Fushi Copperweld Surges; Is Muddy Waters Losing Its Luster?

Shares of Fushi Copperweld

, the micro-cap Chinese copper company, are surging 15% in late trading on volume that's more than 12 times the daily average despite a research report on the company from noted short-selling firm Muddy Waters. In a

Muddy Waters says Fushi Copperweld presents a high risk of fraud, claiming that Chinese media reports have recently highlighted a "fraud school" in China that helps Chinese firms with dubious financials list their shares on U.S. exchanges. Muddy Waters rose to acclaim for unearthing problems at Sino-Forest, a Chinese timber whose shares were once major position for Paulson & Co., the hedge fund managed by the legendary John Paulson. Paulson & Co. reported losses of $468 million in Sino-Forest last year after Muddy Waters said the company overstated its timber holdings. Paulson's loss on Sino-Forest has prompted a class action lawsuit

. Muddy Waters also previously torched Focus Media

, calling the digital media company the "Olympus of China," in reference to the controversial Japanese company that has recently been at the center of allegations of intentionally overpaying for acquisitions. Muddy Waters said that of $1.6 billion paid over its previous 21 deals, Focus Media had written down $1.1 billion of that sum. The stock was slammed but has since rebounded a bit

. As for the case of Fushi Copperweld, Muddy Waters issued a

on the company. The research firm says the company has a factory where it claims 29,000 tons of copper products are produced annually, but the real number could be just 2,250 tons. There is speculation that Muddy Waters shorted shares of Fushi Copperweld from $6 and released its reprot when the stock was around $6. Not to mention, an usual number of April $10 puts were purchased last week. OptionMonster detected the purchase of 3,350 April 10 puts on the Beijing-based wire manufacturer for $3.20. Volume was almost 6 times open interest in the strike, according to the options trading firm. While the Muddy Waters white paper lumped Fushi Copperweld into the same dubious league as RINO International

, a company that was sent to the pink sheets by a Muddy Waters report, investors apparently think the argument is specious, Muddy Waters has lost its touch or a combination of both. With stock trading more than 10% above $6, it seems that this is the rare occasion where the bulls in a Chinese micro-cap are getting the better end of the deal over Muddy Waters.