A short bet from a decade ago finally proves right: Muddy Waters founder says Nidec scandal exposes shortcomings in Japanese corporate governance.

Carson Block, founder of the well-known short-selling firm Muddy Waters, bet against Nidec a decade ago. He says the scandal now engulfing the electric motor maker shows that corporate reform in Japan is far from sufficient. "There are quite a few problematic companies, and in this market, people are not really being held accountable," Block said in an online interview. "There is a serious market failure, and both activist short sellers and the media need to improve transparency." **A short report a decade ago drew almost no attention** Since last year, Nidec has been mired in an accounting scandal and faces the risk of delisting from the Tokyo Stock Exchange after failing to obtain an auditor's opinion on its financial statements. Investigations have revealed widespread fraud at some of Nidec's subsidiaries, nearly a decade after Block's hedge fund Muddy Waters Capital flagged its "aggressive" accounting, "questionable" transactions and corporate governance issues in a 2016 short report. Block said the market's long-standing neglect of Nidec's problems highlights a "collective silence" surrounding the company and the broader Japanese corporate world. He also said Muddy Waters' report drew almost no attention at the time, and the fund closed its position shortly after the short. A Nidec representative declined to comment. **Nidec books US$4 billion writedown; scope of investigation questioned** Block expects further fallout from Nidec's accounting irregularities. He said the company's investigation into its own conduct failed to adequately cover the period around the release of Muddy Waters' report. Nidec recently booked a 632 billion (US$4 billion) writedown for the fiscal year ended March 31, after publishing the results of a third-party investigation that formally covered fiscal 2020 through the first quarter of fiscal 2025. Nidec said in a statement that the investigation also reviewed "earlier periods where it was deemed necessary to analyze the causes, among other circumstances." "The investigation clearly omits several problematic years," Block said. "I think people cannot help but ask whether the severity of Nidec's current problems is fully understood." **Japan's reforms still insufficient; short sellers struggle to gain market traction** So-called activist short sellers like Muddy Waters profit by exposing corporate problems and betting on share price declines. Block said that despite years of corporate governance reforms in Japan aimed at improving efficiency, there is still "a lot of work to do" for activist short sellers. He said some Japanese companies lack transparency, which creates opportunities to expose misconduct. But Block added that the "don't rock the boat" corporate culture in Japan makes it difficult for short sellers to gain market attention. "My confidence that shorting can be effective is very low," he said. Muddy Waters has not published a short report on a Japanese company since shorting biopharmaceutical company PeptiDream in 2019. Block said the fund currently has no plans to make equity bets in Japan but is considering buying credit default swaps (CDS) on Japanese companies as corporates increase borrowing to invest in artificial intelligence. According to a March filing with the US Securities and Exchange Commission, Texas-based Muddy Waters manages about US$576 million in assets. Nidec's shares have fallen more than 30% since the Tokyo Stock Exchange placed the stock on a special watch list in October 2025, and the stock is now trading near its lowest level in a decade.