Sino-Forest Corp, the Hong Kong-based tree-plantation owner which has plunged 85pc in two weeks, lost the support of its biggest shareholder after Paulson & Co sold all its stock.
John Paulson's New York-based hedge fund, which made $15bn (e10.5bn) in 2007 betting against US mortgages, said in a regulatory filing yesterday that it sold all 34.7 million shares of its shares.
Sino-Forest has dropped to C$2.73 (e1.95) from C$18.21 in Canada after Carson Block, a short seller who runs Muddy Waters, said on June 2 that the company lied about its finances.
Mr Paulson made his disclosure less than a week after Sino- Forest chief financial officer David Horsley said in an interview that the hedge-fund manager had been "very supportive, giving us suggestions" on how to deal with Mr Block's allegations.
Sino-Forest shares have lost about C$3.8bn in value since Mr Block released his report.
"Due to the uncertainty over Sino-Forest's public disclosures and financial statements, we have sold our stock and await the results of the independent committee's investigation," Paulson & Co said.
Allen Chan, Sino-Forest's chairman and chief executive officer, has denied the allegations in the Muddy Waters report. He established an independent committee to investigate and appointed PricewaterhouseCoopers to assist.
The company said last week it expected the probe to take at least two to three months.
Mr Paulson lost about 13pc from his largest fund in the first half of June, two investors briefed on the returns said last week. They asked not to be identified because the information was private.
"Mr Paulson is under the limelight on this investment, but any money manager is going to have some losing trades, it's part of life," said Steven Persky of Dalton Investments, a Los Angeles-based fund with $1.3bn in assets.
Whenever there are allegations of mismanagement, "you'll have some very reputable firms which have been taken in because a company doesn't get to that size without serious investors".
John Paulson's New York-based hedge fund made $15bn in 2007 betting against US mortgages