Shares of Solutions 30, a Muddy Waters Short, Tank After Auditor Raises Concerns

“I’ve looked at hundreds of public companies and I’ve never seen this many coincidences involving money laundering and convicts,” says short seller Carson Block.

Carson Block, founder of Muddy Waters Capital. (Anthony Kwan/Bloomberg)

Carson Block, founder of Muddy Waters Capital.

(Anthony Kwan/Bloomberg)

The suspense surrounding a two-week halt in the trading of one of Muddy Waters’ longest held, most obscure short targets is over — and the stock is tanking.

Two weeks ago, Solutions 30, a European IT services company that the short seller has accused of having ties to organized crime, asked the Paris stock exchange to suspend trading in its shares — then trading around 10 euros.

By the end of last week, the company said it would reopen for trading Monday, while admitting that its auditor could not complete the audit for its annual report. By the time the trading day ended Monday in Paris, Solutions 30 had fallen more than 70 percent, closing the day at 3 euros.

Carson Block, Muddy Waters’ CEO, told Institutional Investor that he had been watching the stock price overnight from his California home, after putting out a new report on Solutions 30 — his eighth missive on the company.

(That number includes a recent Zer0esTV video called “The Cable Guy With Mafia Ties,” focusing on Muddy Waters’ claims that the company has byzantine relationships with sketchy characters. “I’ve looked at hundreds of public companies and I’ve never seen this many coincidences involving money laundering and convicts,” Block said on the video.)

Block admitted to “gloating” over the turn of events on Monday. “At 3 a.m. I decided to watch where the stock is going to be,” he said, admitting he was now tired, “but it’s a good tired.”


As Block explained in the latest report, which hit around 7 a.m. Paris time, Muddy Waters’ short of Solutions 30 “has been a long and strange journey.” The hedge fund first shorted the stock on May 17, 2019, when Solutions 30 was trading around 12 euros per share, with a market cap of more than 1 billion euros.

The report started off on a humorous note: “We analogize the present situation to this: Imagine if you thought your partner is cheating on you with another,” it began.

“You arrive at your house at a moment you believe the cheating is taking place, and see your partner’s car in the driveway, along with an another, unknown car. You enter and stop outside your shared bedroom. The door is closed, and you hear sounds from inside indicating both parties are putting in gold medal performances. But the door is locked – you cannot open it. You are now EY” — Solutions 30’s auditor, Ernst & Young.

Ernst & Young Doesn’t Sign Off

On Friday, Solutions 30 acknowledged what appeared to be the holdup in the lengthy trading suspension: Ernst & Young had not signed off on the firm’s 2020 financials for its annual report. By Sunday, Ernst & Young put out its own statement, saying that the IT company’s financial statements could contain “undetected misstatements [that] may be both material and pervasive.” The accountant added that its attempts to investigate further were blocked by Solutions 30.

“We have not been able to obtain sufficient and appropriate evidence supporting the nature, the substance, the value and the compliance with laws and regulations of certain transactions of the Group and to determine if these transactions were made with related parties including with members of Management,” Ernst & Young said in a press release, excerpts of which Muddy Waters included in its latest missive.

“This outcome bolsters our confidence that [Solutions 30] is likely involved in money laundering and is a fraud,” Muddy Waters stated in its new report.

When it first shorted the company two years ago, Muddy Waters did not issue a report on Solutions 30. But as II recently reported, the stock still fell 20 percent after the hedge fund disclosed the short position, as it was required to do under European securities regulations.

Block said he had not gone public with his short argument at the time because Muddy Waters was still entangled in an investigation by French securities regulators over its short of Groupe Casino, a French retailer. Solution 30 trades in Paris, though it moved its corporate headquarters from France to Luxembourg in recent years.

Mafia Ties and Fraud Accusations

There was little media coverage of Solutions 30 until October of 2019, when the Financial Times picked up the story. Then the news went silent until last December. At that time, just before Muddy Waters was set to go forward with a report, according to Block, an anonymous report detailing some of the same issues was released.

The stock — which had run up as high as 19.75 euros during the pandemic — started falling again.

Block then put out his reports in the form of letters to Solutions 30, focusing in part on the company’s links to an Italian accountant named Angelo Zito who, according to public reports Muddy Waters had uncovered, spent time in prison in 2000 over his links to the Sicilian mafia. Solutions 30 said that it had ceased all ties with Zito once they found out about his past. But Zito, in a TV interview, said they were aware of it all along. Then Solutions 30 hired one of Zito’s former employees, a man named Fabien Leger.

So where’s the alleged fraud? According to Block, “it’s actually different from how a lot of the significant frauds we see are carried out. This would be death by a 1000 cuts.”

The beauty of it, he explained, is “if you are carrying out fraud with a lot of low dollar transactions, it’s easy to avoid scrutiny.”

Block pointed to small transactions that Muddy Waters examined in its letters to Solutions 30 as evidence for “why we think there could be fraud in reporting about the transactions.”

Those transactions include a multitude of acquisitions that Solutions 30 has undertaken with shell companies in its recent growth spurt. In one case that Muddy Waters cited, Solutions 30 appeared to pay less for a company than its assets — primarily cash — were worth. “There was no substance to the business,” Block said. Later, the business was sold to one of Solutions 30’s independent directors, he explained.

“When they were acquiring it for less money than it had in assets, that looks like a money laundering transaction,” Block explained.

Solutions 30 denied the accusations, but after Muddy Waters’ public letters, it eventually said it would authorize an independent investigation to look into the claims.

On April 1, Solutions 30 released the results of that investigation, with board chairman Alexander Sator stating, “Solutions 30 and its leaders have been the subject of very serious accusations that the independent audit has fully rejected.”

But Block has pointed out that the review was not an audit, and what was more interesting was what it did not find — some six months of emails from the CEO that appeared to be missing.

Now Solutions 30 says it is looking for a new auditor and also may sell the company, possibly ending up with a delisting.

Meanwhile, a Romanian business partner of Solutions 30 last month sued Muddy Waters in a California federal court over the short seller’s allegations of the company’s links to criminals and suspected money laundering. Muddy Waters has noted that some bank accounts of entities controlled by the man who sued the hedge fund, Federico Salmoiraghi, appear to have been closed due to money laundering concerns.