Activist investors often leak their plans to a favored few

Shares of Rino International Corp. sank 28% in the two days after investment firm Muddy Waters LLC put out a report attacking the Chinese company's accounting. Three investment firms were ready for the news. The firms had been tipped beforehand by Muddy Waters about the scathing November 2010 report, according to a person close to the matter, who said one of them made a bet against Rino stock that produced a $1 million-plus profit. "We sold advance copies of our report," said Muddy Waters's founder, Carson Block, adding that since then he has tried to limit advance knowledge of his firm's research.

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