Block’s Muddy Waters Accused of Paying Techtronic Report Author

Investor Carson Block’s Muddy Waters financed a short-seller whose allegations of accounting fraud at power tool giant Techtronic Industries Co. shaved $3.5 billion off its market value in a matter of hours, the company alleges in a series of federal court filings.

Muddy Waters gave an unspecified amount of money to a trader calling himself “Jehoshaphat Research,” and helped promote his February 22, 2023 research report that falsely claimed Techtronic’s books were a “web of deceit,” according to documents and pleadings the company filed in federal courts in Florida and Texas. Shares of Techtronic, the Hong Kong-based maker of Ryobi and other major brands, plunged 19% before the Hong Kong stock exchange halted trading.

Jehoshaphat was actually a pseudonym used by Victor Bonilla, a Tampa-based fund manager who makes money by reporting on companies and shorting their shares, Bonilla’s lawyer confirmed in an interview this week. The company sued Bonilla last year in US District Court for the Middle District of Florida, alleging his February report and a second one in June were fiction designed to drive its shares down.

Block’s connection to Jehoshaphat, which hasn’t been previously reported, is now the subject of dueling lawsuits in the US District Court for the Western District of Texas, where Block is based. Neither Block or Muddy Waters are defendants in Bonilla’s Tampa lawsuit, but Techtronic’s attorneys say records produced in that case led them to Block’s firm.

“TTI uncovered through discovery that Muddy Waters was intimately involved in Bonilla’s scheme,” attorneys from Quinn Emanuel wrote in a July 29 motion seeking to enforce a subpoena for Block’s financial records. “In conjunction with publishing, Bonilla either shorts the stock of the company that he reports upon or coordinates with Muddy Waters to short the stock and pay him a portion of the profits.”

Bonilla’s report shocked markets when it came out, partly because of the mystery about who wrote it and because it came on the heels of a blockbuster report by Hindenburg Research alleging wrongdoing at Indian conglomerate Adani Group. Hindenburg’s report knocked $140 billion off Adani’s market value and sparked investigations that continue today. By contrast, Techtonic’s stock bounced back 9% a day later as as some analysts came to its defense. It has recovered to previous levels.

The report’s release came while the Department of Justice and federal regulators were investigating whether funds and researchers improperly coordinated trades or broke laws to profit.. Federal agents seized Block’s cell phone and other records as part of a court-ordered search, Bloomberg News reported. Reuters reported this week that the federal investigation into Block has closed without charges.

Techtronic’s Texas filing seeks records that could shed light on whether Block sold the company’s shares short as they plummeted, and provide details of his relationship with Bonilla. Block and Muddy Waters produced some records sought by Techtronic, and a Muddy Waters employee has agreed to sit for a deposition.

Block also filed a separate motion to quash the Aug. 2, asserting that much of what Techtronic seeks is exempt for several reasons, including that Block is a journalist whose actions are protected by the First Amendment. He also sought an order blocking Techtronic from taking his deposition. All motions remain pending.

Block’s attorney, David Lawrence of Rigby Slack Lawrence and Comerford, said he couldn’t comment. Bonilla’s attorney, Dilan Esper of Harder Stonerock, said he couldn’t talk about the specific claims because of a court protective order, but said his client has a stellar reputation and his work on Techtronic reflected a mix of research and opinions. Attorneys from Quinn Emanuel, representing Techtronic, said they couldn’t discuss the case.

Bonilla included a disclaimer in his February 2023 report stating he shorted shares in Techtronic, and repeated that the same day on Block’s Zer0es TV internet program, where he was identified as Jehoshaphat and appeared as a computer-generated shadow with his voice altered. He didn’t mention any payment from Muddy Waters. But in an email to Quinn Emanuel lawyers during discovery for the Florida case, Esper wrote that “the only financial interest, broadly speaking, that Mr. Bonilla had in the First Report was a payment by Muddy Waters regarding Techtronic.”

Zer0es TV website, which says it was founded by Block, includes 10 archived videos featuring “Jehospaphat Research,” including two that discuss Techtronic. Jehoshaphat initially appeared in shadow each time with his voice altered, though some of the videos now have the shadow removed and Bonilla appears as himself.

In response to the Florida lawsuit, Bonilla argued that he was also acting as a journalist. A federal judge rejected the claim that he was protected under Florida’s shield law and forced him to turn over the names of sources he used in compiling the two reports. Bonilla also failed to have the case dismissed based on a First Amendment right to air his opinions, with US District Judge Charlene Edwards-Honeywell saying many of the allegations were laid out as facts designed to make readers believe Techtronic engaged in fraud.

She also wrote that even if she accepted Bonilla’s claim that Techtronic is a public figure—triggering a higher standard to prove libel—the company “sufficiently alleged facts regarding actual malice.” The judge said Techtronic satisfied that standard by alleging that Bonilla knew or should have known his statements were false, or that he acted with reckless disregard for the truth.

Esper of Harder Stonerock, representing Bonilla, said in an interview that his client has built a reputation by accurately reporting on financial problems at publicly traded companies.

“Mr. Bonilla’s business model is not a secret, he short stocks of the companies he writes about,” Esper said in an interview. “It is a business model that incentivizes truth telling.”

The case isTechtronic Industries Company V. Bonilla, M.D. Fla., 23-cv-01734,