This is an old revision of this page, as edited by Piperdown (talk | contribs) at 03:19, 16 July 2007 (Added comprehensive article from Investopedia (A Forbes Media Company site) from Rick Wayman). The present address (URL) is a permanent link to this revision, which may differ significantly from the current revision.
Revision as of 03:19, 16 July 2007 by Piperdown (talk | contribs) (Added comprehensive article from Investopedia (A Forbes Media Company site) from Rick Wayman)(diff) ← Previous revision | Latest revision (diff) | Newer revision → (diff) | It has been suggested that this article be merged with short (finance). (Discuss) Proposed since July 2007. |
A Short and Distort scam involves short selling a stock while smearing a company with false 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 carried out to sell stock, previously purchased cheaply, at the inflated price. In "short and distort," a stock is sold short, to profit from declines in share prices. Untrue or exaggerated negative information (creating artificial selling motivation) is disseminated to allow fraudulent profits to occur.
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.
In 2006, the Attorney General of Connecticut Richard Blumenthal told the SEC that there was "mounting evidence that some traders--including hedge funds--engage in the practice 'short and distort,' " in comments to the SEC. In Senate testimony, he said such problems "may be the aberrant exception, a small proportion, not the rule."
References
- New Market Trend: Short, Distort," Wired magazine, June 3, 2002
- Wired magazine, supra.
- Liz Moyer, Forbes (September 25,2006). "Wall Street Disses Regs".
{{cite web}}: Check date values in:|date=(help) - Connecticut AG testimony on hedge fund short selling
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)