TAIPEI--Taiwan's financial regulator said Monday that it plans to seek criminal charges against U.S.-based short seller Glaucus Research Group California LLC over its allegations that a Taipei-listed company included misstatements in its financial reports.
William Tseng, chairman of the Financial Supervisory Commission, said claims by Glaucus that Asia Plastic Recycling Holding Co. had overstated its earnings aren't factual. Glaucus "maliciously spread rumors" and caused instability in the local stock market, he said.
The FSC is collecting evidence and preparing to talk to prosecutors about moving forward with a criminal complaint in a Taiwan court, said Wu Yui-chun, director-general of the FSC's Securities & Futures Bureau, which handles matters related to listed companies.
Spreading rumors is a criminal offense under Taiwan's Securities Law.
Friday, the Taiwan Stock Exchange said it found no anomalies after reviewing the company's regulatory filings, internal documents, contracts and payment records with local governments and suppliers.
"The company's defenses against [Glaucus's] allegations are supported by evidence and are consistent with records," it said.
Glaucus said Monday it stands by its views, expressing skepticism about the Taiwan Stock Exchange's findings, and reiterating its position toward Asia Plastic Recycling.
"We spent hundreds of hours over [five] months to compile our research on APR. We question a preliminary investigation that reached a conclusion in two business days but remain confident that the TWSE [Taiwan Stock Exchange] and any other Taiwanese authorities investigating will reach the correct conclusion after a more thorough inquiry," Glaucus said in a letter published on its website.
Glaucus wasn't immediately available for further comment.
Meanwhile, the Securities & Futures Investors Protection Center, an entity founded with funds from the Taiwan Stock Exchange, the FSC and other government bodies, has started gathering complaints from investors in Asia Plastic Recycling and may help launch a class-action civil case against Glaucus to help investors recover their losses, Mr. Wu said. Telephone calls to the center went unanswered.
In a report released April 24, Glaucus said it believed Asia Plastic Recycling, a foam-rubber recycler based in China's Fujian province, had overstated its net income by around 10 times. Glaucus also said public-land records in China show the company paid much less than it reported to acquire two pieces of land and expand a factory.
The report sent shares in Asia Plastic Recycling plunging as much as 31% lower. The company has called the allegations baseless, and launched a share buyback to support its stock.
Thanks to the share buyback, the exchange's statement and Monday's news from regulators, stock in Taiwan Plastic has rebounded, but as of the close of trading on Monday, it remained down 16% since the report was released.
Glaucus had never targeted a Taiwan-listed company before, but like short seller Muddy Waters LLC it has published negative reports about a number of Chinese companies listed in other countries.
In August last year, for example, Glaucus published a report alleging that Singapore-listed vegetable producer China Minzhong Food Corp. had included some nonexistent suppliers and customers in its public filings. China Minzhong has denied Glaucus's allegations.
Nearly all of the 11 companies Glaucus has targeted are still trading below their prices before the short seller's reports were published.
Still, Chuang Ming-shu, president of Taishin Securities Investment Advisory, a local asset manager, said Glaucus may have missed its target.
"Glaucus has probably stepped on a land mine this time...despite its previous success," he said.
Write to Aries Poon at [email protected]