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A Short and Distort scam involves short selling a stock while smearing a company with rumors to drive the stock's price down.

The term was coined in the period immediately after the collapse of Enron, as a parallel to pump and dump. In a pump and dump, untrue or exaggerated promotion (creating artificial demand) is done in order to sell stock, previously purchased cheaply, at the inflated price. In "short and distort," a stock is sold short, then untrue or exaggerated negative information (creating artificial selling motivation) is disseminated in order to cover a stock, previously sold short at a higher price, at a lower price. The term gained currency in the post-Enron environment.

Because they've lost money recently on bubble stocks and accounting scandals, investors are more receptive to believing there's more bad news ahead. Short-and-distort tactics work best with smaller companies whose stock prices are more volatile. Companies hit by this scam say it's difficult to fight back, given the speed at which rumors can be disseminated online. Short-and-distort tactics work best with smaller companies whose stock prices are more volatile. Companies hit by this scam say it's difficult to fight back, given the speed at which rumors can be disseminated online.

One case of short and distort involved Key West Securities and Anthony Elgindy. Elgindy disseminated a negative report about Saf T Lok while failed to disclose that Key West Securities was a registered market maker and held a proprietary short position in the stock.

In 2006, the Attorney General of Connecticut Richard Blumenthal stated: "There is mounting evidence that some traders--including hedge funds--engage in the practice 'short and distort,' " in comments to the SEC.

References

1. NASD (May 19,2003). "NASD's NAC Bars Tony Elgindy and Expels Key West Securities, Inc. For Manipulative Short Selling Scheme". {{cite web}}: Check date values in: |date= (help)
2. Liz Moyer, Forbes (September 25,2006). "Wall Street Disses Regs". {{cite web}}: Check date values in: |date= (help)

Other Books & Magazine Articles

• Paulos, John Allen (2003). "Chapter 2, Subheading 'Pump and Dump', 'Short and Distort'". A Mathematician Plays the Stock Market. Basic Books. ISBN 978-0465054800. {{cite book}}: Cite has empty unknown parameter: |coauthors= (help)

• Surowiecki, James (August 12, 2002). Short and Distort. The New Yorker. {{cite book}}: Cite has empty unknown parameter: |coauthors= (help)CS1 maint: year (link)

External links

• Wired magazine article on short and distort
• Undisclosed Interests,The American Spectator, Alex Pollock, May 24, 2006
• Connecticut AG comments on Short and Distort

• Stock market
• Financial regulation
• Finance fraud