Turning the tables on short sellers
Special Counsel, Brad Thompson
“Stormy weather in Shortville ...”
The tweet above from Tesla founder Elon Musk
must have brought a smile to the faces of CEOs and investors big and small who haven’t fared so well at the hands of short sellers.
Musk trolled the short sellers this month as the electric car maker’s shares surged to a record high.
Tesla has long been targeted by short sellers and Musk was using social media to taunt them as far back as 2013.
Some of the short sellers raised the white flag this year after what analysts described as losses approaching $US2 billion.
For years, CEOs in the US have been dealing with short sellers who use aggressive tactics to try to send shares prices tumbling.
These kind of tactics are now in play in Australia. They include the publication of self-serving documents under the banner of ‘research’ with loose disclaimers in the fine print.
The practice of short selling is not new to the ASX, with investors aiming to profit from a company’s shares going down in price rather than up.
However, the orchestrated release of such material to damage the target company marks a new era.
Critics say it amounts to waiting in the long grass to deliver a king hit, snatching money from the victim while he’s wobbling and running away.
Maybe that’s why Gerry Harvey branded the short sellers targeting Harvey Norman “criminals”, and is hitting back by buying back Harvey Norman stock. In the US, the fight-fire-with-fire approach has worked for some companies. National Beverage Corporation’s share price has almost doubled since it came under attack from a group of short sellers that published discredited and false information in an attempt to smash the share prices.
National Beverage poured scorn on the short sellers in a letter to shareholders
. It also publicised correspondence to the US corporate watchdog on the need to better enforce laws on market manipulation.
The Australian Securities and Investment Commission and the ASX will (hopefully) be taking an interest in the latest developments here and the questions raised.
Media commentators have pointed out that local players must follow ASIC regulations on the standard of financial reports.
However, a short seller in the US can release a self-serving report into an ASX-listed company without holding a financial services licence in Australia.
If it isn’t managed, Australian regulators run the risk of opening the floodgates to international predators who believe they can operate with impunity in markets beyond the US borders, including ours.
*Cannings Purple currently represents Frank Wilson, the founder and former managing director of Quintis.