And so it just becomes this. This joke. So as I watch, like, HP consolidate and, you know, back in the day, I mean, first bought Compaq, and, you know, just watching the pay rise for Meg Whitman, it was. I don't know, I would sit there laughing, and to me, it was obvious what the game was. But, you know, whatever. A lot of people lost real money there. And then they bought that thing, Autonomy, which a bunch of people, a bunch of short sellers knew was a fraud, had written to the board, they bought it, and I think within a year, you know, HP was complaining and filed criminal complaints against the sellers of Autonomy or the guy who'd founded it. Who was he?

[Michael Batnick]

Was he killed?

[Carson Block]

Yeah, he died.

[Michael Batnick]

No. Was he murdered?

[Carson Block]

No, that was a tornado.

[Michael Batnick]

You wouldn't go that far.

[Carson Block]

That was a tornado, man. Like, that's. No. And his. No.

[Michael Batnick]

No other boat. No other boats. Let's tell people what we're talking about. The Guy who sold Autonomy to Hewlett Packard, got sued into the Stone Age by Hewlett Packard. Right.

[Carson Block]

No, he was still worth about, like 300.

[Michael Batnick]

Okay.

[Carson Block]

But the law.

[Michael Batnick]

But the lawsuit that he ended up winning.

[Carson Block]

Well, so he had just.

[Michael Batnick]

Or was a criminal.

[Carson Block]

Well, he had just been acquitted.

[Michael Batnick]

Acquitted. A criminal trial.

[Carson Block]

Right, a criminal trial in the U.S. i mean, that had been like 10, 11 years of his life. And so he had a celebration party aboard the sailing yacht that he owned. They were moored off the coast of Italy.

[Michael Batnick]

Amalfi.

[Carson Block]

Yeah.

[Michael Batnick]

Yeah.

[Carson Block]

And, you know, really, sadly, he had his daughter on board. He had, ironically, one of his criminal.

[Michael Batnick]

Attorneys on board and an investment banker for Morgan Stanley.

[Carson Block]

Right. And he had some other people on board who escaped, but the boat went down with him on it. And what I got from the early investigation, I think they were. The authorities were saying that the captain did not, like, shut the hatches or, you know.

[Michael Batnick]

Windows.

[Carson Block]

Yeah, the windows or the hatches.

[Michael Batnick]

Yeah.

[Carson Block]

And I think. And so, like, I.

[Michael Batnick]

It's a really crazy, karmic thing.

[Carson Block]

Extremely karmic. Especially because I think the cfo, who had also been acquitted, was killed, like, a few days earlier in a bicycle accident.

[Michael Batnick]

Yeah, that's okay. That was the part I was gonna get there. There was another related. Related death. Unrelated to the incident, but related to the situation.

[Carson Block]

Yeah. And look, we don't have to. I think. I think it's one of those examples of how occasionally life is stranger than fiction.

[Michael Batnick]

Yeah.

[Josh Brown]

Where do these ideas come from? Are you. Are you running quantitative screens or is this just word of mouth and somebody gives you a tip? How does this work?

[Carson Block]

Well, first of all, we're very sensitive about using the word tip, since that's a term of legal significance, you know, insider trading. I meant your communities. So we don't. I'm not a believer in screens because I think you get a lot of false positives and false negatives. And other activist short sellers might take a different approach, but we get a lot of people, usually long, short funds shopping us ideas. They're short xyz. The substantial majority of the time, it just. It doesn't work for us. It might be a great short idea, but it doesn't make for great short activism. So going back to that. That difference between the shortable universe and what we do, you have to be provably right at the time that you speak. So if I say, oh, you know, the street has this wrong, competition is going to erode margins much faster. Like, that's a. That's a, you know, like, we'll find out when we get there.

[Josh Brown]

But you're looking for guilty beyond the reasonable doubt, right?

[Carson Block]

Well, I'd say the standard I look at is the civil standard. Can I prove by preponderance of the evidence in the market? I mean, I would like to do beyond a reasonable doubt.

[Michael Batnick]

But can you prove what? That something the company is saying or doing is not what it appears.

[Carson Block]

Correct. And to be clear, also, that's a high bar. Yeah. And look, to be clear, also, a lot of people associate us with, oh, you guys short frauds. 20 to 25% of the companies we short, we think are frauds. The other 70, 70 or 75, 80% are in that gray zone where what they're doing.

[Michael Batnick]

Emotional.

[Carson Block]

Yeah, it's like misleading accounting. It's herbalife, probably illegal.

[Josh Brown]

Would that be in the gray zone type of thing?

[Carson Block]

Herbalife was it. So the numbers were real there. Okay. So that's also one of the other lessons of business, Is that businesses that do things they shouldn't be doing. Can be great businesses from a financial perspective. So, you know, bill ackman was right. The ftc hit them with a record. Fine. But he was wrong in that it didn't matter. It was like $120 million suing tobacco companies.

[Michael Batnick]

He wasn't even alleging fraud. He was saying, this is bad for the hispanic community because they're being scammed. But.

[Josh Brown]

So that's the thing.

[Carson Block]

He did initially call it a fraud, But a consumer fraud, not a. Not a fraud. Right.

[Michael Batnick]

Like talking people into becoming wholesalers, Taking on all this inventory.

[Carson Block]

Right.

[Michael Batnick]

He was right. Of course, that's toxic. That's not good for anyone.

[Carson Block]

But.

[Josh Brown]

So you need to be right. That there needs to be. These companies need to be a fraud. And ultimately, if that does not hit their bottom line, Investors just might not care.

[Carson Block]

Right. So what happens a lot of times then is we are another short activist. Publish on it. The idea is that we create enough scrutiny and pressure. That things inside the company start to break. So people get uncomfortable with continuing that behavior. So you might start to see resignations. Maybe the auditor says, hey, look, we have an issue here, you know, and the auditor says, well, if you're going to continue to do this, we need a lot more disclosure. Oh, yeah, but that's going to basically, you know, show that muddy waters was right. Well, that's what our lawyers are telling us we need to do. So. So some managements will. And some managements will just basically back off the aggression right away.

[Michael Batnick]

So if you, look, stopped doing what they were doing.

[Carson Block]

So some of them will.

[Michael Batnick]

But they'll also deny it simultaneously, right?

[Carson Block]

They'll deny it, but they'll back off or they'll double down on it. So, you know, I don't know if you were going to bring these up and I'm like jumping, jumping the gun.

[Michael Batnick]

A little bit, but let's go, let's go.

[Carson Block]

So if you look at company that we shorted in November of this past year at Iris Own London, it was Elf Beauty. So we what we were looking at customs data and we saw that their imports fell significantly and couldn't be reconciled with what they were reporting as cost of sales. So we were saying that we think there's a serious problem here. You know, real misstatements in the inventory accounting, the cost of sales and also the revenue. So they denied it. Now, to be fair, they did say, hey, we had just gotten confidential treatment for our imports, at least some of their imports as of January of 2024, which nobody asked them, well, why did you suddenly get confidential treatment? You know, they said it was for competitive reasons, but that was a total BS excuse because their suppliers are well known, their suppliers don't change. Easy to figure that out. So it wasn't for that reason.

[Michael Batnick]

Why did you do that? In response to somebody asking questions?

[Carson Block]

No, I think they. Because they knew. Look, I, I think that they messed with the numbers and I think they knew they were gonna be messing with the numbers and so they not. I think I'm. Well, okay. In my opinion, they had a plan to mess with the numbers and they realized that they could get caught through the customs data, so they got confidential treatment on most of it. Now we went out there, we said, hey, these numbers are problematic. They of course denied it. But then when they reported their next quarter, they lowered guidance significantly. So in my mind that was. Okay, you guys are unwinding this. You're basically, you're going to miss. You're going to try to dive below everybody's radar, but. And just hope that it doesn't go bad for you.

[Josh Brown]

When you say they. Sorry to interrupt. But when you say they, is this like the CFO and this is this like, do all. Does everybody know who's they?

[Carson Block]

Yeah, it's a good question. I mean, we're talking top management usually. And look, I'm not privy to the, the, the, you know, the discussions. Obviously I can't get internal company documents, but something like that would be CEO, definitely cfo, most likely. Maybe there are some people in accounting, but basically whoever has access and you know, that's one things we also found out was in the course of our research, they did not have good internal controls. And so when you see that with companies. Yeah. It doesn't just mean that there's a risk that numbers will be accidentally misreported. A lot of times with the companies we look at, we think, yeah, that's a feature, not a bug. Right. They deliberately have weak internal controls. So that's one type of response. So again, this is philosophically, though, do.

[Michael Batnick]

You care if that's the outcome? Meaning they unwind it in plain sight. They don't say, we're unwinding us messing with the numbers. They say sales are gonna be lower next quarter, unexpectedly, to your point, they dive below the radar. The stock goes down either way. Do you need. Philosophically, you, Carson block, Do you need justice? Or are you just as happy with the stock price falling and you being vindicated?

[Carson Block]

Well, look, of course I would much rather there have been an investigation and then at least civil charges, if not criminal charges.

[Michael Batnick]

That's important to you.

[Carson Block]

Well, you much rather have that because in my profession, you always have a lot of haters. You always have a lot of people who are going to make excuses and say, like, oh, no, that's not. No, it's just because XYZ was happening, you weren't right. Blah, blah, blah. It's just nicer to be vindicated. Especially because there's so much hatred that gets directed back toward us on social media, et cetera, that it is always nice when those critics go completely silent. And then occasionally one or two will, you know, DM or tweet, like, oh, wow, I guess I really had this one wrong.

[Josh Brown]

The stock was at 220 to 50.

[Michael Batnick]

Yeah.

[Josh Brown]

Are you still short?

[Carson Block]

No, we're no longer short. So you.

[Michael Batnick]

All right, so you were saying the second type.

[Carson Block]

The second one is when they're just like, you know, we already bought this boat and man, we better. We're going to defend this. And so that would be like Applovin. So we reported on them a couple months ago and basically the numbers are real. We're not accusing them of fake.

[Michael Batnick]

That was you. You're the primary on Applovin.

[Carson Block]

There were a bunch that came out at the same time there. So, I mean, the funny thing is we all get to the same conclusion, but through different methodology. So our methodology was the most technical in actually looking at the code and how Applovin has created these in violation of all the platforms terms of services, these persistent identifier graphs that track users from Site to site and then hit you with retargeting ads. And that's prohibited by. By Google, by Facebook.

[Michael Batnick]

So it's like you download a solitaire game because you're on the airplane, and before you know it, like, six months later, they keep hitting you with more and more ads.

[Carson Block]

But they.

[Michael Batnick]

Because they have you, right?

[Carson Block]

But unless you opt in, they're not allowed to do that. And there are also laws that prohibit that now as well as the platforms tos. So they say, oh, we created this great AI that, you know, delivers results that almost as good as those of the companies that actually are the platforms and that can track you because people opt in and no, they're just violating the tos. And so we published that. They, the CEO and CTO put out a response, denied it. But the thing is, they didn't stop the behavior. Right? So we. When we still look at these sites and we see that they still are create. They're still using these persistent identity graphs, and they're just denying, denying, denying. So that's the other response. It becomes binary. It's either.

[Michael Batnick]

That's the current position for you. You're a short app level right now.

[Carson Block]

We are. So we're taking on the chin a little bit today.

[Josh Brown]

Up 12% today. They supported.

[Michael Batnick]

They had an earnings report.

[Carson Block]

So we put out an update yesterday. It was a video that showed, hey, they're still doing this. And the CEO and CTO lied. Those were actual words. So we're saying that they lied in their response when they denied that Applovin uses these persistent identity graphs. But the numbers were great. Because going back to the point about herbalife, it turns out that when you have a business that's doing things it shouldn't be doing, it can be a pretty good business.

[Michael Batnick]

Shouldn't be doing morally.

[Carson Block]

Well, shouldn't be doing morally and legally. And here's the thing with that one, and not to delve too deeply into applovin, but the platforms could shut them down. Okay, that's one risk. But if the platforms don't shut them down, this doesn't take a genius to do what they're doing. So you're going to have all of these other, like, tiny little ad tech companies say, oh, wow, you know, we can play this game too, because this is tolerated. And so basically, their margins are going to be, you know, cut to, you know, razor thin if the platforms don't do anything.

[Michael Batnick]

Oh, so your thesis is like, even if they keep getting away with doing this thing that you are asserting, they're not supposed to be able to do on the platform that actually might not even work out well for them because then everyone else.

[Josh Brown]

Wait, it's $115 billion market cap.

[Carson Block]

No, I mean, in 24 last year, they ramped. It was irrelevant to, like.

[Michael Batnick]

That's what I wanted to ask you. I think it was the. I forget what period of time it was the best performing stock. I don't want to say it was in the S and P. Maybe it is now, but it was in, like, the Russell 3000. I remember watching this thing. I had no idea what the company did. And then all of a sudden, a bunch of short sellers are publishing on it. So you mentioned that we all arrive at it from a different perspective, but the number one performing stock, and no one's ever heard of the company, has to get a lot of attention.

[Carson Block]

Well, so, yeah, to your question earlier, right. About how do we develop ideas? So when you see something like that. Everybody in my business started looking at that because it just climbed a wall. Like, the stock price went vertical.

[Michael Batnick]

Everyone's trading it, everyone's talking about it.

[Carson Block]

Exactly. They start using AI. AI. AI. And look back in as soon as ChatGPT happened. Okay. All of us in our office, all of our peers, whenever we talk to each other, we're like, okay, we're about to get this tidal wave of AI scams. Like, everything is going to call itself AI.

[Josh Brown]

You're licking your chops.

[Carson Block]

Yeah, exactly.

[Michael Batnick]

Like the EV stocks in 2021, the SPACs.

[Carson Block]

Yes.

[Michael Batnick]

These things come in waves.

[Carson Block]

Yeah, exactly. When. When some. So that's. So that is one of the ways that we really identify or that helps us identify things is when something gets hot. Yeah, maybe like the first one to. They're fine. You start, maybe. But by the time you get like the fourth or fifth entrant into a space or to go public, you know, or to really start pushing this narrative in the case of AI, because these companies existed beforehand, that's when you have to take a look and say, yeah, you know, maybe you're not really what you're saying you are, so. And yeah, and if there's something to do, look, I mean. But I mean, that was such a hard stock. I mean, I feel like we got our timing reasonably correct because if we tried to do this, you know, like maybe five months earlier, we would have just been run over because the momentum of that.

[Josh Brown]

So I want to ask about your process.

[Carson Block]

All right.

[Josh Brown]

You're doing deep research. You say that an activist short seller can cover maybe five, six names a year.

[Carson Block]

Right?

[Josh Brown]

All right, so you're sniffing around, you find something, you get a little hornier, and you're like, I really got something here. What happens if, over the course of time, when you're doing the research, the fraud is uncovered, the stock craters? How quickly do you put positions on. Where do you set your stops? How do you take profits? Like, how does all of that work? Are you short the stock? Is it options? Talk about all the process stuff.

[Carson Block]

Okay, all right. So. Well, in terms. In terms of the. The trading positions and that risk that does happen when we preempt each other all the time. I mean, we were working on applovin for, I don't know, maybe a couple months. We saw a short report after short report come out, and we thought, shit, it's over.

[Michael Batnick]

Were they having an impact.

[Carson Block]

Momentarily? That's the thing. The stock reading is still there. So we thought, okay, look, you know, nobody has published what we have. So we have, you know, we have this code. It shows these persistent identifier graphs. Nobody's published that. It's been. They've talked with people in the industry who are skeptical. Former employees, you know, who have negative things to say. So we still have a project, but there are definitely times when we've been preempted, and it's like, well, okay, too bad. So what we do sometimes is we put on what we call schmuck insurance, which, speaking of herbalife, that's a term from that. Like, I guess Carl icahn. Like, you know. Yeah, he has his own version of schmuck insurance. But for us, it's okay. Like, in case we get.

[Michael Batnick]

If we're late.

[Carson Block]

Yeah, like, let's put on 5% of our. But, yeah, yeah, exactly. Just the tip. 5%. Okay, so then how do we. So how do we trade it? Do we use options? Sometimes, but the problem that we found early on. So I started in this business on the activist short side with chinese frauds. And that's. I think what really developed that short activism business was these chinese.

[Michael Batnick]

We're going to go back to that later.

[Carson Block]

Sure, for sure. But, you know, initially it was, you know, with our own capital and was like, yeah, let's buy a bunch of put options. I mean, that lasted for a few months before. Basically, as soon as market makers saw a lot of activity in the put options, Especially when you're paying, like, 110 volume. Like, okay, everybody knows what's going on, Right? So. So what ended up. What ends up happening, and now we manage outside capital is if you're. If you're playing in the puts, and the puts are not extremely liquid. The tail wags the dog. So you're going to screw up your entry pricing if you go into the put. So usually if there's a put market, it's just sort of like, yeah, let's, let's do this, you know, right before we publish. From a psychic perspective or psychological perspective, I really enjoy selling calls right before we publish. That's always why. Well, especially if we do it otc.

[Michael Batnick]

Because the people buying those calls from you don't also enjoy it.

[Carson Block]

Yeah, exactly. Like there's.

[Michael Batnick]

So eventually they really don't enjoy it.

[Carson Block]

So there was a quote that somebody attributed to Stan Druckenmiller, who I. Look, I don't know if this is true, but somebody who was. Who heard him say this once, I guess it was years ago, Stan Druckenmiller said, yeah, you know, like, obviously most of what I do is long, but I like short selling more. And why? Because, you know, somebody's getting.

[Michael Batnick]

Yeah, I get it, I get it. There's a Wall street mentality too, of like, it's not enough for me to win. The other person must also lose. There's a little bit of that.

[Carson Block]

Yeah. I mean, I think when you do. Look, when you do this business and you take a lot of shit from people, I mean, there's a lot of hatred directed toward you. Yeah, you definitely, like, you have to have thick skin or, you know, or else you're not going to be in this business very long. But, you know, there's. You definitely when those days when you win and the haters lose, there's a revenge.

[Michael Batnick]

There's a little bit of a revenge factor.

[Josh Brown]

When you get into cation, do you push or do you, like, when it breaks, do you say, all right, we are so right.

[Carson Block]

We're going to push it?

[Josh Brown]

Or do you take profits?

[Carson Block]

No, because usually it's like, I mean, it's, it's collapsed. Right. So it's like, why would you, you.

[Michael Batnick]

Know, it's not undervalued stocks. These are outright frauds that are being unmasked.

[Carson Block]

Yeah. Like, everybody who sold, who, who could have sold has already just sold. And so then, then you end up doing that, that stuff that like Melvin was doing, which was so stupid. When you're holding a stock that's collapsed to like a dollar as a short because, oh, I don't want to realize taxable gains on it. Like, the asymmetry of that position, it was so moronic. So, no, we don't do that. And we're very quick to say, you know what, like, that's good. Don't look at gift horse.

[Michael Batnick]

And I want to, I want to stay on this because I think this is, this is the most fascinating thing. Everybody hates their short sellers because nobody ever says, Nobody ever says, thank God that fraud got unmasked before I could buy the stock. Because no one ever thinks of themself as the person who would invest in a fraud. Right, but of course. Right, but of course, the longer a fraud goes on and the bigger it gets by market cap, the higher the likelihood that an innocent random buyer might end up holding the stock. So people don't give you guys credit for the things that you clean up. So that's one. But two, there is a common perception, and I want to hear if you think it's a misperception. People don't like to see. People don't like to see a stock get ganged up on by multiple short sellers at once. And even if it turns out those short sellers are vindicated, that's where the hate comes from. Especially if they're in the stock. And let's face it, a lot of very online traders are gonna be in the highest momentum stocks, and a lot of those high momentum stocks are gonna end up the targets of activist short sellers. Because the way they got high momentum in the first place was by bullshitting people. So you have this perfect stew of extremely online aggressive traders. They're in stocks they barely know anything about other than the prices rising.

[Carson Block]

Right?

[Michael Batnick]

Those stocks are bullshit and that's why they're rising. And then you guys come along and look at it and say, look at this, this is a fraud or this is a scam, or this is a promotion. You guys call it out. The stock gets hammered. To the person who's long that stock, they're not interested in your pursuit of truth and justice. All they know is I bought this thing Yesterday, I'm down 36%. So that's where the hate comes from. And I assume you get that. Yeah, well, it doesn't make you wrong.

[Carson Block]

Right.

[Michael Batnick]

It just makes it more understandable.

[Carson Block]

Well, I had this really interesting experience in December of 2010. So I just moved back from China. We'd published on two Chinese companies. And I was at holiday party in Sausalito and, and I was introducing myself as guy who owns a self storage business in China, which I did before I started Muddy Waters. And anyway, this guy to whom I was introduced, he said he was an engineer. He asked me at one point, he said, hey, do you ever look at these Chinese stocks that are listed here? And had a few drinks. So I was maybe a little bit looser lipped than I wanted to be at that point in time, but I said, do I? Well, I was like, you know, I've done some things.

[Michael Batnick]

By the way, a of them were SPACs, too, back then.

[Carson Block]

Yeah, yeah, they were. The RTOs.

[Michael Batnick]

Yeah, they were RTOs. And people don't remember, but there were investment banks that were. That was 80% of their business.

[Carson Block]

Oh, yeah, like Rodman and Renshaw, Maxim.

[Michael Batnick]

Group and Rodman, Roth Capital.

[Carson Block]

Roth is still here. Think Maxim is, too. But I was like, yeah, I've done some stuff, and I kind of published some things on some companies.

[Michael Batnick]

Like, we weren't seeking out stuff or.

[Carson Block]

No, I'd set up a website, and my first report, I sent to 50 people who were in the markets whom I'd last spoken nine or ten years earlier, who probably knew me as Bill Block's son, not as Carson Block. And that report went viral. And next thing I know, day later, Jim Cramer's screaming on CNBC about how I must be a fraud, and I'd never met the guy or what have you.

[Michael Batnick]

Which was the stock?

[Carson Block]

This was called Orient Paper. So this was June of 2000.

[Michael Batnick]

You went there?

[Carson Block]

Yeah.

[Michael Batnick]

You went to the paper factory?

[Carson Block]

Yeah, because my father wanted me. He thought it was a long. He sent me there to do due diligence on it, and it was a total fraud.

[Michael Batnick]

I remember reading this. I remember reading these articles.

[Carson Block]

It was a. It was a Potemkin factory. The night before I went to the factory, I finally sat down and read the K's and Q's, and there was a snow delay in Beijing. I was sitting in the airport in Shanghai. I was with a friend who's in manufacturing, and so we were bringing him on as a consultant, and he and I were sitting at separate tables just reading through the filings, and we're just bursting out loud, laughing at the absurd claims in this. And it's like. So we knew it was up. And my buddy was. He's like, you know, am I wasting my time here, Carson? I'm like, look, maybe we can short this thing. I don't know. Like, I don't know what my father was saying.

[Michael Batnick]

What price is it trading at? When you go over there to look at it as a long. Is it like a $30 stock?

[Carson Block]

Well, it was. I think it was about 850, which is 150 million market cap.

[Michael Batnick]

Oh, it was small, okay.

[Carson Block]

Yeah, it was small. I Mean, look at the. I mean, at the time, that was not as small as it seems today. But, I mean, today that would be equivalent to a roughly $700 million market cap. But so, anyway, we knew there were serious problems. We get to the factory, walk in, and my friend leaned over to me. He's like, oh, my God, we got them. I mean, it was a Potemkin factory. The loading dock that supposedly would, you know, was servicing 100 trucks a day just didn't exist. There was one truck that was lazily idling there. They claimed that they had about $5 million of raw materials inventory on the balance sheet. And my buddy. It's just these heaps. So the company made corrugating medium for boxes. So the wavy layer in between the outer layers of a box. So their inputs are basically old boxes and scrap boxes. So my buddy is, you know, they've got these just giant trash heaps of old boxes. That's what.

[Michael Batnick]

That's their inventory. That's got a balance sheet value in $5 million.

[Carson Block]

So my buddy climbs to the top of one, looks around, came down, and said to me, if this is worth $5 million, the world is a much richer place than I ever knew.

[Michael Batnick]

Right. So the scam there, though, is. So it's an American investment bank, an American law firm making tons of money in fees for bringing this thing public, listing it on the American Stock Exchange, I'm guessing.

[Carson Block]

I think it was amex. So they'd uplifted from otc, and now you got brokers.

[Michael Batnick]

And I knew these guys, brokers selling the stock retail to clients. So everyone's getting paid along the way. And as long as the fraud is perpetuated in China, all the American parties continue to get paid.

[Carson Block]

Yeah.

[Michael Batnick]

So the problem people say, like, oh, these short sellers are conspiracy theorists. It is a conspiracy. You can't do this with one person.

[Carson Block]

Well, but if. Well, if you want to get a little bit conspiratorial about this, I do a podcast. So I had been. I'd been a lawyer in China. So I was with Jones Day, and we did. I focused on mergers and acquisitions and foreign direct investments. So every time there was a local company involved. So say, for jv, first thing you did was as. As a lawyer. Well, you. I'd send somebody to do this. Go to this local office called the State Administration of Industry and Commerce. You go to the local office, and you get that company's SAIC file just filled with lots of information, including the financials, the onshore financials. Now, when we did that for Orient Paper. I mean we found that the onshore financials rather than the revenue having been about $100 million, the real revenue that they were reporting to the PRC government, which they don't want to with in, in contrast, the consequence free SEC was about $3 million. So, and so they tell the truth.

[Michael Batnick]

To the Chinese government and they bullshit, right. The exchange here in the New York.

[Carson Block]

Because they're never going to get in trouble for lying to American investors. And in fact, nobody ever did get in trouble. So these SAIC files had lots of information on the equipment, valuation of the equipment. I mean, we're looking at the appraisal reports for the equipment. The stuff was carried on the balance sheet at $60 million. I mean the appraisals had them at like $8 million. So there were so many contradictions there. And after a few more China shorts, it became obvious to me that, oh my God, all these American law firms that are doing the securities work that are helping with these, with these offerings in the U.S. none of them are looking at the SAIC files, which again is like standard, like this is step one in, in foreign direct investment, like JV&M and A practice.

[Michael Batnick]

So what do they do? They're taking the auditor's word for it and it's a bullshit auditor. Like where, where are they? How are they if they're not doing that bare minimum that you say, what are they getting paid for?

[Carson Block]

Well, I'm getting paid to do the deal, to look the other way. But to me, I felt that at a very high level decisions had been made. I mean there weren't that, that many US law firms doing this type of work, especially in the reverse merger space. But I felt that decisions had been made systemically, right. That they were going to entirely avoid using SAIC files in the work that they did.

[Josh Brown]

What's the stock that you made that you lost the most money on that you were the most wrong about?

[Carson Block]

Well, I wasn't wrong, but I lost the most money. No, some of us wrong. No, no, but this Sun Run. So, so here's, here's the deal. So we were in summer of 22, we were about to publish on Sunrun and how the company is systematically abusing the tax incentives, the investment tax credits, arguably committing tax fraud. And this is the case with all of these rooftop solar companies, but sunrun was the biggest. So I had been paying attention to the Climate bill, right? So as of this moment in July 22nd, climate bill is dead. That goddamn Joe Manchin, he won't Agree to it this and that, nobody's talking about it. So we hit peak risk. Market closes. 20 minutes after the market closes. So we're publishing the next day, 20 minutes after closes, headline, Joe Manchin agrees to climate Bill. The next day that opens up 25%. Now we had beta hedges on, but.

[Michael Batnick]

There was a lot of short interest in the stock.

[Carson Block]

Well, I mean everything in the, you know, in the green and climate, space and solar ripped that day. So, you know, so all those names opened up 25%. And then I made a major tactical error because our question was, well, should we publish this thing or just take our losses, get out of it, wait for things to settle down and then do it. And my tactical error was, well, you know, everybody's focus today seems to be on the tax credits associated with, you know, these, these projects or with solar, since everybody's excited about the, quote, climate bill. So let's put it out there. It was absolutely subsumed by the cacophony of noise. Nobody noticed it, nobody cared. Stock had opened up 25%, it closed up 30. So I mean that was.

[Josh Brown]

Did you close your short that day?

[Carson Block]

Yeah, we closed our short that day. I mean there was.

[Michael Batnick]

Let's do some of your greatest hits and the things that you're most well known for. The first time I ever heard about you was either Focus Media or Sino Forest. I think Sino Forest is the more interesting story to me just because I remember more vividly. I forget which hedge fund manager it was, but somebody presented this thing either at Irison or at some big event as a long. And I know John Paulson had a big stake in this, but there were well known brand name hedge fund managers with big money and they were invested in this Sino Forest, which I guess effectively was like a timber play out of China.

[Carson Block]

Right.

[Michael Batnick]

And that's, I think the first time I had ever read something that you put out or saw the response to it. But tell us about Sino Forest.

[Carson Block]

Sure.

[Michael Batnick]

It was a really big stock at one moment.

[Carson Block]

Yeah, I mean at the time it seemed like it was quite big. I think it had a market cap of about 5 billion EV of 8, which again in 2012, maybe 20. Yeah, those were reasonably real numbers. And the largest shareholder was John Paulson. So what had happened was we had a very bitter battle over another US listed China company called China Media Express, ccme and there were a few other short sellers involved in that too, including Andrew Left of Citron Research. So that was such a bitter battle because it was audited by Deloitte And Deloitte ended up resigning with flying colors. I mean the resignation letter is one that is, you know, just made clear that all these accusations were accurate. So as soon as that cratered, got a call from somebody who's a PM at a very large New York based hedge fund and they said, okay, congratulations on China Media Express. I'm going to talk at you about a company, if you heard of Sinoforst and I hadn't heard of it because it was listed in Canada. I knew all the names of all the U.S. listed.

[Michael Batnick]

Toronto listed.

[Carson Block]

Yeah, okay, yeah, it was TSX listed. And so they started saying, okay, so this is a company that supposedly does, you know, billion whatever a year in revenue, you know, 1.1 billion or something in gross profit. But it never issues VAT invoices to its customers. It instead relies on its customers, pay its suppliers, blah blah, blah, and have them issue the vat. And it starts, they start listing a bunch of factors. And having practiced law in China, I mean I already know that if the facts they're citing are correct, this thing is a substantial fraud because you don't do business in China that way. They were violating the law if you believe them and believe their disclosures in 10 to 15 different ways that were material. So I looked it up and like, my God, it's got debt on it, it's got cds. Wow, this can be a big trade. So I, you know, previously my team had been somewhat small and we were generally all working remotely from one another.

[Michael Batnick]

2010, 2011, this is 11.

[Carson Block]

So this conversation I had was probably at the end of March of 11 and I said, okay, I need to add people to the team. So I ended up adding to the team a PRC attorney, few other people. I kind of, you know, approached me over the past year and change and I rented an office space in Hong Kong, brought us all together and it was fantastic because Sinoforce had been public for 16 years. So there were so many problems. As we're reading through those SAIC files, Sinoforce had over 100 entities. So that was well over 100 SAIC files we had to read through. And, and it seemed like at least once a day somebody would just laugh out loud and say, oh my God, like obviously forged bank letters, right, from like HSBC with like the worst chinglish you can imagine and like crooked logo and stuff like that, you know. And also we found out that from the very one of the SAIC filings from its original entity, we found out that they'd been lying since day one. So they went Public via reverse merger onto what was then the Toronto Venture Exchange. And so they told this story about how they had this joint venture with the local forestry bureau and these were the results. That joint venture never got started. That SAIC file had letters from the forestry bureau, the local forestry bureau saying, hey, you've never committed the money that you promised to commit and instead you, you've stolen assets from the joint venture and blah blah, blah. And it never produced anything yet for years.

[Michael Batnick]

There's no trees, right? Yeah, Sino Forest, but they don't have the trees. So they sold stock. That was the business. They sold stock to Canadians.

[Carson Block]

The real business was being public. And that was the case for a lot of these Chinese companies listed here is that the real business was being public.

[Michael Batnick]

Did that go to zero?

[Carson Block]

Yeah.

[Michael Batnick]

Did you ride it to zero or no?

[Carson Block]

No, no.

[Michael Batnick]

Is that the most money you've ever made on one of these? Or it's a big. Or it's one of your larger trades?

[Carson Block]

Well, we had an external balance sheet at the time. I mean, I would say my take home on that, that's probably still about the biggest. I mean especially at that time, that was life changing money for me. Because what does external balance sheet mean?

[Michael Batnick]

Like other people's, other investors?

[Carson Block]

Well, you were doing a hedge fund, so. No, I didn't have my own hedge fund because I'd wanted to set up my own hedge fund. But the problem was it was so expensive to do it. Nobody would prime for us either. And when you're shorting stocks, you need to have real prime broker that can get stock borrow.

[Michael Batnick]

They don't wanna be involved with that.

[Carson Block]

Yeah, I mean everybody was like, nah, go yourself. Not interested. So there was a hedge fund that, you know, it was more of a family office at the time, but they said, look, we're, you know, what we'll do is we'll put the positions on and we'll pay you a percentage of the profit. And so that's how that works.

[Michael Batnick]

You ever have an interaction with Paulson or any of the high profile hedge funds that were caught in that stock?

[Carson Block]

So it was funny, right before I went out to Hong Kong, I got an email from somebody at Paulson. It wasn't Paulson himself, but it was one of his PMs and said, hey, would love to talk to you. At that time I was getting those emails from hedge funds, not that infrequently. So I was going to New York anyway and I thought, all right, it'd be good for me to sit down and just hopefully Establish credibility. Like, I already knew that we were going to be working on Sinoforst. I'm pretty certain we were going to go the distance in terms of publishing it. So it was a little bit tricky. I went into the meeting and you know, like, how did you start this business? This is how I started it. This is what I look for, you know, look, guys, this is what's really happening in China and what people don't know. And then it turned to. So do you ever look at real asset companies? You mean like real estate? Yeah, real estate or forestry or stuff like that.

[Michael Batnick]

Yeah. Implying that you are out of your depth in looking at sort of forest.

[Carson Block]

No, no, no. Wanting to know if I had a view. Trying to feel me out.

[Michael Batnick]

They were nervous.

[Carson Block]

Yeah. Trying to feel me out on that.

[Michael Batnick]

Oh, that's interesting.

[Carson Block]

And you know, that was an awkward question and you know, I didn't want to lie, but I didn't want to say, oh, by the way, guys, you know, I'm working on Sino Forest.

[Michael Batnick]

Yeah.

[Carson Block]

So I had to kind of dance around. I'm like, well, you know, I think there are a lot of problems in the space. There was that big Hong Kong listed forestry fraud called China Forestry. You know, it just seems to me that with these assets, really difficult to actually track ownership. So. Yeah, I don't know. But anything in particular?

[Michael Batnick]

Yeah, yeah, yeah.

[Carson Block]

Then it was their turn to be coy and. And that was that.

[Michael Batnick]

But would you say that that one put you on the map though? Because a lot of articles were written about it because of the people who lost money.

[Carson Block]

Well, especially because of John Paulson. I mean, that was, you know, from a. From a profile making perspective. Yeah, that, that was huge. Right. It's not only was it a big company and you know, but it was because John Paulson. So I remember, I think my favorite article at the time was Business Insider. The headline was something like, meet the man who just cost John Paulson 500 million. I bet you.

[Michael Batnick]

I bet you that was my friend Lynette Lopez. If I had to. If I had to bet.

[Carson Block]

I don't know if Lynette was doing this yet actually. But all right, it showed. And had a picture taken from my wedding where I'm in like a Hawaiian shirt in a la. And it's like I'm got this big grin on my face. And so, you know, right under luck.

[Michael Batnick]

And luck and coffee. This is fairly high profile. And more recent, the Starbucks of China stock collapsed 90%.

[Carson Block]

Right. Well, it was actually delisted. But this is one that I don't deserve credit for. So it's misattributed to me. We published somebody else's research because what happened was there was a hedge fund that had done all this work. They did great work and they wanted. The guy reached out to me and said, hey, would you publish this? I said, listen, you know our process. You know that we have to recreate the work. Right. We're going to like. So you did all this field work. We'd have to do all this field work. So I'd love to get a look at what you've done, but to be honest, it's going to take a few months before we can actually publish it. And so I guess he was pissed off at me and he sent it out to like, everybody except me. And so I started hearing about this draft from other short sellers and who just don't know China nearly as well as we do. And nobody published on it. And so because they can't attest to that work, so it was unpublished. And I thought, you know what, let me talk to the guy, see if we can get access to the data room and what we can do. If we can validate the work, we'll do it on a sampling basis. Like we're auditors. If it lines up, then we will say, we are short luck in coffee because we think it's a fraud. This work was carried out by another party. However we have evaluated it and believe it to be accurate. And a couple days later, that's exactly what we did.

[Michael Batnick]

So what was the scam? I don't. I have no idea what was the scam. Cause it still operates as a business. Right?

[Carson Block]

Right. So it was fake revenue and fake profit. But what the way that they were pulling it off. You know, the thing is with. With most frauds, I mean, there. There's an element of practicality that enters into it because you have to forge a lot of paper. And so if you're going to do so luck in, I mean, the average ticket size, like, you know, a few US Dollars. Right. How do you forge that much paper from that many stores?

[Michael Batnick]

Transactions.

[Carson Block]

And you'll put. And like, try to make the bank accounts sync up. So what he did, what the controlling shareholder did, was he created this fake corporate sales business. And so it was one or two counterparties that supposedly accounted for like 40% of revenue. Like we're buying gift cards in bulk. And so, ey, after we published that work that was somebody else's, they were kind of forced to actually look a little bit harder than they Normally wanted to. And you know, and they, when they came across those invoices, they asked maybe, you know, three questions and you know, it's like, oh, yeah, it's a fraud. And so then they went to the audit committee and look, the boards of these companies were always in on it. Okay. Love these Chinese companies. Like they're, they were never independent. They were never there to safeguard the outside shareholders interests.

[Michael Batnick]

Right.

[Carson Block]

But when the auditor, you know, which the auditors were basically, I'm not going to say they were in on it, but they were. They were. Basically their role is to not rock the boat. They don't want it.

[Michael Batnick]

It's a big account. It's a big account.

[Carson Block]

Well, not only that, but it became, it became a problem for them because, you know, they would, you know, if they found fraud. Like so, okay, in theory, if an auditor has been auditing a company for multiple periods, discovers fraud, okay, in theory.

[Michael Batnick]

Why didn't they catch it earlier?

[Carson Block]

It's in there. It's in their interests to expose it and cut off the liability and stop accruing additional liability. In practice though, that's not how it works. It's always settled. So if you're an auditor, you think, well, you know, we've already issued unqualified opinions on 2 years or 3 years of financial statements. You know, this thing is just going to get ugly and it's going to be, you know, years of litigation. The best thing that we could do is to not discover fraud. I'm not saying that the discover it and say, oh man, oh, let's pretend that didn't happen. I think they deliberately design audit procedures with, especially in a high risk environment like China, to not discover fraud. And so that's why I make this point of saying that, ey, I'm sure very reluctantly looked into this. So, you know, so basically they brought it to the board, you know, and, or at least the audit committee. And again, I'm sure they were all in on it, but that's opinion. But, you know, at that point, what are they going to do then? They have to basically, you know, throw the chairman under the bus like, oh, you bastard, how dare you.

[Josh Brown]

But, you know, so, Carson, the business of muddy waters. Are you, you guys are publishing research, you're shorting stocks. Is it a hedge fund or is it your own money? How does that work?

[Carson Block]

So it's, it's a hedge fund and we don't, we don't get paid for publishing. So we, we basically, we manage. Yeah, see, here's where I have to be Careful. Because there's, you know, the SEC cares about the F word, which is the fund word. Right. So I can't make it sound like I'm engaging in a general solicitation, so.

[Michael Batnick]

Okay, Carson, you are not. So Car is not promoting his fund. He's giving us information.

[Carson Block]

Don't invest in it, whatever you do. I want that. Okay, so we use the S word strategies. Okay. So we have a strategy where we. Without. With outside capital. I mean, a lot of it. Look, you know, there's. There's a good portion of my own. I mean, I'd say substantial majority of my net worth is in these strategies where we short the stocks and then we publish on them. So that's basically how that works, in.

[Michael Batnick]

That order, which is why you end up sometimes in a spotlight that you don't always want to be in. Yeah, okay.

[Carson Block]

Yeah.

[Michael Batnick]

Can we talk about that?

[Carson Block]

Yeah, absolutely.

[Michael Batnick]

So you have a hedge fund. You know, you're going to publish, and part of the reason that you're going to make money in your investment strategy is because the rest of the market is going to read your research and realize you're right. Something wrong with this company, they're going to sell it. They're going to want to get out of it. Okay. Long, long investors do that all the time. Long investors are long a stock, and then they go out and say, I love this stock. I bought it because A, B, C, D. Okay. For some reason, it's asymmetric. There's a problem with doing it the other way. Saying, I'm short the stock and I hate it. And I think something's wrong with this company for some reason that's more problematic. Why do you think that is?

[Carson Block]

Well, the simple answer is, if you come out and say something nice about a stock, nobody's gonna complain.

[Michael Batnick]

They could say pump and dump. They could say manipulating. They could. They just don't automatically. I feel like with activist shorts, the automatic response is, oh, this guy's trying to crash the stock.

[Carson Block]

Right. Well, the. Look, you're. You're basically accusing the people who run the company, and by extension the company, of acting in bad faith. And they have a lot of resources they can spend on pr, legal. And so what are they going to do? They're not going to admit, like, you got me. Yeah. You know. Yeah, good. Good catch.

[Michael Batnick]

Of course.

[Carson Block]

So they have to come out and they have to resist. And then you have a lot of. Especially in the institutional investor world, I think that this is probably the most overcompensated industry on the Face of the earth, right? There's so many people who are just mediocre and lazy and make real money. And so when we come out and say, hey, things are not what they seem with this, it goes to a lot of their insecurities, makes them individual.

[Michael Batnick]

Look like they're not doing anything, right? And yeah, I agree with that.

[Carson Block]

You know, but even, but to be clear and to be fair, even if they, you know, even if somebody is bright, even if they are reasonably diligent, you can still get defrauded. I mean, in the midst of my Muddy waters business, I was defrauded incredibly badly by a couple of people who got involved early on, right? And the reason, you know what, and that made me realize, okay, the reason that I was defrauded is the same reason that a lot of smart and diligent investors themselves are defrauded, which is if you're looking to buy something, in my case it was to buy talent. In everybody else's case it's to buy a stock. If you're looking for reasons to like something, you have to think kind of conventionally about why you might not like it, right? You cannot be thinking simultaneously, yeah, does this, you know, do I think that this market makes sense? Do I think it's going to grow? And are these people lying to me? Mentally, you'll never buy anything, you'll never.

[Michael Batnick]

Invest in anything, right?

[Carson Block]

Mentally, nobody can wear both of those hats.

[Michael Batnick]

That's such a great point, right? If your starting point is everything I'm reading about this company might be fake. You never invest in anything, right? You have to start with a baseline assumption of trust. Whereas on the other side, on the short selling side, you kind of have to start with, if this is fake, how is it fake?

[Carson Block]

Right? And so it's. So it's like we can look at again, the fifth company that started, you know, claiming, oh, we're big AI and this and that, and we can look at, we can parse every statement, say, yeah, you know, that looks, you know, that's good. That wording is kind of weaselly. And the, does that disclosure mean, Come on, man, like, what is that? So we can do that because we're putting on that hat of effectively looking for deception. But you cannot simultaneously look for the good and look for the really bad. It's just mentally not possible. So, yeah, it's not just, it's not to say that investors who, you know, I think even really smart and diligent investors, to be fair to them, they can get defensive about this because there's an implication like, oh, you're stupid. You know, I mean, some of them are.

[Michael Batnick]

Is there a personality type that's a prerequisite to become a professional short seller? Do you have to be like Chanos named the firm for his original firm was like skeptic, Greek for skeptic. Do you have to start off cynically or skeptical as a predisposition to be successful in what you do?

[Carson Block]

I think so. But the thing about one of the things about Jim is that he has like a very, you know, he has real pedigree, right. He graduated from Yale. If I look around activist short sellers, there's only one person who has a good pedigree, and that is this guy Soren Andahl of Blue Orca, who's good friend and he's also based in Austin. And I always kid him. I'm like, how did you get into this? University of Chicago undergrad, Harvard Law School. You were at Sullivan and Cromwell, meaning.

[Michael Batnick]

He could do anything, right? And he chooses to do this.

[Carson Block]

Well, I think when you're smart enough, you can do anything. But usually when you're on that establishment path, you usually don't deviate from it or deviate from it that early in your career and deviate from it so radically. I mean, the people he used to work with at Sullivan and Cromwell, you know, some of them presumably are law firms now where they're engaged to, you know, evaluate his reports and, you know, and find ways to attack him. So it's. That is a really big pivot. And so for Jim, again, Jim's business is not being an activist short seller. So I don't really know what it.

[Michael Batnick]

Is about Jim that on that, on that distinction. There was a time, there was an era where David Einhorn was one of the most famous short sellers and an activist shorted that he wrote a book. Was it a short guarantee or.

[Carson Block]

No, it was fooling some of the people all the time.

[Michael Batnick]

No, no, no, no. What was the company? What was the underlying company?

[Carson Block]

Allied Capital.

[Michael Batnick]

Allied Capital, maybe a short guarantee was Ackman, who was also doing this stuff.

[Carson Block]

Well, Ackman did. He did the monolines. I don't think that the short guarantee was going to be.

[Michael Batnick]

Einhorn went after Lehman as an activist. So there wasn't always this black and white. You were either an activist short or you're an investment short. So like a lot of these. But they're all out of that business now because all it does is draw negative attention, create enemies, put them in the regulators crosshairs, and they were just like it. I'm buying Chipotle.

[Carson Block]

Right. And you have to.

[Michael Batnick]

That's what I would do if I were them.

[Carson Block]

And you honestly have to work so much harder.

[Michael Batnick]

Right.

[Carson Block]

Per dollar that you make on the short side, you know, so for you just love it.

[Michael Batnick]

But when you become a billionaire, but when you become a billionaire, the last thing you most, mostly the last thing that most of them would want to do is like, let me go stir some shit up and get into some fights.

[Carson Block]

Right? It's, it's like financially, it's not going to move the needle for them to be activist short sellers at this point in time. I mean, don't forget Dan Loeb. I'd say Dan was. Dan Loeb was the most aggressive of them.

[Michael Batnick]

His letters were legendary. Legendary.

[Carson Block]

Even before that, he was Mr. Pink on the YAH Finance chat boards. Like, very foul mouthed. And he doesn't like people to remember that now because he's like Mr. Institutional. But. But yeah, for. So, yeah, I.

[Michael Batnick]

Those guys are gone. My point is those guys are gone.

[Josh Brown]

So what are you still doing?

[Carson Block]

It's not worth it. Well, okay, so that's a live audience here.

[Michael Batnick]

Bernie, they love you. Oh, can I ask you in the same vein before you answer that question? The Hindenburg thing is so fascinating to me. What's Nate.

[Carson Block]

Nate Anderson? Yeah.

[Michael Batnick]

I mean, this guy came out of nowhere. He dismantled probably, I don't know, 10 horrendous frauds. And then at the very top of his game, he toppled a billionaire in India. He unveiled the Nikola, the fake Tesla company where they were rolling the truck down the hill. At the very peak of his powers, he goes, I'm good. Like I said, everything I said I was gonna do, I did it. And I made money along the way and I made other people money and I saved people from scams and that's it. I'm out like that. That was so fascinating to me. The entry and the exit. I wanted to get your take on it.

[Carson Block]

Well, so the thing is that a lot of people don't know. He had been doing this for a number of years before anybody heard of him.

[Michael Batnick]

Okay, this is for the audience. Hindenburg research.

[Carson Block]

Yeah. So he was, I mean, he, you know, it was, I don't know, maybe four years, I want to say, of him just grinding it out, like not making much money, getting sued, a lot of frustration. And then he hit all of a sudden with Nikola and the rolling the truck down the hill. And that massively elevated his profile. And so it's one of those things, like once you Break through and you have a profile, then it becomes a lot easier. And he was getting. And so he did square. He did. He did Adani, he did Icon, but he was also doing a lot of, like, smaller, easier frauds. He wasn't managing outside or smaller, easier scams. I would say he wasn't managing outside capital, which is something, you know, my firm's kind of boxed in because, you know, if we were to take a $10 million short position in something, it's not worth the, you know, like, we're not going to move the needle for our investors.

[Michael Batnick]

And it's a lot of aggravation that comes.

[Carson Block]

And the legal risk is the same. Right. If they sue, it's going to cost just as much to deal with that. So. So, yeah, Nate had been doing it for a number of years, so he put a lot of miles on himself then. And, you know, in a way, it's. I think he's one of the very few people who've left the world of short selling, whether it's traditional or activist on top of. I mean, pretty much everybody else. They're in it until they blow up.

[Michael Batnick]

That guy's amazing to me. I mean, the amount of courage that it takes to fight people as powerful as the people that he was going up against. And he was winning.

[Carson Block]

Yeah.

[Michael Batnick]

I mean, it's nuts to me. I get why he would want to walk away from it, even at the top of his game.

[Carson Block]

Yeah. Like we were going to in 2012. We were going to report on something that it was a real business, but they were committing, in our view, some level of fraud. And then icahn went over 10% in it.

[Michael Batnick]

Carl Icahn.

[Carson Block]

Yeah. And we were just like, you know what?

[Michael Batnick]

Let's not do this. Let's not do this.

[Carson Block]

This guy is so vindictive that he could just chase us around from short to short lift offers. And there was Nate.

[Michael Batnick]

Nate's like, I got.

[Carson Block]

Not only am I going to short something that Icahn's over 10% in, I'm going to short Icon Enterprises. Unbelievable. And just kick them right in the balls as hard as I can.

[Michael Batnick]

I think he ended his career effectively.

[Carson Block]

Yeah, I think so.

[Michael Batnick]

Okay.

[Josh Brown]

Carson, any short bombs you're working on?

[Carson Block]

I mean, we're always working on some. Right. But you won't.

[Michael Batnick]

You will not be the first to hear about it. Well, so Michael asked you a question, and I preempted it, but I do want to hear. So, like, what. What gets you? What gets you? I know this is about money. Of Course. But it's always about more than money. So, like, what are you still doing this for in your mind, besides the money? And, like, what motivates you? What gets you excited?

[Carson Block]

Well, so we have, you know, we have broadened the business significantly in recent years. And I mean, I think from a personal and professional growth standpoint, if I weren't broadening the business, then I don't know. I don't know if I'd be doing it anymore. Like, I enjoy it at times, but it's, you know, it does put a lot of mileage on you. There's a lot of litigation. You know, I went through this investigation. I mean, I've been investigated by three different governments and, you know, never found anything wrong. But, you know, is that the worst part?

[Michael Batnick]

Is that worse than the lawsuits?

[Carson Block]

Yeah, the investigations, especially the DOJ Sec 1, that one was. That one was definitely worse. Especially because I'd helped them make so many cases over the years. You know, it's like. I mean, it really made me question everything, like my. My reality, because it's like how.

[Michael Batnick]

I'm one of the good guys.

[Carson Block]

How did I become the bad guy?

[Michael Batnick]

But, well, in the comics. And in the comics, the superheroes get chased by the law too, sometimes.

[Carson Block]

Yeah. And so that's what happened there. But now we do stuff that's mostly long oriented in the junior mining space. And then we started investing long in Vietnam and via public equities, and we're about to expand that into India as well. And I'm really excited about that. So that that's the stuff that gets me out of bed as well, is that there is opportunity to grow. But honestly, if it were just short activism, I mean, I've seen almost all the scams. They used to be really excited, like, oh, wow, that customer's fake, you know, but now the customer.

[Michael Batnick]

Now it's just the same scams over and over.

[Carson Block]

Yeah, it's the same. It's the same thing.

[Michael Batnick]

Well, on. On behalf of the people who have read your stuff and learned from you over the years and maybe were kept out of trouble by stuff you've done, I would just say it's really remarkable way to earn a living. Remarkable way to build a reputation. And you did it. And congratulations on that. You are very public. And I want to tell people, obviously all the short sellers seem to love Twitter for some reason, or x.com that seems to be where you guys hang out the most. Is that the best way for people to follow along as you publish or as you talk about things yeah, we.

[Carson Block]

Have problems with the email distribution list, so.

[Josh Brown]

A lot of fake emails?

[Carson Block]

No, just every time we want to. Every time we want to send something out, there's like an error, you know, from the email. It's like, it's. It's that last mile that always gets us with publishing. So Twitter makes it easier. So. Yeah, at Muddy Waters. Re is the. And it.

[Michael Batnick]

Great.

[Carson Block]

And I also tweet a lot of my own personal shit there too, so.

[Michael Batnick]

Okay. Well, we really appreciate you coming in. I've been looking forward to this ever since we booked it and this did not disappoint. I've had so many questions I've always wanted to ask, and you were amazing. Thank you so much. We always end the show by asking people what they're most looking forward to, so I'd love. I know Michael's already. I think you probably could guess Michaels is game three on Saturday, which they're playing inexplicably at 3 o' clock in the afternoon. I have no idea why that's the case. What are you most looking forward to in life or professionally?

[Carson Block]

No, I mean, I talked about India. I'm really excited about that. But you know, in life, going away for the summer, but in the sports life tomorrow, big Little League game. I, you know, I coach my son's Little League team.

[Michael Batnick]

I used to playoffs. Say more. Say more. Are you the head coach?

[Carson Block]

I'm the assistant. The head coach is like a really serious.

[Michael Batnick]

Never do the head coach. Never be the head coach unless you were born to do it. Yeah, no, he's an email job and it's a mother management job.

[Carson Block]

Oh, no, he's good at like that. That part, I mean, that's not the heart. Because he knows who to draft for, you know, quote good families. Yeah, yeah, but the. Which is a big thing. But no, I mean, he's just an excellent, like, he gets on everybody about like, hey, you know, when you feel the ground ball, you got to have your left toe pointed up and wait on your right foot. And, you know, nobody ever did that with me when I was even playing high school ball. So.

[Michael Batnick]

Dude, God bless. God bless the Little League coaches. I still remember my Little League. I was never an athlete, but I still remember my Little League coaches. I could tell you their names and what age I was. That's so elemental for, you know, for young kids to grow up playing sports. It's not even about the sports stuff. It's about being on the team.

[Carson Block]

Yeah.

[Michael Batnick]

The coach is the person facilitating it. So. Do you know Michael does a little bit of coaching here and there. Do a little nothing.

[Josh Brown]

I'm like the assistant to the assistant. I like wrangling the kids.

[Michael Batnick]

He's the behind me. He's the front office guy. He makes the trades.

[Josh Brown]

Exactly.

[Michael Batnick]

All right, Carson, we're let you go. Thank you so much for being here. We really appreciate it. Thanks. I want to congratulate Jon on four years with the compound and I said this privately. I don't want to make you blush. I'm going to say it publicly for all the listeners. Duncan was game changing for what we do here with all our shows, but you are the person that made it sustainable and made it so that we could put out as much as we put out. I know the audience loves you. I wanted to tell them four years you've been hugely instrumental. Duncan, you're pretty okay too. Shout out to Rob, Nicole, Chart kid Matt. Shout out to Sean, Graham, Keith, everybody who helps with the show each week. We appreciate you, Daniel. That's it from us, guys. Please leave a rating and review. Please follow follow carson block on x.com and we will see you soon. Thanks again.