After the strange trading in Sina (SINA) Monday, its shares bounced back big time on Tuesday.
The trouble started when rumors swirled on the Internet that the Chinese edition of The Wall Street Journal had published a story saying that Carson Block of Muddy Waters Research was preparing a short report focused on Sina. The problem was that the Journal article linked to a column I wrote last week, and I said nothing of the sort.
I heard two reports that a couple of brokerage firms were pushing this rumor hard Monday morning hoping that it would tank Sina's shares. It worked. Although Sina opened 4% higher Monday to $68, it quickly went into a free-fall, eventually hitting $55.
Even though I clarified that I had written the column, which simply pointed out that Muddy Waters was going after a much bigger target in Focus Media (FMCN) compared to the reverse mergers Block has gone after in the past, Sina's U.S.-traded shares stayed depressed, closing below $60.
After a good night's sleep, the market seems to have accepted the fact that Muddy Waters wasn't going after Sina. Muddy Waters actually tweeted that confirmation Monday. After Tuesday's price gains, adding 5% to close at $62.70, Sina is almost back to Friday's closing price of $63.15.
So is it all clear for Sina longs? No, there are still risks.
To reiterate, I think there's zero chance that Block does anything with Sina in the near-term. But the overhanging risk is what happens with the allegations of accounting tricks against Focus Media, and what did Sina CEO Charles Chao know and when? Chao has been on the Focus Media board since 2005.
There have never been any accusations of accounting problems at Sina; however, there were complaints about management doing a share sale earlier this year and for overpaying for its stakes in Mecox Lane (MCOX) and Tudou (TUDO). They also issued options for the Twitter-like Weibo entity.
Earlier this year, at the time of the Sina management share sale, CLSA analyst Jialong Shi called it a "red flag." (You can read what iChinaStock.com reported at the time about CLSA's concerns here.)
The bottom line is that Sina is likely to be dogged by criticism and questions for as long as Focus Media is in the public eye fighting Muddy Waters.